<PAGE>
As filed with the Securities and Exchange Commission
on December 21, 1995
Registration No. 33-89742; 811-8982
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 2 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
(Check appropriate box or boxes)
------------------------
NATIONS FUND PORTFOLIOS, INC.
(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 Nessen, Kamin & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [ ] on __________, pursuant
to Rule 485(b), or to Rule 485(b), or
[ ] 60 days after filing pursuant [ ] on __________, pursuant
to Rule 485(a), or to Rule 485(a).
[ ] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
The Registrant hereby elects to register an indefinite number of shares of its
Common Stock, $.001 par value, under the Securities Act of 1933, pursuant to
Rule 24f-2(a)(1) under the Investment Company Act of 1940, as amended.
This document contains a total of ____ pages. The Exhibit Index begins on page
___.
<PAGE>
EXPLANATORY NOTE
Nations Fund Portfolios, Inc. is filing this Post-Effective Amendment in
order to include financial information for the Trust A Shares, Investor A
Shares, Investor C Shares and Investor N Shares of the Nations Global Government
Income Fund, Nations Emerging Markets Fund and Nations Pacific Growth Fund to
satisfy an undertaking in these Funds' initial Registration Statement to file
unaudited financial statements within four to six months.
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
<S> <C> <C>
1. Cover Page ................................................ Cover Page
2. Synopsis .................................................. Expenses Summary
3. Condensed Financial
Information ................................................ How Performance is Shown
4. General Description of
Registrant ................................................. Cover Page; Objectives; How
Objectives are Pursued; Organization and
History
5. Management of the Fund ..................................... How the Funds are Managed
6. Capital Stock and Other
Securities ................................................. How to Buy Shares; How the Funds
Value Their Shares; How Dividends and
Distributions are Made; Tax Information
7. Purchase of Securities Being
Offered .................................................... Cover Page; How to Buy Shares
8. Redemption or Repurchase ................................... How to Redeem Shares
9. Legal Proceedings .......................................... Inapplicable
Part B
Item No.
10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table of Contents
12. General Information and
History..................................................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing and
Distribution Agreements -- The
Company and its Common Stock
<PAGE>
13. Investment Objectives and
Policies.................................................... Additional Information on Fund
Investments
14. Management of the Registrant................................ Directors and Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous -- Certain Record
Holders
16. Investment Advisory and Other
Services.................................................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing and
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions and Brokerage
-- General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing and
Distribution Agreements -- The
Company and its Common Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
and Redemptions
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing and
Distribution Agreements --
Distributor
<PAGE>
22. Calculation of Performance Data............................. Additional Information on
Performance
23. Financial Statements........................................ Independent Accountants and
Reports
</TABLE>
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
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Trust A Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.00)** 0.01 0.13
Net realized and unrealized gain/(loss) on
investments...................................... (0.12) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.12) (0.29) 0.17
Distributions:
Dividends from net investment income............. N/A N/A (0.13)
Total Distributions.............................. N/A N/A (0.13)
Net asset value, end of period..................... $ 9.88 $ 9.71 $ 10.04
Total return++..................................... (1.20)% (2.90)% 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 14,529 $ 28,727 $ 20,402
Ratio of operating expenses to average net
assets........................................ 1.90%+ 1.70%+ 1.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (0.03)%+ 0.15%+ 5.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Trust A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
<PAGE>
PROSPECTUS
TRUST A SHARES
SEPTEMBER 30, 1995
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
Nations Tax Exempt Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities
Fund
Nations Global Government
Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income
Fund
Nations Intermediate Municipal
Bond Fund
Nations Florida Intermediate Municipal
Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal
Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate
Municipal Bond Fund
Nations North Carolina Municipal Bond
Fund
Nations South Carolina Intermediate
Municipal Bond Fund
Nations South Carolina Municipal Bond
Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal
Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal
Bond Fund
Nations Virginia Municipal Bond Fund
(Nations Fund Logo Appears Here)
Investment Adviser: NationsBank, N.A. (Carolinas)
Distributor: Stephens Inc.
<PAGE>
Prospectus
TRUST A SHARES
SEPTEMBER 30, 1995
This Prospectus describes the forty investment
portfolios listed in the column to the right (each a
"Fund"), of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
one class of shares of each Fund -- Trust A Shares.
The Nations Disciplined Equity Fund was formerly
called "Nations Special Equity Fund."
THE NATIONS PRIME FUND, NATIONS TREASURY FUND,
NATIONS GOVERNMENT MONEY MARKET FUND AND NATIONS TAX
EXEMPT FUND (THE "MONEY MARKET FUNDS") SEEK TO
MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THESE FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Trust A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities Fund
Nations Global Government Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
For purchase, redemption and
performance information
call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo Appears
Here)
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 8
Objectives 29
How Objectives Are Pursued 32
How Performance Is Shown 47
How the Funds Are Managed 49
Organization and History 54
About Your
Investment
How to Buy Shares 56
How to Redeem Shares 56
How the Funds Value Their Shares 57
How Dividends and Distributions Are Made;
Tax Information 57
Appendix A -- Portfolio Securities 60
Appendix B -- Description of Ratings 69
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About the Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Trust A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Government Tax
Nations Prime Nations Money Market Exempt
Fund Treasury Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .14% .17% .16% .17%
All Other Expenses .16% .13% .14% .13%
Total Operating Expenses1 .30% .30% .30% .30%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
NATIONS FUND EQUITY/BALANCED FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Nations Equity Nations Nations Nations
Value Income International Emerging Pacific Growth
Fund Fund Equity Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .75% .70% .90% 1.10% .90%
All Other Expenses .17% .25% .20% .80% .80%
Total Operating Expenses1 .92% .95% 1.10% 1.90% 1.70%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
3
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
Capital Emerging Disciplined Equity Balanced
Growth Growth Equity Index Assets
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .75% .75% .75% .10% .75%
All Other Expenses .17% .20% .25% .30% .20%
Total Operating Expenses1 .92% .95% 1.00% .40% .95%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
NATIONS FUND BOND FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Short- Nations Nations Nations Nations Nations
Intermediate Government Short-Term Nations Strategic Mortgage- Global
Government Securities Income Diversified Fixed Backed Government
Fund Fund Fund Income Fund Income Fund Securities Fund Income Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None
Deferred Sales Load None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .40% .50% .30% .50% .50% .50% .70%
All Other Expenses .18% .30% .22% .32% .17% .20% .60%
Total Operating Expenses1 .58% .80% .52% .82% .67% .70% 1.30%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
NATIONS FUND TAX-EXEMPT BOND FUNDS TRUST A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
Nations Nations
Nations Short-Term Nations Florida Nations
Municipal Municipal Intermediate Intermediate Florida
Income Income Municipal Municipal Municipal
Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .40% .30% .30% .30% .40%
All Other Expenses .25% .25% .25% .25% .25%
Total Operating Expenses1 .65% .55% .55% .55% .65%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
4
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations
Georgia Nations Maryland Nations North Carolina
Intermediate Georgia Intermediate Maryland Intermediate
Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .30% .40% .30% .40% .30%
All Other Expenses .25% .25% .25% .25% .30%
Total Operating Expenses1 .55% .65% .55% .65% .60%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
NATIONS FUND TAX-EXEMPT BOND FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Nations South Nations Nations
North Carolina South Tennessee Nations
Carolina Intermediate Carolina Intermediate Tennessee
Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .40% .30% .40% .30% .40%
All Other Expenses .25% .24% .25% .30% .25%
Total Operating Expenses1 .65% .54% .65% .60% .65%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
NATIONS FUND TAX-EXEMPT BOND FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Texas Nations Virginia Nations
Intermediate Texas Intermediate Virginia
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .30% .40% .40% .40%
All Other Expenses .30% .25% .25% .25%
Total Operating Expenses1 .60% .65% .65% .65%
</TABLE>
1 After any waivers and reimbursements. See page 7 for a discussion of the
actual expenses.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Trust A Shares of
the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Government Nations Nations Nations
Nations Nations Money Tax Nations Equity International
Prime Treasury Market Exempt Value Income Equity
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 3 $ 9 $ 10 $ 11
3 Years $10 $10 $10 $10 $ 29 $ 30 $ 35
5 Years $17 $17 $17 $17 $ 51 $ 53 $ 61
10 Years $38 $38 $38 $38 $113 $117 $134
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
<S> <C> <C>
1 Year $19 $17
3 Years $60 $54
5 Years N/A N/A
10 Years N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Short- Nations
Nations Emerging Disciplined Equity Balanced Intermediate Government
Capital Growth Growth Equity Index Assets Government Securities
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 9 $ 10 $ 10 $ 4 $ 10 $ 6 $ 8
3 Years $ 29 $ 30 $ 32 $13 $ 30 $19 $26
5 Years $ 51 $ 53 $ 55 $22 $ 53 $32 $44
10 Years $113 $117 $122 $51 $117 $73 $99
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Short-Term Diversified
Income Income
Fund Fund
<S> <C> <C>
1 Year $ 5 $ 8
3 Years $17 $ 26
5 Years $29 $ 46
10 Years $65 $101
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Nations Florida
Strategic Mortgage- Global Nations Short-Term Intermediate Intermediate
Fixed Backed Government Municipal Municipal Municipal Municipal
Income Securities Income Income Income Bond Bond
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 7 $ 7 $13 $ 7 $ 6 $ 6 $ 6
3 Years $21 $22 $41 $21 $18 $18 $18
5 Years $37 $39 N/A $36 $31 $31 $31
10 Years $82 $87 N/A $81 $69 $69 $69
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Florida Georgia
Municipal Intermediate
Bond Municipal
Fund Bond Fund
<S> <C> <C>
1 Year $ 7 $ 6
3 Years $21 $18
5 Years $36 $31
10 Years $81 $69
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Nations North Nations South Nations
Nations Maryland Carolina North Carolina South
Georgia Intermediate Nations Intermediate Carolina Intermediate Carolina
Municipal Municipal Maryland Municipal Municipal Municipal Municipal
Bond Bond Municipal Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 7 $ 6 $ 7 $ 6 $ 7 $ 6 $ 7
3 Years $21 $18 $21 $19 $21 $17 $21
5 Years $36 $31 $36 $33 $36 $30 $36
10 Years $81 $69 $81 $75 $81 $68 $81
</TABLE>
<TABLE>
<CAPTION>
Nations
Tennessee Nations
Intermediate Tennessee
Municipal Municipal
Bond Bond
Fund Fund
<S> <C> <C>
1 Year $ 6 $ 7
3 Years $19 $21
5 Years $33 $36
10 Years $75 $81
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Texas Nations Virginia Nations
Intermediate Texas Intermediate Virginia
Municipal Municipal Municipal Municipal
Bond Bond Bond Bond
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 6 $ 7 $ 7 $ 7
3 Years $19 $21 $21 $21
5 Years $33 $36 $36 $36
10 Years $75 $81 $81 $81
</TABLE>
6
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Trust A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How the Funds are Managed."
Absent fee waivers and reimbursements, "Management Fees" and "Total Operating
Expenses" for Trust A Shares of the indicated Fund would have been as follows:
Nations Prime Fund -- .20% and .36%, respectively; Nations Treasury Fund -- .20%
and .33%, respectively; Nations Government Money Market Fund -- .40% and .54%,
respectively; Nations Tax Exempt Fund -- .40% and .53%, respectively; Nations
Value Fund -- .75% and .92%, respectively; Nations Equity Income Fund -- .70%
and .95%, respectively; Nations International Equity Fund -- .90% and 1.10%,
respectively; Nations Emerging Markets Fund -- 1.10% and 1.90%, respectively;
Nations Pacific Growth Fund -- .90% and 1.70%, respectively; Nations Capital
Growth Fund -- .75% and .92%, respectively; Nations Emerging Growth Fund -- .75%
and .95%, respectively; Nations Disciplined Equity Fund -- .75% and 1.00%,
respectively; Nations Equity Index Fund -- .50% and .80%, respectively; Nations
Balanced Assets Fund -- .75% and .95%, respectively; Nations Short-Intermediate
Government Fund -- .60% and .78%, respectively; Nations Government Securities
Fund -- .64% and .94%, respectively; Nations Short-Term Income Fund -- .60% and
.82%, respectively; Nations Diversified Income Fund -- .60% and .92%,
respectively; Nations Strategic Fixed Income Fund -- .60% and .77%,
respectively; Nations Mortgage-Backed Securities Fund -- .60% and .80%,
respectively; Nations Global Government Income Fund -- .70% and 1.30%,
respectively; Nations Municipal Income Fund, Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund -- .60% and .85%, respectively;
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund and Nations Virginia Intermediate Municipal Bond Fund -- .50% and .75%,
respectively; Nations North Carolina Intermediate Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund and Nations Texas Intermediate
Municipal Bond Fund -- .50% and .80%, respectively; and Nations South Carolina
Intermediate Municipal Bond Fund -- .50% and .74%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
7
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of a Fund will receive
unaudited semi-annual reports describing the Fund's investment operations and
annual financial statements audited by the Funds' independent accountant.
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net assets 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average net assets 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.38% 0.37% 0.36% 0.42%
Net investment income per share without waivers and
reimbursements $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED
TRUST A SHARES 5/31/91
<S> <C>
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 574,993
Ratio of operating expenses to average net assets 0.30%
Ratio of net investment income to average net assets 7.47%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.44%
Net investment income per share without waivers and
reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
TRUST A SHARES 5/31/90 5/31/89 5/31/88
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and
reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 5/31/87*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and
reimbursements 0.65%+++
Net investment income per share without waivers and reimbursements $ 0.0247+++
</TABLE>
* The Nations Prime Fund Trust A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
8
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TREASURY FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
TRUST A SHARES 5/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0494) (0.0297) (0.0307) (0.0483)
Distributions from net realized capital gains (0.0000)** -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net assets 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average net assets 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.35% 0.36% 0.36% 0.42%
Net investment income per share without waivers and
reimbursements $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED
TRUST A SHARES 5/31/91
<S> <C>
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distributions from net realized capital gains --
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 955,186
Ratio of operating expenses to average net assets 0.25%
Ratio of net investment income to average net assets 7.04%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.43%
Net investment income per share without waivers and
reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
TRUST A SHARES 5/31/90 5/31/89 5/31/88
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and
reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 5/31/87*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and
reimbursements 0.75%+++
Net investment income per share without waivers and reimbursements $ 0.0222+++
</TABLE>
* The Nations Treasury Fund Trust A Shares commenced operations on December
15, 1986.
** Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
9
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0280 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0280) (0.0375) (0.0294) (0.0358)
Dividends from net realized gains -- (0.0000)# -- --
Total distributions (0.0280) (0.0375) (0.0294) (0.0358)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.83% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 395,770 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net assets 0.30%+ 0.30% 0.30% 0.42%
Ratio of net investment income to average net assets 5.61%+ 3.79% 2.91% 3.55%
Ratio of operating expenses to average net assets
before fee waivers 0.56%+ 0.59% 0.56% 0.58%
Net investment income per share before fee waivers $ 0.0267 $ 0.0347 $ 0.0269 $ 0.0341
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/91*
<S> <C>
Net asset value, beginning of period $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Dividends from net realized gains --
Total distributions (0.0571)
Net asset value, end of period $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 333,979
Ratio of operating expenses to average net assets 0.43%+
Ratio of net investment income to average net assets 5.49%+
Ratio of operating expenses to average net assets
before fee waivers 0.62%+
Net investment income per share before fee waivers $ 0.0551
</TABLE>
* The Nations Government Money Market Fund Trust A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated.
+++ Unaudited.
# Value represents less than $(0.0001) per share.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0181 0.0257 0.0223 0.0267 0.0422 0.0550
Dividends from net
investment income (0.0181) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.82% 2.60% 2.27% 2.70%+++ 4.31%+++ 5.63%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of period
(000's) $ 945,477 $ 820,677 $ 701,403 $ 329,265 $ 168,829 $ 173,834
Ratio of operating expenses
to average net assets 0.30%+ 0.27% 0.23% 0.40% 0.42% 0.40%
Ratio of net investment
income to average net
assets 3.64%+ 2.59% 2.23% 2.65% 4.23% 5.51%
Ratio of operating expenses
to average net assets
before fee waivers. 0.55%+ 0.59% 0.59% 0.57% 0.60% 0.75%
Net investment income per
share before fee waivers $ 0.0169 $ 0.0226 $ 0.0187 $ 0.0250 $ 0.0404 $ 0.0515
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
TRUST A SHARES 11/30/89 11/30/88*
<S> <C> <C>
Net asset value, beginning
of period $ 1.00 $ 1.00
Net investment income 0.0600 0.0350
Dividends from net
investment income (0.0600) (0.0350)
Net asset value, end of
period $ 1.00 $ 1.00
Total return++ 6.17%+++ 3.55%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of period
(000's) $ 145,109 $ 143,245
Ratio of operating expenses
to average net assets 0.40% 0.40%+
Ratio of net investment
income to average net
assets 6.00% 4.97%+
Ratio of operating expenses
to average net assets
before fee waivers. 0.74% 0.75%+
Net investment income per
share before fee waivers $ 0.0566 $ 0.0325
</TABLE>
* The Nations Tax Exempt Fund Trust A Shares commenced operations on March 14,
1988.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
+++ Unaudited.
10
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDTED) 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.14 0.24 0.24 0.28 0.34
Net realized and unrealized
gain/(loss) on investments 2.12 (0.23) 1.38 1.57 1.47
Net increase/(decrease) in net
assets resulting from
investment operations 2.26 0.01 1.62 1.85 1.81
Distributions:
Dividends from net investment
income (0.14) (0.23) (0.24) (0.27) (0.36)
Distributions from net
realized capital gains (0.67) (0.54) (0.09) (0.29) --
Total distributions (0.81) (0.77) (0.33) (0.56) (0.36)
Net asset value, end of period $ 14.43 $ 12.98 $ 13.74 $ 12.45 $ 11.16
Total return++ 18.64% (0.08)% 13.19% 17.00%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 872,044 $ 799,743 $ 707,185 $ 282,138 $ 82,360
Ratio of operating expenses to
average net assets 0.91%+ 0.93% 0.96% 0.90% 0.53%
Ratio of net investment income
to average net assets 2.17%+ 1.85% 1.98% 2.31% 3.33%
Portfolio turnover rate 36% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets before
fee waivers and/or expense
reimbursements 0.91%+ 0.93% 0.97% 0.97% 0.99%
Net investment income per
share before fee waivers
and/or expense
reimbursements $ 0.14 $ 0.24 $ 0.24 $ 0.27 $ 0.30
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
TRUST A SHARES 11/30/90 11/30/89*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.04 $ 10.00
Net investment income 0.35 0.08
Net realized and unrealized
gain/(loss) on investments (0.36) (0.04)
Net increase/(decrease) in net
assets resulting from
investment operations (0.01) 0.04
Distributions:
Dividends from net investment
income (0.32) --
Distributions from net
realized capital gains -- --
Total distributions (0.32) --
Net asset value, end of period $ 9.71 $ 10.04
Total return++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 19,769 $ 5,161
Ratio of operating expenses to
average net assets 0.21% 0.49%+
Ratio of net investment income
to average net assets 4.19% 4.41%+
Portfolio turnover rate 24% --
Ratio of operating expenses to
average net assets before
fee waivers and/or expense
reimbursements 1.11% 1.41%+
Net investment income per
share before fee waivers
and/or expense
reimbursements $ 0.26 $ 0.06
</TABLE>
* The Nations Value Fund Trust A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
11
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.42 0.38 0.37 0.34
Net realized and unrealized gain on investments 1.11 0.22 1.08 1.25
Net increase in net assets resulting from investment
operations 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital gains (0.73) (0.81) (0.45) (0.07)
Total distributions (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net assets 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to average net assets 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 158% 116% 55% 84%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.93% 0.95% 1.04% 2.21%
Net investment income per share without waivers and
reimbursements $ 0.42 $ 0.38 $ 0.36 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 5/31/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain on investments 0.14
Net increase in net assets resulting from investment
operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total distributions 0.00
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net assets 1.12%+
Ratio of net investment income to average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net assets without
waivers and reimbursements 1.80%+
Net investment income per share without waivers and
reimbursements $ (0.06)
</TABLE>
* The Nations Equity Income Fund Trust A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
TRUST A SHARES 05/31/95# 5/31/94# 5/31/93#
Operating performance:
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments (0.20) 1.44 0.21
Net increase/(decrease) in net assets resulting from investment operations (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.03) (0.05) (0.08)
Distributions from net realized capital gains (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains (0.10) -- --
Total distributions (0.25) (0.07) (0.10)
Net asset value, end of period $ 11.75 $ 12.06 $ 10.60
Total return++ (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net assets 1.17% 0.75% 1.03%
Portfolio turnover rate 92% 39% 41%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers and reimbursements $ 0.14 $ 0.08 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 5/31/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net assets resulting from investment operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.43%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.03
</TABLE>
* The Nations International Equity Fund Trust A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
12
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.06 0.09 0.09
Net realized and unrealized gain on investments 1.37 0.14 0.42
Net increase in net assets resulting from investment operations 1.43 0.23 0.51
Distributions:
Dividends from net investment income (0.05) (0.08) (0.10)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.31) (0.08) (0.11)
Net asset value, end of period $ 12.35 $ 11.23 $ 11.08
Total return++ 13.19% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 783,103 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.91%+ 0.90% 0.80%
Ratio of net investment income/(loss) to average net assets 1.03%+ 0.85% 0.84%
Portfolio turnover rate 43% 56% 81%
Ratio of operating expenses to average net assets before fee waivers 0.97%+ 0.91% 0.89%
Net investment income/(loss) per share before fee waivers $ 0.06 $ 0.09 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66##
Net increase in net assets resulting from investment operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before fee waivers 1.05%+
Net investment income/(loss) per share before fee waivers $ 0.01
</TABLE>
* The Nations Capital Growth Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Value represents less than $0.01 per share.
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94# 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.41 $ 10.87 $ 10.00
Net investment income/(loss) 0.01 (0.03) (0.01)
Net realized and unrealized gain on investments 0.97 0.71 0.89
Net increase in net assets resulting from investment operations 0.98 0.68 0.88
Distributions:
Distributions from net realized gains (0.40) (0.14) (0.01)
Total distributions (0.40) (0.14) (0.01)
Net asset value, end of period $ 11.99 $ 11.41 $ 10.87
Total return++ 9.11% 6.26% 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 210,203 $ 182,459 $ 121,281 +
Ratio of operating expenses to average net assets 0.97%+ 1.01% 0.80%%+
Ratio of net investment income/(loss) to average net assets 0.10%+ (0.29)% (0.15)
Portfolio turnover rate 69% 129% 159%+
Ratio of operating expenses to average net assets before fee waivers 0.98%+ 1.01% 1.01%
Net investment income/(loss) per share before fee waivers $ 0.00(a) $ (0.03) $ (0.03)
</TABLE>
* The Nations Emerging Growth Fund Trust A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method.
(a) Value represents less than $0.01 per share.
13
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED)# 11/30/94* 04/29/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.09 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 1.35 (0.23)## 2.66
Net increase/(decrease) in net assets resulting from
investment operations 1.44 (0.22) 2.61
Distributions:
Dividends from net investment income (0.02) (0.01) --
Distributions from net realized gains -- -- (2.95)
Return of capital -- (0.00)(a) --
Total distributions (0.02) (0.01) (2.95)
Net asset value, end of period $ 14.50 $ 13.08 $ 13.31
Total return++ 11.01% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,077 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 0.94%+ 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net assets 1.37%+ 0.12%+ (0.60)%+
Portfolio turnover rate 98% 177% 475%
Ratio of operating expenses to average net assets before fee
waivers 1.65%+ 1.56%+ 1.53%+
Net investment income/(loss) per share before fee waivers $ 0.04 $ (0.03) $ (0.08)
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 04/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net assets resulting from
investment operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized gains (0.06)
Return of capital --
Total distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets before fee
waivers 1.31%+
Net investment income/(loss) per share before fee waivers $ (0.03)
</TABLE>
* The period for the Nations Disciplined Equity Fund Trust A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Trust A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
14
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
05/31/95 11/30/94*
TRUST A SHARES (UNAUDITED)
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 10.00
Net investment income 0.08 0.24
Net realized and unrealized gain/(loss) on investments 1.64 (0.21)
Net increase in net assets resulting from investment operations 1.72 0.03
Distributions:
Dividends from net investment income (0.07) (0.19)
Distributions from net realized gains (0.08) --
Total distributions (0.15) (0.19)
Net asset value, end of period $ 11.41 $ 9.84
Total return++ 19.01% 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 129,706 $ 123,147
Ratio of operating expenses to average net assets 0.35%+ 0.35%+
Ratio of net investment income to average net assets 2.68%+ 2.64%+
Portfolio turnover rate 7% 14%
Ratio of operating expenses to average net assets before fee waivers 0.75%+ 0.79%+
Net investment income per share before fee waivers $ 0.07 $ 0.20
</TABLE>
* The Nations Equity Index Fund Trust A Shares commenced operations on December
16, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.44 $ 10.87 $ 10.24
Net investment income 0.17 0.25 0.29
Net realized and unrealized gain/(loss) on investments 1.13 (0.43) 0.64
Net increase/(decrease) in net assets resulting from investment
operations 1.30 (0.18) 0.93
Distributions:
Dividends from net investment income (0.14) (0.25) (0.30)
Distributions from net realized gains (0.02) -- --
Total distributions (0.16) (0.25) (0.30)
Net asset value, end of period $ 11.58 $ 10.44 $ 10.87
Total return++ 12.59% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 157,581 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 0.99%+ 0.98% 0.90%
Ratio of net investment income to average net assets 3.11%+ 2.31% 2.82%
Portfolio turnover rate 101% 156% 50%
Ratio of operating expenses to average net assets before fee waivers 0.99%+ 0.99% 0.97%
Net investment income per share before fee waivers $ 0.17 $ 0.25 $ 0.29
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18##
Net increase/(decrease) in net assets resulting from investment
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets before fee waivers 1.05%+
Net investment income per share before fee waivers $ 0.05
</TABLE>
* The Nations Balanced Assets Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
15
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of year $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.12 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on investments 0.16 (0.33) 0.14 (0.01)
Net increase/(decrease) in net assets resulting from
investment operations 0.28 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.12) (0.23) (0.23) (0.28)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.02) (0.02) --
Total distributions (0.12) (0.25) (0.25) (0.28)
Net asset value, end of year $ 4.09 $ 3.93 $ 4.28 $ 4.16
Total return++ 7.25% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 411,934 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.58%+ 0.59% 0.55% 0.37%
Ratio of net investment income to average net assets 6.07%+ 5.76% 5.40% 6.48%
Portfolio turnover rate 130% 133% 92% 25%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.79%+ 0.80% 0.79% 0.77%
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.11 $ 0.22 $ 0.22 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of year $ 4.00
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments 0.17
Net increase/(decrease) in net assets resulting from
investment operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of year $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.82%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.00
</TABLE>
* The Nations Short-Intermediate Government Fund Trust A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
16
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95# 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.64 0.64 0.71 0.74
Net realized and unrealized gain/(loss) on investments 0.06 (0.61) 0.13 0.37
Net increase/(decrease) in net assets resulting from
investment operations 0.70 0.03 0.84 1.11
Distributions:
Dividends from net investment income (0.60) (0.58) (0.70) (0.77)
Dividends in excess of net investment income -- (0.02) -- --
Distributions in excess of net realized capital gains -- (0.05) (0.04) (0.03)
Distributions from capital (0.04) (0.04) -- --
Total distributions (0.64) (0.69) (0.74) (0.80)
Net asset value, end of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 7.55% 0.06% 8.37% 11.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,909 $ 44,536 $ 40,472 $ 42,256
Ratio of operating expenses to average net assets 0.76% 0.73% 0.85% 1.06%
Ratio of net investment income to average net assets 6.69% 6.08% 6.67% 7.15%
Portfolio turnover rate 413% 56% 103% 130%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.94% 0.94% 1.00% 1.72%
Net investment income per share without waivers and
reimbursements $ 0.62 $ 0.61 $ 0.60 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from
investment operations 0.12
Distributions:
Dividends from net investment income (0.07)
Dividends in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 10.05
Total return++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10,047
Ratio of operating expenses to average net assets 1.10%+
Ratio of net investment income to average net assets 7.18%+
Portfolio turnover rate 5%
Ratio of operating expenses to average net assets without
waivers and reimbursements 1.69% +++
Net investment income per share without waivers and
reimbursements $ 0.09+++
</TABLE>
* The Nations Government Securities Fund Trust A Shares commenced operations
on April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED)# 11/30/94# 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 10.01 $ 9.75
Net investment income 0.30 0.50 0.53
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment operations 0.58 (0.01) 0.79
Distributions:
Dividends from net investment income (0.30) (0.48) (0.53)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.30) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01
Total return++ 6.25% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 169,616 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.51 %+ 0.50 % 0.37%
Ratio of net investment income to average net assets 6.35 %+ 5.23 % 5.27%
Portfolio turnover rate 145 % 293 % 121%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.86 %+ 0.82 % 0.79%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.29 $ 0.47 $ 0.48
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net assets resulting from investment operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.90%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.08
</TABLE>
* The Nations Short-Term Income Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
17
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED YEAR
TRUST A SHARES (UNAUDITED) 11/30/94# ENDED 11/30/93#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.97
Net investment income 0.38 0.74 0.78
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.91
Net increase/(decrease) in net assets resulting from investment operations 1.24 (0.32) 1.69
Distributions:
Dividends from net investment income (0.38) (0.74) (0.78)
Distributions in excess of net investment income -- (0.00)## --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.38) (0.89) (0.78)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88
Total return++ 13.05% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,598 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.74% 0.55%
Ratio of net investment income to average net assets 7.53%+ 7.31% 7.02%
Portfolio turnover rate 67% 144% 86%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.93%+ 0.95% 0.95%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.37 $ 0.72 $ 0.70
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.85%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.05
</TABLE>
* The Nations Diversified Income Fund Trust A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94
Net investment income 0.29 0.53 0.56
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment operations 0.99 (0.36) 1.18
Distributions:
Dividends from net investment income (0.29) (0.51) (0.56)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.29) (0.87) (0.57)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55
Total return++ 10.85% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 608,173 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.68%+ 0.68% 0.61%
Ratio of net investment income to average net assets 6.18%+ 5.43% 5.40%
Portfolio turnover rate 155% 307% 161%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.79%+ 0.76% 0.77%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.29 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.86%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.04
</TABLE>
* The Nations Strategic Fixed Income Fund Trust A Shares commenced operations
on October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
18
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MORTGAGE-BACKED SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.97 $ 9.95 $ 9.97
Net investment income 0.31 0.65 0.68
Net realized and unrealized gain/(loss) on investments 0.59 (0.97) (0.02)
Net increase/(decrease) in net assets resulting from investment operations 0.90 (0.32) 0.66
Distributions:
Dividends from net investment income (0.32) (0.57) (0.68)
Distributions from capital -- (0.09) --
Total distributions (0.32) (0.66) (0.68)
Net asset value, end of period $ 9.55 $ 8.97 $ 9.95
Total return++ 10.14% (3.41)% 6.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 58,588 $ 61,946 $ 72,596
Ratio of operating expenses to average net assets 0.71%+ 0.75% 0.67%
Ratio of net investment income to average net assets 6.86%+ 6.81% 6.70%
Portfolio turnover rate 199% 207% 167%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.81%+ 0.86% 0.86%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.30 $ 0.64 $ 0.66
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions from capital --
Total distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.35%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 63,583
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 8.16%+
Portfolio turnover rate 4%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 0.85%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.06
</TABLE>
* The Nations Mortgage-Backed Securities Fund Trust A Shares commenced
operations on October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.64 $ 11.33 $ 10.65 $ 10.25
Net investment income 0.30 0.57 0.59 0.59
Net realized and unrealized gain/(loss) on investments 1.14 (1.44) 0.72 0.41
Net increase/(decrease) in net assets resulting from
investment operations 1.44 (0.87) 1.31 1.00
Distributions:
Dividends from net investment income (0.30) (0.57) (0.59) (0.59)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.25) (0.04) (0.01)
Total distributions (0.30) (0.82) (0.63) (0.60)
Net asset value, end of period $ 10.78 $ 9.64 $ 11.33 $ 10.65
Total return++ 15.08% (8.17)% 12.54% 9.97%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 61,785 $ 59,279 $ 88,386 $ 62,387
Ratio of operating expenses to average net assets 0.61%+ 0.61% 0.52% 0.43%
Ratio of operating expenses to average net asset including
interest expense -- 0.62% -- --
Ratio of net investment income to average net assets 5.81%+ 5.42% 5.24% 5.51%
Portfolio turnover rate 24% 63% 48% 19%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.90%+ 0.90% 0.84% 0.90%
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.28 $ 0.54 $ 0.55 $ 0.54
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.52
Net realized and unrealized gain/(loss) on investments 0.25
Net increase/(decrease) in net assets resulting from
investment operations 0.77
Distributions:
Dividends from net investment income (0.52)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.52)
Net asset value, end of period $ 10.25
Total return++ 7.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,631
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net asset including
interest expense --
Ratio of net investment income to average net assets 6.07%+
Portfolio turnover rate 54%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.88%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.45
</TABLE>
* The Nations Municipal Income Fund Trust A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
19
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.69 $ 9.96 $ 10.00
Net investment income 0.26 0.38 0.05
Net realized and unrealized gain/(loss) on investments 0.26 (0.27) (0.04)
Net increase in net assets resulting from investment operations 0.52 0.11 0.01
Distributions:
Dividends from net investment income (0.26) (0.38) (0.05)
Distributions from net realized capital gains -- (0.00)# --
Total distributions (0.26) (0.38) (0.05)
Net asset value, end of period $ 9.95 $ 9.69 $ 9.96
Total return++ 5.01% 1.09% 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 46,773 $ 33,488 $ 5,999
Ratio of operating expenses to average net assets 0.41%+ 0.34% 0.09%+
Ratio of net investment income to average net assets 4.50%+ 3.83% 3.16%+
Portfolio turnover rate 33% 57% 45%
Ratio of operating expenses to average net assets
before fee waivers and/or expense reimbursements 0.97%+ 0.80% 1.04%+
Net investment income per share before fee waivers
and/or expense reimbursements $ 0.23 $ 0.33 $ 0.04
</TABLE>
* The Nations Short-Term Municipal Income Fund Trust A Shares commenced
operations on October 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.24 $ 10.11 $ 10.00
Net investment income 0.24 0.45 0.14
Net realized and unrealized gain/(loss) on investments 0.74 (0.86) 0.11
Net increase/(decrease) in net assets resulting from investment operations 0.98 (0.41) 0.25
Distributions:
Dividends from net investment income (0.24) (0.45) (0.14)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) --
Total distributions (0.24) (0.46) (0.14)
Net asset value, end of period $ 9.98 $ 9.24 $ 10.11
Total return++ 10.74% (4.25)% 2.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 67,929 $ 38,055 $ 28,335
Ratio of operating expenses to average net assets 0.41%+ 0.35% 0.24%+
Ratio of net investment income to average net assets 5.03%+ 4.59% 4.07%+
Portfolio turnover rate 20% 51% 23%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursement 0.79%+ 0.88% 0.96%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.23 $ 0.40 $ 0.12
</TABLE>
* The Nations Intermediate Municipal Bond Fund Trust A Shares commenced
operations on July 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
20
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.61 $ 10.50 $ 10.00
Net investment income 0.24 0.45 0.44
Net realized and unrealized gain/(loss) on investments 0.82 (0.88) 0.50
Net increase/(decrease) in net assets resulting from investment operations 1.06 (0.43) 0.94
Distributions:
Dividends from net investment income (0.24) (0.45) (0.44)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized gains -- (0.01) --
Total distributions (0.24) (0.46) (0.44)
Net asset value, end of period $ 10.43 $ 9.61 $ 10.50
Total return++ 11.15% (4.26)% 9.50%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 43,868 $ 42,717 $ 41,489
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.44%+
Ratio of operating expenses to average net assets including interest expense 0.56%+ -- --
Ratio of net investment income to average net assets 4.81%+ 4.44% 4.28%+
Portfolio turnover rate 17% 34% 15%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 0.77%+ 0.76% 0.80%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.43 $ 0.40
</TABLE>
* The Nations Florida Intermediate Municipal Bond Fund Trust A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.40 $ 9.93
Net investment income 0.26 0.49
Net realized and unrealized gain/(loss) on investments 1.11 (1.53)
Net increase/(decrease) in net assets resulting from investment operations 1.37 (1.04)
Dividends from net investment income (0.26) (0.49)
Net asset value, end of period $ 9.51 $ 8.40
Total return++ 16.45% (10.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,149 $ 4,258
Ratio of operating expenses to average net assets 0.33%+ 0.21%+
Ratio of net investment income to average net assets 5.67%+ 5.55%+
Portfolio turnover rate 9% 46%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.95%+ 0.91%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.43
</TABLE>
* The Nations Florida Municipal Bond Fund Trust A Shares commenced operations
on December 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
21
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.82 $ 10.82 $ 10.29
Net investment income 0.25 0.49 0.50
Net realized and unrealized gain/(loss) on investments 0.78 (0.98) 0.56
Net increase/(decrease) in net assets resulting from investment
operations 1.03 (0.49) 1.06
Distributions:
Dividends from net investment income (0.25) (0.49) (0.50)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.02) (0.03)
Total distributions (0.25) (0.51) (0.53)
Net asset value, end of period $ 10.60 $ 9.82 $ 10.82
Total return++ 10.57% (4.70)% 10.43%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 35,966 $ 33,111 $ 30,738
Ratio of operating expenses to average net assets 0.55%+ 0.54% 0.46%
Ratio of operating expenses to average net assets including interest
expense -- 0.55% --
Ratio of net investment income to average net assets 4.85%+ 4.74% 4.57%
Portfolio turnover rate 13% 22% 6%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.75%+ 0.75% 0.77%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.24 $ 0.47 $ 0.46
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net assets resulting from investment
operations 0.70
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.41)
Net asset value, end of period $ 10.29
Total return++ 7.07%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,584
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including interest
expense --
Ratio of net investment income to average net assets 5.25%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.77%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.37
</TABLE>
* The Nations Georgia Intermediate Municipal Bond Fund Trust A Shares
commenced operations on March 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.38 $ 10.02
Net investment income 0.26 0.46
Net realized and unrealized gain/(loss) on investments 1.09 (1.64)
Net increase/(decrease) in net assets resulting from investment operations 1.35 (1.18)
Dividends from net investment income (0.26) (0.46)
Net asset value, end of period $ 9.47 $ 8.38
Total return++ 16.24% (12.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 598 $ 232
Ratio of operating expenses to average net assets 0.34%+ 0.21%+
Ratio of net investment income to average net assets 5.68%+ 5.60%+
Portfolio turnover rate 17% 35%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.99%+ 1.04%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.39
</TABLE>
* The Nations Georgia Municipal Bond Fund Trust A Shares commenced operations
on January 13, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
22
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.00 $ 11.09 $ 10.72 $ 10.44 $ 10.21
Net investment income 0.25 0.50 0.52 0.55 0.60
Net realized and unrealized gain/(loss) on
investments 0.79 (0.99) 0.44 0.31 0.24
Net increase/(decrease) in net assets
resulting from investment operations 1.04 (0.49) 0.96 0.86 0.84
Distributions:
Dividends from net investment income (0.25) (0.50) (0.52) (0.55) (0.60)
Distributions from net realized capital
gains (0.03) (0.10) (0.07) (0.03) (0.01)
Distributions in excess of net realized
capital gains -- (0.00)# -- -- --
Total distributions (0.28) (0.60) (0.59) (0.58) (0.61)
Net asset value, end of period $ 10.76 $ 10.00 $ 11.09 $ 10.72 $ 10.44
Total return++ 10.57% (4.64)% 9.11% 8.41%+++ 8.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 60,431 $ 61,349 $ 61,552 $ 48,192 $ 31,088
Ratio of operating expenses to average net
assets 0.55%+ 0.53% 0.49% 0.39% 0.20%
Ratio of net investment income to average
net assets 4.89%+ 4.73% 4.73% 5.12% 5.76%
Portfolio turnover rate 7% 22% 26% 38% 26%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.77%+ 0.73% 0.73% 0.78% 0.71%
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.24 $ 0.48 $ 0.49 $ 0.51 $ 0.55
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/90*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.16
Net realized and unrealized gain/(loss) on
investments 0.21
Net increase/(decrease) in net assets
resulting from investment operations 0.37
Distributions:
Dividends from net investment income (0.16)
Distributions from net realized capital
gains --
Distributions in excess of net realized
capital gains --
Total distributions (0.16)
Net asset value, end of period $ 10.21
Total return++ 3.72%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 11,087
Ratio of operating expenses to average net
assets 0.21%+
Ratio of net investment income to average
net assets 6.12%+
Portfolio turnover rate 49%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.84%+
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.13
</TABLE>
* The Nations Maryland Intermediate Municipal Bond Fund Trust A Shares
commenced operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.37 $ 8.90
Net investment income 0.25 0.11
Net realized and unrealized gain/(loss) on investments 1.02 (0.53)
Net increase/(decrease) in net assets resulting from investment operations 1.27 (0.42)
Dividends from net investment income (0.25) (0.11)
Net asset value, end of period $ 9.39 $ 8.37
Total return++ 15.29% (4.89)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,891 $ 39
Ratio of operating expenses to average net assets 0.34%+ 0.21%+
Ratio of net investment income to average net assets 5.43%+ 5.48%+
Portfolio turnover rate 5% 39%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 1.02%+ 1.30%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.22 $ 0.09
</TABLE>
* The Nations Maryland Municipal Bond Fund Trust A Shares commenced operations
on September 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period and does not
reflect the deduction of any applicable sales charges.
23
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.53 $ 10.46 $ 10.00
Net investment income 0.23 0.44 0.43
Net realized and unrealized gain/(loss) on investments 0.81 (0.88) 0.46
Net increase/(decrease) in net assets resulting from investment operations 1.04 (0.44) 0.89
Distributions:
Dividends from net investment income (0.23) (0.44) (0.43)
Distributions from net realized capital gains (0.01) (0.05) --
Total distributions (0.24) (0.49) (0.43)
Net asset value, end of period $ 10.33 $ 9.53 $ 10.46
Total return++ 10.98% (4.34)% 9.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,538 $ 14,148 $ 11,814
Ratio of operating expenses to average net assets 0.56%+ 0.55% 0.42%+
Ratio of net investment income to average net assets 4.57%+ 4.38% 4.23%+
Portfolio turnover rate 36% 37% 29%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 0.82%+ 0.82% 0.85%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.22 $ 0.42 $ 0.39
</TABLE>
* The Nations North Carolina Intermediate Municipal Bond Fund Trust A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 8.36 $ 10.06
Net investment income 0.26 0.45
Net realized and unrealized gain/(loss) on investments 1.11 (1.70)
Net increase/(decrease) in net assets resulting from investment operations 1.37 (1.25)
Dividends from net investment income (0.26) (0.45)
Net asset value, end of period $ 9.47 $ 8.36
Total return++ 16.50% (12.65)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 962 $ 531
Ratio of operating expenses to average net assets 0.31%+ 0.21%+
Ratio of net investment income to average net assets 5.65%+ 5.53%+
Portfolio turnover rate 20% 29%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.93%+ 0.92%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.40
</TABLE>
* The Nations North Carolina Municipal Bond Fund Trust A Shares commenced
operations on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
24
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 10.61 $ 10.18
Net investment income 0.25 0.50 0.50
Net realized and unrealized gain/(loss) on investments 0.74 (0.84) 0.43
Net increase/(decrease) in net assets resulting from investment
operations 0.99 (0.34) 0.93
Distributions:
Dividends from net investment income (0.25) (0.50) (0.50)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) --
Total distributions (0.25) (0.51) (0.50)
Net asset value, end of period $ 10.50 $ 9.76 $ 10.61
Total return++ 10.30% (3.37)% 9.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,222 $ 49,030 $ 56,995
Ratio of operating expenses to average net assets 0.55%+ 0.54% 0.45%
Ratio of operating expenses to average net assets including
interest expense 0.56%+ -- --
Ratio of net investment income to average net assets 5.03%+ 4.82% 4.68%
Portfolio turnover rate 6% 30% 11%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.76%+ 0.75% 0.75%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.24 $ 0.48 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments 0.18
Net increase/(decrease) in net assets resulting from investment
operations 0.65
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.47)
Net asset value, end of period $ 10.18
Total return++ 6.62%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,535
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including
interest expense --
Ratio of net investment income to average net assets 4.11%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 0.74%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.42
</TABLE>
* The Nations South Carolina Intermediate Municipal Bond Fund Trust A Shares
commenced operations on January 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
05/31/95 11/30/94*
TRUST A SHARES (UNAUDITED)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 8.65 $ 10.02
Net investment income 0.27 0.48
Net realized and unrealized gain/(loss) on investments 1.08 (1.37)
Net increase/(decrease) in net assets resulting from investment operations 1.35 (0.89)
Dividends from net investment income (0.27) (0.48)
Net asset value, end of period $ 9.73 $ 8.65
Total return++ 15.71% (9.12)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,614 $ 400
Ratio of operating expenses to average net assets 0.34%+ 0.21%+
Ratio of net investment income to average net assets 5.68%+ 5.48%+
Portfolio turnover rate 5% 14%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.99%+ 1.12%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.24 $ 0.41
</TABLE>
* The Nations South Carolina Municipal Bond Fund Trust A Shares commenced
operations on December 27, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
25
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.30 $ 10.18
Net investment income 0.23 0.45
Net realized and unrealized gain/(loss) on investments 0.72 (0.87)
Net increase/(decrease) in net assets resulting from investment operations 0.95 (0.42)
Distributions:
Dividends from net investment income (0.23) (0.45)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized capital gains -- (0.01)
Total distributions (0.23) (0.46)
Net asset value, end of period $ 10.02 $ 9.30
Total return++ 10.34% (4.24)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,815 $ 4,116
Ratio of operating expenses to average net assets 0.56%+ 0.52%
Ratio of operating expenses including interest expense -- 0.53%
Ratio of net investment income to average net assets 4.80%+ 4.56%
Portfolio turnover rate 17% 41%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 0.87%+ 0.89%
Net investment income per share before fee waivers and/or expense reimbursements $ 0.22 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.29
Net realized and unrealized gain/(loss) on investments 0.12
Net increase/(decrease) in net assets resulting from investment operations 0.41
Distributions:
Dividends from net investment income (0.29)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.29)
Net asset value, end of period $ 10.18
Total return++ 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,123
Ratio of operating expenses to average net assets 0.27%+
Ratio of operating expenses including interest expense --
Ratio of net investment income to average net assets 4.31%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 0.94%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.24
</TABLE>
* The Nations Tennessee Intermediate Municipal Bond Fund Trust A Shares
commenced operations on April 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
05/31/95 11/30/94*
TRUST A SHARES (UNAUDITED)
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.58 $ 9.59
Net investment income 0.26 0.39
Net realized and unrealized gain/(loss) on investments 1.05 (1.01)
Net increase/(decrease) in net assets resulting from investment operations 1.31 (0.62)
Dividends from net investment income (0.26) (0.39)
Net asset value, end of period $ 9.63 $ 8.58
Total return++ 15.47% (6.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 270 $ 311
Ratio of operating expenses to average net assets 0.34%+ 0.21%+
Ratio of net investment income to average net assets 5.72%+ 5.56%+
Portfolio turnover rate 30% 38%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 1.10%+ 1.20%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.32
</TABLE>
* The Nations Tennessee Municipal Bond Fund Trust A Shares commenced
operations on March 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
26
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.53 $ 10.35 $ 10.00
Net investment income 0.23 0.44 0.41
Net realized and unrealized gain/(loss) on investments 0.65 (0.79) 0.35
Net increase/(decrease) in net assets resulting from investment operations 0.88 (0.35) 0.76
Distributions:
Dividends from net investment income (0.23) (0.44) (0.41)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.03) --
Total distributions (0.23) (0.47) (0.41)
Net asset value, end of period $ 10.18 $ 9.53 $ 10.35
Total return++ 9.35% (3.48)% 7.72%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 22,956 $ 24,066 $ 31,875
Ratio of operating expenses to average net assets 0.56%+ 0.55% 0.44%+
Ratio of net investment income to average net assets 4.72%+ 4.40% 4.43%+
Portfolio turnover rate 38% 61% 63%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 0.80%+ 0.78% 0.82%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.22 $ 0.42 $ 0.38
</TABLE>
* The Nations Texas Intermediate Municipal Bond Fund Trust A Shares commenced
operations on January 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.39 $ 10.01
Net investment income 0.26 0.42
Net realized and unrealized gain/(loss) on investments 1.05 (1.62)
Net increase/(decrease) in net assets resulting from investment operations 1.31 (1.20)
Dividends from net investment income (0.26) (0.42)
Net asset value, end of period $ 9.44 $ 8.39
Total return++ 15.76% (12.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,271 $ 2,285
Ratio of operating expenses to average net assets 0.34%+ 0.22%+
Ratio of net investment income to average net assets 5.73%+ 5.52%+
Portfolio turnover rate 35% 107%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.99%+ 1.06%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.23 $ 0.35
</TABLE>
* The Nations Texas Municipal Bond Fund Trust A Shares commenced operations on
February 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
27
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.25 0.50 0.48 0.54 0.58
Net realized and unrealized
gain/(loss) on investments 0.73 (0.96) 0.42 0.29 0.21
Net increase/(decrease) in net
assets resulting from
investment operations 0.98 (0.46) 0.90 0.83 0.79
Distributions:
Dividends from net investment
income (0.25) (0.50) (0.48) (0.54) (0.58)
Distributions from net
realized capital gains -- (0.09) (0.02) (0.04) (0.01)
Distributions in excess of net
realized capital gains -- (0.00)# -- -- --
Total distributions (0.25) (0.59) (0.50) (0.58) (0.59)
Net asset value, end of period $ 10.67 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 10.03% (4.35)% 9.08% 8.28%+++ 8.04%+++
Ratios to average net assets/
supplemental data:
Net assets, end of period (in
000's) $ 162,341 $ 167,405 $ 193,084 $ 157,773 $ 119,757
Ratio of operating expenses to
average net assets 0.62%+ 0.61% 0.57% 0.56% 0.45%
Ratio of net investment income
to average net assets 4.94%+ 4.76% 4.80% 5.17% 5.67%
Portfolio turnover rate 10% 14% 26% 13% 24%
Ratio of operating expenses to
average net assets before
fee waivers and/or expense
reimbursements 0.82%+ 0.73% 0.69% 0.68% 0.73%
Net investment income per
share before fee waivers
and/or expense
reimbursements $ 0.24 $ 0.49 $ 0.47 $ 0.53 $ 0.55
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
TRUST A SHARES 11/30/90 11/30/89*
<S> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.08 $ 10.00
Net investment income 0.61 0.12
Net realized and unrealized
gain/(loss) on investments 0.11 0.03
Net increase/(decrease) in net
assets resulting from
investment operations 0.72 0.15
Distributions:
Dividends from net investment
income (0.66) (0.07)
Distributions from net
realized capital gains -- --
Distributions in excess of net
realized capital gains -- --
Total distributions (0.66) (0.07)
Net asset value, end of period $ 10.14 $ 10.08
Total return++ 7.41%+++ 1.46%+++
Ratios to average net assets/
supplemental data:
Net assets, end of period (in
000's) $ 75,962 $ 46,560
Ratio of operating expenses to
average net assets 0.26% 0.16%+
Ratio of net investment income
to average net assets 6.09% 6.09%+
Portfolio turnover rate 19% 12%
Ratio of operating expenses to
average net assets before
fee waivers and/or expense
reimbursements 0.80% 0.81%+
Net investment income per
share before fee waivers
and/or expense
reimbursements $ 0.55 $ 0.08
</TABLE>
* The Nations Virginia Intermediate Municipal Bond Fund Trust A Shares
commenced operations on September 20, 1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
28
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.29 $ 10.00
Net investment income 0.26 0.45
Net realized and unrealized gain/(loss) on investments 1.07 (1.71)
Net increase/(decrease) in net assets resulting from investment operations 1.33 (1.26)
Dividends from net investment income (0.26) (0.45)
Net asset value, end of period $ 9.36 $ 8.29
Total return++ 16.17% (12.86)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,364 $ 432
Ratio of operating expenses to average net assets 0.34%+ 0.21%+
Ratio of net investment income to average net assets 5.71%+ 5.52%+
Portfolio turnover rate 0% 61%
Ratio of operating expenses to average net assets before fee waivers and/or expense reimbursements 0.98%+ 0.99%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.24 $ 0.38
</TABLE>
* The Nations Virginia Municipal Bond Fund Trust A Shares commenced operations
on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund, described below, endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: The Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: The Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: The Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: The Nations Tax Exempt Fund's investment objective is
to seek as high a level of current interest income exempt from Federal income
taxes as is consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which NationsBank believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
29
<PAGE>
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of NationsBank, have
above average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by NationsBank to have the potential for
significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: The investment objective of the Nations Equity Index
Fund is to seek investment results that correspond, before fees and expenses, to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index").(1)
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Nations Equity Index Fund.
three major asset groups: common stocks, fixed income securities, and cash
equivalents.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS MORTGAGE-BACKED SECURITIES FUND: The Nations Mortgage-Backed Securities
Fund's investment objective is to seek as high a level of total investment
return as is consistent with prudent investment risk, by investing primarily in
mortgage-backed securities.
30
<PAGE>
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: The investment objective of Nations
Municipal Income Fund and Nations Short-Term Municipal Income Fund is to seek a
high level of current interest income that is exempt from Federal income taxes.
Such Funds invest primarily in investment grade obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia, and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from Federal income tax ("Municipal Securities").
The Nations Intermediate Municipal Bond Fund's investment objective is to seek
higher than money market yields by investing primarily in intermediate-term,
investment grade Municipal Securities which make interest payments that are
exempt from Federal income taxes.
During normal market conditions, at least 80% of the total assets of Nations
Municipal Income Fund and Nations Intermediate Municipal Bond Fund will be
invested in Municipal Securities with remaining maturities of 40 years or less.
The average dollar weighted effective maturity of the Nations Municipal Income
Fund will be at least five years, except during temporary defensive periods.
During normal market conditions, the average dollar weighted effective maturity
of Nations Short-Term Municipal Income Fund will be three years or less. The
average dollar weighted effective maturity of Nations Intermediate Municipal
Bond Fund will be between three to ten years, except during temporary defensive
periods.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND, NATIONS GEORGIA INTERMEDIATE
MUNICIPAL BOND FUND, NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND, NATIONS
NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND, NATIONS SOUTH CAROLINA
INTERMEDIATE MUNICIPAL BOND FUND, NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND
FUND, NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND AND NATIONS VIRGINIA
INTERMEDIATE MUNICIPAL BOND FUND, SOMETIMES COLLECTIVELY REFERRED TO AS THE
"STATE INTERMEDIATE MUNICIPAL BOND FUNDS," AND NATIONS FLORIDA MUNICIPAL BOND
FUND, NATIONS GEORGIA MUNICIPAL BOND FUND, NATIONS MARYLAND MUNICIPAL BOND FUND,
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND, NATIONS SOUTH CAROLINA MUNICIPAL
BOND FUND, NATIONS TENNESSEE MUNICIPAL BOND FUND, NATIONS TEXAS MUNICIPAL BOND
FUND AND NATIONS VIRGINIA MUNICIPAL BOND FUND, SOMETIMES COLLECTIVELY REFERRED
TO AS THE "STATE MUNICIPAL BOND FUNDS": As described below, each of these Funds
seeks to provide investors with as high a level of income exempt from Federal
income taxes as is consistent with prudent investing, while seeking preservation
of shareholders' capital. Each Fund also seeks to provide a maximum level of
income which is exempt from the personal income taxes, if any, for resident
shareholders of the Fund's respective state.
The Nations Florida Intermediate Municipal Bond Fund's and Nations Florida
Municipal Bond Fund's investment objective is to seek a high level of current
interest income exempt from Federal income and the Florida state intangibles
tax, consistent with relative stability of principal. The Nations Georgia
Intermediate Municipal Bond Fund's and Nations Georgia Municipal Bond Fund's
investment objective is to seek a high level of current interest income exempt
from Federal and Georgia state income taxes and state intangibles taxes,
consistent with relative stability of principal. The Nations Maryland
Intermediate Municipal Bond Fund's and Nations Maryland Municipal Bond Fund's
investment objective is to seek a high level of current interest income exempt
from both Federal and Maryland state income taxes, consistent with relative
stability of principal. The Nations North Carolina Intermediate Municipal Bond
Fund's and Nations North Carolina Municipal Bond Fund's investment objective is
to seek a high level of current interest income exempt from Federal and North
Carolina state income taxes and state intangibles taxes, consistent with the
relative stability of principal. The Nations South Carolina Intermediate
Municipal Bond Fund's and Nations South Carolina Municipal Bond Fund's
investment objective is to seek a high level of current interest income exempt
from both Federal and South Carolina state income taxes, consistent with
relative stability of principal. The Nations Tennessee Intermediate Municipal
Bond Fund's and Nations Tennessee Municipal Bond Fund's investment objective is
to seek a high level of current interest income exempt from both Federal and
Tennessee state income taxes, consistent with relative stability of principal.
The Nations Texas Intermediate Municipal Bond Fund's and Nations Texas Municipal
Bond Fund's investment objective is to seek a high level of current interest
income exempt from Federal income tax, consistent with the relative stability of
principal. The Nations Virginia Intermediate Municipal Bond Fund's and Nations
Virginia Municipal Bond Fund's investment objective is to seek a high level of
current interest income exempt from both Federal and Virginia state income
taxes, consistent with relative stability of principal.
31
<PAGE>
Each of the above State Intermediate Municipal Bond Funds and State Municipal
Bond Funds operates as a non-diversified fund (except to the extent
diversification is required for Federal income tax purposes). For these tax
purposes, with respect to 50% of the value of its assets, each Fund invests no
more than 5% of such assets in securities of a single issuer (except the U.S.
Government or its agencies or instrumentalities). Each Fund may not invest more
than 25% of its assets in the securities of a single issuer. The average dollar
weighted effective maturity of each of the State Intermediate Municipal Bond
Funds will be between three and ten years, except during temporary defensive
periods. The average dollar weighted effective maturity of the State Municipal
Bond Funds will be at least five years, except during temporary defensive
periods. The value of the Funds' portfolios can be expected to vary inversely
with changes in prevailing interest rates.
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: 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 or instrumentalities ("U.S.
Government Obligations"), bank and commercial instruments that may be available
in the money markets, high quality short-term taxable obligations issued by
state and local governments, their agencies and instrumentalities and repurchase
agreements relating to U.S. Government Obligations. The Fund also may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may invest in guaranteed investment contracts and in
instruments issued by trusts, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by the trust. In addition, the Fund may lend its portfolio
securities to qualified institutional investors. For more information concerning
these instruments, see "Appendix A."
NATIONS TREASURY FUND: The Fund invests in U.S. Treasury Obligations and
repurchase agreements secured by such obligations. The Fund also may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: The Fund invests in U.S. Government
Obligations and repurchase agreements relating to such obligations. The Fund
also may purchase securities issued by other investment companies, consistent
with the Fund's investment objective and policies, and may engage in reverse
repurchase agreements. The Fund also may lend its portfolio securities to
qualified institutional investors. For more information concerning these
instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: The Fund invests in a diversified portfolio of
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from regular Federal
income tax ("Municipal Securities"). The Fund will not knowingly purchase
securities, the interest on which is subject to such tax. A portion of the
Fund's assets, however, may be invested in private activity bonds, the interest
on which may be treated as a specific tax preference item under the Federal
alternative minimum tax. See "How Dividends and Distributions are Made; Tax
Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch"), or "Aa" or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "Duff 1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in the case
of notes; rated "Duff 1" or higher by D&P, "F-1" or higher by Fitch, or "VMIG-1"
by Moody's in the case of variable rate demand notes; or rated "Duff 1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by NationsBank
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
32
<PAGE>
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of NationsBank, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. For more information concerning the Fund's investments, see "Appendix
A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by NationsBank. NationsBank closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by NationsBank to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. NationsBank also analyzes key financial ratios that measure the growth,
profitability, and leverage of such issuers that it believes will help maintain
a portfolio of above-average quality.
Stocks are selected from this universe based on NationsBank's judgment of their
total return potential. NationsBank buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by
NationsBank in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. NationsBank believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. NationsBank will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in U.S. Government Obligations, and
investment grade bonds and other debt securities of domestic companies.
Obligations with the lowest investment grade rating (e.g. rated "BBB" by 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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, NationsBank believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the S&P 500 Index, a broad-based
and widely used index of common stock prices. Second, dividends are normally a
more stable and predictable source of return than capital appreciation. While
the price of a company's stock generally increases or decreases in response to
short-term earnings and market fluctuations, its dividends are generally less
volatile. Finally, NationsBank believes that stocks which distribute a high
level of current income tend to have less price volatility than those which pay
below average dividends.
33
<PAGE>
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by NationsBank. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by NationsBank). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) 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. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by NationsBank.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
NationsBank believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest 10% or more
of its total assets in debt obligations of foreign issuers and stocks of foreign
corporations. The Fund will treat foreign securities as illiquid unless there is
an active and substantial secondary market for such securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that
NationsBank and the Fund's sub-investment adviser believe have potential for
growth of capital. The Fund may invest up to 35% of its assets in any other type
of security including: convertible securities; preferred stocks; bonds, notes
and other debt securities (including Eurodollar securities); and obligations of
domestic or foreign governments and their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined
34
<PAGE>
by NationsBank and/or the Fund's sub-investment adviser to be comparable in
quality to instruments so rated. Obligations with the lowest investment grade
rating (e.g., rated "Baa" by Moody's or "BBB" by S&P) 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. See "Appendix B"
for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund," below. When allocating investments among individual countries,
NationsBank and/or the Fund's sub-investment adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. NationsBank and the Fund's sub-investment adviser
seek to identify and invest in those emerging markets that have a relatively low
gross national product per capita, compared to the world's major economies, and
which exhibit potential for rapid economic growth. NationsBank and the Fund's
sub-investment adviser believe that investment in equity securities of emerging
market issuers offers significant potential for long-term capital appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and Far East include Australia, Hong Kong, India, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by NationsBank and/or
the Fund's sub-investment adviser to be comparable in quality to instruments so
rated. Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these ratings
designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund," below. When allocating investments among individual countries,
NationsBank and/or the Fund's sub-investment adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships. The Fund may invest in ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
35
<PAGE>
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above average market performance. Through intensive
research, visits to many companies each year and efficient response to changing
market conditions, NationsBank seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by NationsBank. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and NationsBank will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, NationsBank will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For more information concerning these
instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if
36
<PAGE>
unexpected company developments adversely affect the stock prices. To help
reduce risk, the Fund is diversified and typically invests in 75 to 100
companies which represent a broad range of industries and sectors, both in the
United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that NationsBank, as
investment adviser, believes are likely to experience significant increases in
earnings. By pursuing this investment philosophy, the Fund seeks to provide
investors with long-term capital appreciation which exceeds that of the S&P 500
Index.
In selecting stocks for purchase by the Fund, NationsBank utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. NationsBank believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. NationsBank also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, 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 will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
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 a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
NationsBank). Obligations rated in the lowest of the top four investment grade
rating categories 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.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index,
NationsBank will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
NationsBank generally will seek to match the composition of the S&P 500 Index as
much as possible, but may not always invest the Fund's portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, NationsBank
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. NationsBank may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
Under normal conditions, NationsBank will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If NationsBank believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term
37
<PAGE>
debt securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. government securities and
repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
ABOUT THE INDEX. The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The 500 securities, most of which trade on the New York Stock Exchange,
represented, as of February 28, 1995, approximately 70% of the market value of
all U.S. common stocks. Each stock in the S&P 500 Index is weighted by its
market value. Because of the market-value weighting, the 50 largest companies in
the S&P 500 Index currently account for approximately 47% of the Index.
Typically, companies included in the S&P 500 Index are the largest and most
dominant firms in their respective industries. As of February 28, 1995, the five
largest companies in the Index were: General Electric (2.6%), Exxon Corporation
(2.2%), American Telephone & Telegraph (2.2%), Coca-Cola (2.0%) and Royal
Dutch/Shell (1.7%). The largest industry categories were telephone companies
(8.2%), pharmaceuticals (5.8%), financial institutions (5.4%), retail (5.1%) and
producer goods (5.0%).
GENERAL: Each Equity 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
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, NationsBank will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, NationsBank will evaluate current economic
and financial market conditions (both domestically and internationally), current
interest rate trends, earnings and dividend prospects for common stocks, and
overall financial market stability. In general, NationsBank believes that common
stocks typically offer the best opportunity for long-term capital appreciation,
and that high quality companies with above average earnings growth and return on
equity offer the best growth prospects among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet NationsBank's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA
or BankWatch, or, if unrated, determined by NationsBank to be comparable in
quality to instruments so rated. Obligations with the lowest investment grade
rating (e.g. rated "BBB" by 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 obliga-
38
<PAGE>
tions. See "Appendix B" for a description of these ratings designations.
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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired. Under normal circumstances, at least 25% of the total value of the
Fund's assets will be invested in fixed income securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defense measure if market
conditions warrant. For additional information concerning these instruments, see
"Appendix A."
The Fund also 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 portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund also may invest in restricted, private placement and other illiquid
securities, and also may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies. See
"Appendix A" below for additional information concerning the investment
practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in U.S. Government
Obligations and repurchase agreements relating to such obligations. U.S.
Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include U.S. Treasury
Obligations, which differ only in their interest rates, maturities and times of
issuance. U.S. Government Obligations also include obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, such as
direct pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, such as obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as obligations of
the Federal National Mortgage Association ("FNMA"). For a more detailed
description of the investment practices of this Fund, see "Appendix A -- U.S.
Government Obligations" and "Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in NationsBank's opinion, existing
circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, Nations
Short-Term Income Fund may invest in a broad range of debt obligations such as
U.S. Government Obligations; corporate debt obligations, including bonds, notes
and debentures rated
39
<PAGE>
investment grade by one of the six NRSROs, or, if not so rated, determined by
NationsBank to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments (see "Appendix A -- Foreign Securities");
and mortgage-related securities of governmental issuers, including GNMA, FNMA
and the Federal Home Loan Mortgage Corporation ("FHLMC"), or of private issuers,
including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs," real estate investment trust securities or
mortgage-backed bonds; other Asset-Backed Securities rated by one of the six
NRSROs, or, if not so rated, determined by NationsBank to be of comparable
quality to instruments so rated. (For more information concerning Asset Backed
Securities, including Mortgage-Backed Securities, see "Appendix A -- Asset
Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by 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.
NationsBank will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, prevailing
market or economic circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by NationsBank to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") In pursuing its investment objective, the Fund also may invest in
dividend-paying convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by NationsBank to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by 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.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by NationsBank to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
40
<PAGE>
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by NationsBank to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in NationsBank's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates. See "Appendix A" below for additional information
concerning the investment practices of this Fund.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income 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 six NRSROs, or if not so
rated, determined by NationsBank to be of comparable quality to instruments so
rated; U.S. Government obligations; dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments (see
"Appendix A -- Foreign Securities"); mortgage-backed securities of governmental
issuers, including GNMA, FNMA and FHLMC, or of private issuers, including
mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by NationsBank to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") Pursuant to its investment objective, the Fund also may invest in
dividend paying preferred and common stock.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (e.g. rated "BBB" by 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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its assets in securities of foreign issuers. The value of
the Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS MORTGAGE-BACKED SECURITIES FUND: In pursuing its investment objective,
the Nations Mortgage-Backed Securities Fund may invest in a broad range of debt
obligations such as: obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; GNMA, FHLMC and FNMA mortgage pass-through
securities and collateralized mortgage obligations, other mortgage-backed
securities, and other asset backed securities; and corporate debt. (For more
information concerning Asset Backed Securities, including Mortgage-Backed
Securities, see "Appendix A -- Asset Backed Securities.") Share price
fluctuation is expected to be greater than in funds holding shorter-term
securities.
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in Mortgage-Backed Securities. Most obligations acquired by
the Fund will be issued by companies or governmental entities located within the
United States. Debt obligations acquired by the Fund will, at the time of
purchase, be within the three highest quality ratings of at least one of the six
NRSROs or, if unrated, determined by NationsBank to be comparable in quality.
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.
41
<PAGE>
NationsBank will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in repurchase agreements, commercial paper, bankers'
acceptances, certificates of deposit, time deposits, when-issued and delayed
delivery securities and firm commitment agreements. Except as otherwise
indicated in this Prospectus, these investments may be in such proportions as,
in NationsBank's opinion, existing circumstances warrant. The value of the
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund," below. Because the Fund intends to invest a large portion of its
assets in foreign Government Securities, the Fund is a "non-diversified"
investment company for purposes of the Investment Company Act of 1940 (the "1940
Act"). The Fund may invest in securities of issuers located in any region or
country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with NationsBank's and/or the Fund's
sub-investment adviser's assessment of the relative yield and appreciation of
such securities. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by NationsBank and/or the Fund's
sub-investment adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated A or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by NationsBank and/or the Fund's sub-investment adviser. The
Fund also may invest in securities rated "Baa" by Moody's or "BBB" by S & P, but
does not, as a general matter, intend to invest more than 10% of its total
assets in such securities. 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. NationsBank and/or the Fund's
sub-investment adviser will consider such event in determining whether the Fund
should continue to hold the obligation. In no event will the Fund hold more than
5% of its total net assets in securities rated below investment grade. See
"Appendix B" below for a description of these rating designations. NationsBank
and the Fund's sub-investment adviser expect that the Fund's dollar-weighted
average maturity will not be greater than fifteen years under normal market
conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Under normal market conditions, the
Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund and
Nations Intermediate Municipal Bond Fund will invest at least 65% of the total
value of their assets in Municipal Securities which will be rated investment
grade at the time of purchase by at least one of the following: D&P, Fitch, S&P,
Moody's, IBCA or BankWatch or, if unrated, determined by NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired by a Fund. Obligations rated in the
42
<PAGE>
lowest of the top four investment grade rating categories (e.g. rated "BBB" by
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 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 a Fund. NationsBank will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
Up to 35% of the assets of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund and Nations Intermediate Municipal Bond Fund may be
invested in lower-quality Municipal Securities rated "B" or better by Moody's or
S&P, or if not so rated, determined by NationsBank to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment and assurance of interest and principal payment over any long period
of time may be small. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
During temporary defensive periods, the Funds may invest in short-term taxable
obligations in such proportions as, in the opinion of NationsBank, prevailing
market or economic conditions warrant. Taxable obligations that may be acquired
by a Fund include short-term U.S. Government obligations; repurchase agreements;
and short-term debt securities. Under normal market conditions, each Fund's
investments in taxable obligations and private activity bonds (see "Appendix
A -- Municipal Securities"), the interest on which may be treated as a specific
tax preference item under the Federal alternative minimum tax, will not exceed
20% of its total assets at the time of purchase. The Funds may hold uninvested
cash reserves pending investment or during defensive periods. The value of a
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. For additional information concerning the Funds' investment
practices, see "Appendix A."
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 65% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in municipal bonds, and substantially all of each Fund's assets will
be invested in debt instruments issued by or on behalf of the pertinent state
and its political subdivisions, agencies, instrumentalities and authorities
("Municipal Securities"). Dividends paid by each of these Funds which are
derived from interest attributable to tax-exempt obligations of the pertinent
state and that state's political subdivisions, agencies, instrumentalities and
authorities, as well as certain other governmental issuers such as Puerto Rico,
will be exempt from regular Federal income tax and (with the exception of Texas
and Florida) the income tax of the pertinent state. Texas and Florida do not
impose a state income tax; however, Florida, Georgia and North Carolina do
impose a state intangibles tax. Dividends derived from interest on obligations
of other governmental issuers will be exempt from regular Federal income tax,
but generally will be subject to state income tax (with the exception of Texas
and Florida). (See "How Dividends and Distributions are Made; Tax Information.")
During normal market conditions and as a matter of fundamental investment
policy, each of these Funds will invest at least 80% of its total net assets in
obligations the interest on which will be exempt from regular Federal income tax
and (with the exception of Texas and Florida) the income tax of the pertinent
state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch or, if unrated,
determined by NationsBank to be of comparable quality at the time of purchase to
rated obligations that may be acquired by the Funds. Obligations rated in the
lowest of the top four investment grade rating categories (e.g. rated "BBB" by
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 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 a Fund. NationsBank will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" below for a description of these rating
designations.
The Funds also may invest in Municipal Securities with stated maturities of less
than one year, which are determined to present minimal credit risks and which at
the time of purchase are considered to be of high quality, issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia, and their political subdivisions, agencies, instrumentalities and
authorities, and the interest on which, in the opinion of counsel to the issuer
or bond counsel, is exempt from regular Federal income tax.
During temporary defensive periods, the Funds may invest in short-term taxable
obligations in such proportions as, in the opinion of NationsBank, prevailing
market or economic conditions warrant. Taxable obligations
43
<PAGE>
that may be acquired by the Funds include short-term U.S. Government
obligations; repurchase agreements; options; and futures contracts. Under normal
market conditions, each Fund's investments in taxable obligations and private
activity bonds (see "Appendix A -- Municipal Securities"), the interest on which
may be treated as a specific tax preference item under the Federal alternative
minimum tax, will not exceed 20% of its total assets at the time of purchase.
The Funds also may hold uninvested cash reserves pending investment or during
defensive periods. For additional information concerning the Funds' investment
practices, see "Appendix A."
GENERAL: The Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income
Fund, Nations Strategic Fixed Income Fund, Nations Mortgage-Backed Securities
Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund,
Nations Intermediate Municipal Bond Fund, Nations State Intermediate Municipal
Bond Funds and Nations State Municipal Bond 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 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. Each of those Funds also
may lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. The
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Mortgage-Backed Securities Fund may
engage in reverse repurchase agreements and dollar roll transactions. The
Nations Global Government Income Fund may invest in money market instruments,
forward foreign currency exchange contracts, futures and options and other
instruments. Additionally, each Bond Fund may purchase securities issued by
other investment companies, consistent with the Fund's investment objective and
policies.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH
FUND AND NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and
consider carefully the special risks involved in foreign investing. In addition,
each Fund presents unique risks that investors should be aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and Far
East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to
par-
44
<PAGE>
ticipate in foreign markets, their expenses, including custodial fees, are also
higher than the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. While it is not possible to predict exactly
annual portfolio turnover rates, it is expected that under normal market
conditions, annual portfolio turnover rates will not exceed 75% for Nations
Emerging Markets Fund and Nations Pacific Growth Fund and 175% for Nations
Global Government Income Fund. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the other Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although NationsBank and Nations Gartmore Investment
Management ("Nations Gartmore"), the sub-investment adviser for the Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund and Nations Global Government Income Fund, will seek to achieve the
investment objective of each Fund, there is no assurance that they will be able
to do so. No single Fund should be considered, by itself, to provide a complete
investment program for any investor. Investments in a Fund are not insured
against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities 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.
Since each of the State Intermediate Municipal Bond Funds and State Municipal
Bond Funds invests primarily in securities issued by entities located in a
single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund 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 (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. 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
45
<PAGE>
part of a public offering or privately placed), may enter into repurchase
agreements and may lend portfolio securities in accordance with its investment
policies.
Nations Prime Fund, Nations Treasury Fund, Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced Assets
Fund, Nations Short-Intermediate Government Fund, Nations Government Securities
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Mortgage-Backed Securities Fund, Nations
Intermediate Municipal Bond Fund, Nations Municipal Income Fund and Nations
Short-Term Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The Nations Global Government Income Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
In addition, as a matter of non-fundamental policy, the Nations 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.
Also, as a matter of fundamental policy, except during defensive periods, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
invest at least 80% of their respective total net assets in Municipal Securities
the interest on which is exempt from Federal income taxes and the pertinent
state's income taxes (with the exception of Texas and Florida). Similarly, as a
matter of fundamental policy, except during defensive periods, the Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund and Nations
Intermediate Municipal Bond Fund will invest at least 80% of their respective
total net assets in Municipal Securities the interest on which is exempt from
Federal income taxes. For purposes of these fundamental policies, private
activity bonds are included in the term "Municipal Securities" only if the
interest paid thereon is exempt from Federal income tax and not treated as a
specific tax preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. 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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
In order for the Money Market Funds to value their investments on the basis of
amortized cost, investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. These include
maturity, quality and diversification requirements. Maturity is limited to a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar-denominated instruments
determined to present minimal credit risks and that at the time of acquisition
are rated in the top two rating categories by the required number of NRSROs (at
least two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a Money Market Fund
(except the Nations Tax Exempt Fund) may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer or invest more than
5% of its assets in securities (and no more than 1% in any one issuer) that have
not been rated in the highest category by the required number of NRSROs or, if
unrated, are described in (i) or (ii) above. Securities issued by the U.S.
Government, its agencies, authorities or instrumentalities, and
fully-collateralized repurchase agreements secured by such obligations, are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Money Market Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Money
Market Fund's own restrictions will govern.
46
<PAGE>
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares and the Nations Tax Exempt Fund
also may advertise the tax-equivalent yield of a class of shares. YIELD,
EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a
class of shares in a Fund refers to the income generated by an investment in
such class over a seven-day period identified in the advertisement. This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares in the Fund is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" of each class of shares in the
Nations Tax Exempt Fund shows the level of taxable yield needed to produce an
after-tax equivalent to such class's tax-free yield. This is done by increasing
the class's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds also may advertise the tax-equivalent yield of a class of
shares. TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" of a class of shares of Non-Money Market Fund may be calculated
on an average annual total return basis or an aggregate total return basis.
Average annual total return refers to the average annual compounded rates of
return over one-, five-, and ten-year periods or the life of the Fund (as stated
in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
assuming the reinvestment of all dividend and capital gains distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the reinvestment of all
dividends and capital gains distributions. Total return may also be presented
for other periods.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by the Gartmore Group, as defined below. The performance data
for these accounts is deemed relevant because the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite
have investment objectives, policies and restrictions that are substantially
similar to those of the Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. There is
substantial continuity between the portfolio managers of the Gartmore Group who
were responsible for managing those accounts and the portfolio managers of
Nations Gartmore who are responsible for managing the Nations Pacific Growth
Fund, Nations Emerging Markets Fund and Nations Global Government Income Fund,
respectively. THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT
NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF NATIONSBANK, NATIONS
GARTMORE INVESTMENT MANAGEMENT OR THE FUNDS.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
through
PACIFIC EX-JAPAN COMPOSITE March 31, 1995*
<S> <C>
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1,
1988 22.20%
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
Annual Total Returns*
1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
10.70% 56.10% (1.50%) 20.30% 21.10% 106.90% (15.10%)
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
through
EMERGING MARKETS COMPOSITE March 31, 1995*
<S> <C>
One Year (24.40%)
Since Inception on January 1,
1993 9.60%
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Annual
Total
Returns*
1993 1994
<S> <C>
73.90% (20.20%)
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
GLOBAL GOVERNMENT BOND EX-U.K. through
COMPOSITE* March 31, 1995**
<S> <C>
One Year 7.90%
Three Year 9.40%
Since Inception on September 1,
1990 11.40%
</TABLE>
<TABLE>
<CAPTION>
Annual Total Returns**
1991 1992 1993 1994
<S> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J. P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
NATIONS INTERNATIONAL EQUITY through
FUND March 31, 1995
<S> <C>
One Year 1.22%
Three Year 6.98%
Since Inception on December 2,
1991 5.30%
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
Annual Total Returns
1992 1993 1994
<S> <C> <C>
(8.57%) 27.21% 2.60%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
The "tax-equivalent yield" of the Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds also
may be quoted from time to time, which shows the level of taxable yield needed
to produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Trust A Shares, the Money Market Funds offer Trust B, Investor A,
Investor B, Investor C and Investor D Shares. In addition to Trust A Shares, the
Non-Money Market Funds offer Trust B, Investor A, Investor C and Investor N
Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, loads and other expenses, which may cause the performance of a
class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of a Fund's shares. Any
fees charged by an institution directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your Institution, as defined below.
48
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAI contains the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. Although Nations Portfolios, as
a new registrant, does not have an operating history, NationsBank has
significant experience managing mutual funds.
Nations Gartmore, with principal offices at One NationsBank Plaza, Charlotte,
North Carolina 28255, serves as sub-investment adviser to Nations International
Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund pursuant to a sub-advisory agreement.
Nations Gartmore is a joint venture structured as a general partnership between
NB Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK based
international fund management group of companies (the "Gartmore Group"). Banque
Indosuez S.A., a leading French bank, owns 75% of the equity of Gartmore plc.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and advisory
services to pension funds, unit trusts, offshore funds and investment funds. As
of December 31, 1994 the Gartmore Group had over $30 billion in assets under
management. Although Nations Gartmore is newly formed with no experience
managing mutual funds, many of its professionals have, in their capacity as
employees of the Gartmore Group, managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, NationsBank (and/or Nations
Gartmore) formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. With respect to the Non-Money Market Funds and the Nations Tax Exempt
Fund, NationsBank (and/or Nations Gartmore) is authorized to allocate purchase
and sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with NationsBank (and/or Nations Gartmore) or which have sold shares
in such Funds, if NationsBank (and/or Nations Gartmore) believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank or Banque Indosuez
S.A. has a lending relationship. For the services provided and expenses assumed
pursuant to various Advisory Agreements, NationsBank is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rates of: 0.25% of
the first $250 million of the combined average daily net assets of both Nations
Prime Fund and Nations Treasury Fund, plus 0.20% of the combined average daily
net assets of such Funds in excess of $250 million; 0.40% of the average daily
net assets of each of Nations Government Money Market Fund and Nations Tax
Exempt Fund; 0.50% of the average daily net assets of each of the Nations Equity
Index Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund and the State Intermediate Municipal Bond Funds; 0.60% of
the average daily net assets of each of the Nations Short-Intermediate
Government Fund, Nations Short-Term Income Fund, Nations Diversified Income
Fund, Nations Strategic Fixed Income Fund, Nations Mortgage-Backed Securities
Fund, Nations Municipal Income Fund and the State Municipal Bond Funds; 0.75% of
the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and
Nations Balanced
49
<PAGE>
Assets Fund; 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; 0.75% of the
first $100 million of the Nations Equity Income Fund's average daily net assets,
plus 0.70% of the Fund's average daily net assets in excess of $100 million and
up to $250 million, plus 0.60% of the Fund's average daily net assets in excess
of $250 million; 0.90% of the average daily net assets of Nations International
Equity Fund; 1.10% of the average daily net assets of Nations Emerging Markets
Fund; 0.90% of the average daily net assets of Nations Pacific Growth Fund; and
0.70% of the average daily net assets of Nations Global Government Income Fund.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NationsBank sub-advisory fees,
computed daily and paid monthly, at the annual rate of 0.70% of Nations
International Equity Fund's average daily net assets; 0.85% of Nations Emerging
Markets Fund's daily net assets; 0.70% of Pacific Growth Fund's daily net assets
and 0.54% of Nations Global Government Income Fund's daily net assets. Although
the advisory fees for Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations Global Government Income Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund and Nations
Balanced Assets Fund are higher than the advisory fees paid by most other mutual
funds, Nations Fund believes that the fees are comparable to the advisory fees
paid by many other funds with similar investment objectives and policies.
From time to time, NationsBank and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank advisory fees at the indicated rate of the following
Funds' average daily net assets: Nations Government Money Market Fund -- 0.16%;
Nations Tax Exempt Fund -- 0.09%; Nations Value Fund -- 0.74%; Nations Capital
Growth Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined
Equity Fund -- 0.05%; Nations Equity Index Fund -- 0.10%; Nations Balanced
Assets Fund -- 0.75%; Nations Short-Intermediate Government Fund -- 0.40%;
Nations Short-Term Income Fund -- 0.29%; Nations Diversified Income Fund --
0.40%; Nations Strategic Fixed Income Fund -- 0.52%; Nations Mortgage-Backed
Securities Fund -- 0.50%; Nations Municipal Income Fund -- 0.32%; Nations
Short-Term Municipal Income Fund -- 0.10%; Nations Intermediate Municipal Bond
Fund -- 0%; Nations Florida Intermediate Municipal Bond Fund -- 0.30%; Nations
Florida Municipal Bond Fund -- 0%; Nations Georgia Intermediate Municipal Bond
Fund -- 0.30%; Nations Georgia Municipal Bond Fund -- 0%; Nations Maryland
Intermediate Municipal Bond Fund -- 0.30%; Nations Maryland Municipal Bond
Fund -- 0%; Nations North Carolina Intermediate Municipal Bond Fund -- 0.24%;
Nations North Carolina Municipal Bond Fund -- 0%; Nations South Carolina
Intermediate Municipal Bond Fund -- 0.30%; Nations South Carolina Municipal Bond
Fund -- 0%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.15%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.28%; Nations Texas Municipal Bond Fund -- 0%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.38%; and Nations Virginia Municipal Bond
Fund -- 0%. For the fiscal year ended November 30, 1994, after waivers, Nations
Disciplined Equity Fund paid its prior sub-adviser fees at the rate of 0.21% of
the Fund's average daily net assets.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank advisory fees at the indicated rate of the following Funds' average
daily net assets: Nations Prime Fund -- 0.13%; Nations Treasury Fund -- 0.16%;
Nations Government Securities Fund -- 0.46%; Nations Equity Income
Fund -- 0.68%; and Nations International Equity Fund -- 0.40%. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid the prior
sub-adviser for Nations International Equity Fund 0.38% of the Fund's average
daily net assets.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global
50
<PAGE>
Fund Manager in August 1993 and was recently appointed Head of the International
and Global Team. Prior to that, Mr. Watson was employed by James Capel Fund
Managers where he acted as a Director, Global Fund Manager and Client Services
Manager for various international clients. From 1980 to 1987 he was associated
with Capel-Cure Myers in their portfolio Management Division and prior to that
he was with the investment division at Samuel Montagu. Mr. Watson is currently a
member of the Securities Institute.
Andrew Fleming is the principal portfolio manager of the Nations Emerging
Markets Fund. Mr. Fleming is Chief Investment Officer for Nations Gartmore and
head of the emerging markets team. Mr. Fleming joined Gartmore in 1984 as an
analyst and fund manager on the European desk. In 1986, he joined the Far East
team and, in 1993, became head of the Far East desk. Mr. Fleming was then
promoted to head of overseas equities. He graduated from the University of York,
England.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A. in Economics from the University of Michigan and a M.B.A. from the
University of North Carolina in Charlotte. He is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style for NationsBank. Mr. Smiley also serves as one of
the officer members on the Growth Equity Style Group. Mr. Smiley is a member of
the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
Steve Smith, a Senior Vice President at NationsBank, has been portfolio manager
for the Disciplined Equity Fund since April 1995. Mr. Smith has approximately
twenty years of investment management experience, the last twelve years with
NationsBank and its affiliates. Mr. Smith is a Chartered Financial Analyst and a
member of the Association of Investment Management and Research. Mr. Smith
earned a B.S. in engineering and an M.B.A. from the University of Alabama.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Kathy E. Bowman joined NationsBank in March 1995 as a Vice President and Fixed
Income Portfolio Manager. She has been the principal portfolio manager for
Nations Mortgage-Backed Securities Fund and Nations Government Securities Fund
since April, 1995. Ms. Bowman is a member of the Fixed Income Team and has over
fourteen years of investment experience. Prior to joining NationsBank, she was a
Director of Fixed Income Securities at Providian Capital Management and managed
public bond portfolios for insurance products. Ms. Bowman received a BBA from
Memphis State University, and holds the Chartered Financial Analyst designation.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Short-Term
Income Fund since 1993. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has
51
<PAGE>
over 7 years of portfolio management experience. Mr. Cobb received a B.A. from
the University of North Carolina-Chapel Hill.
Mark S. Ahnrud is a Vice President and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for Nations Diversified
Income Fund since 1992, and has been the principal portfolio manager for Nations
Strategic Fixed Income Fund since 1993. Mr. Ahnrud is a member of the Fixed
Income Team and has eight years of investment experience. Mr. Ahnrud received a
B.S. from Babson College and an M.B.A. from Duke University. Mr. Ahnrud holds
the Chartered Financial Analyst designation.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund since 1995. Mr. Swaim is
a member of the Fixed Income Team and has over eight years of investment
experience. Mr. Swaim previously served as derivative products manager for the
NationsBank Texas Corporate Investment Division portfolio. Mr. Swaim received
his B.S. from the University of North Texas and holds an M.B.A. from the
University of Texas, Arlington.
Michele M. Poirier is responsible for the management of Nations Municipal Income
Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier, a Vice
President and Fixed Income Portfolio Manager, is responsible for over $1 billion
in tax-free assets. She joined NationsBank in 1990 and is the principal
portfolio manager for 9 municipal bond mutual funds and 6 municipal bond common
trust funds. Ms. Poirer has over 20 years of investment experience from
positions previously held in management, sales and trading at Financial Service
Corporation, Bankers Trust Company and The Robinson-Humphrey Company,
respectively. She earned a B.B.A. in marketing from Georgia State University.
Mathew M. Kiselak, a Vice President and Fixed Income Portfolio Manager
responsible for over $600 million in assets, is responsible for the management
of Nations Tennessee Intermediate Municipal Bond Fund, Nations Tennessee
Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations
Texas Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond
Fund, Nations North Carolina Municipal Bond Fund and Nations Short-Term
Municipal Income Fund. Mr. Kiselak joined NationsBank in 1992 and has over seven
years of investment experience. Prior to joining NationsBank, Mr. Kiselak was a
tax-exempt portfolio manager and bank credit analyst for Reich & Tang Inc. He
received his B.A. in economics from Pace University.
John C. Kohl, a Senior Vice President and Fixed Income Portfolio Manager, has
been the principal portfolio manager of Nations Maryland Intermediate Municipal
Bond Fund, Nations Maryland Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund, Nations Virginia Municipal Bond Fund and Nations
Intermediate Municipal Bond Fund since August 1994. Mr. Kohl, who has over 15
years of investment experience, joined NationsBank in 1994 and currently is
responsible for managing over $1 billion in tax-free assets. Prior to joining
NationsBank, Mr. Kohl was chief investment officer for a life insurance company,
fixed-income group manager for the personal trust group of a large midwestern
bank, and an asset-liability management consultant. Mr. Kohl received a joint
B.A. in Economics and North American Studies from McGill University in Montreal
and has continued his studies at The American
University and the J. L. Kellogg Graduate School of Management.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank
has advised Nations Fund and NationsBank that NationsBank may perform the
services contemplated by the various Investment Advisory Agreements without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such federal or state
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent NationsBank from continuing to perform, in whole
or in part, such services. If NationsBank were prohibited from performing any of
such services, it is expected that the Board of Trustees of Nations Fund Trust
and the Boards of Directors of Nations Fund, Inc. and Nations Portfolios would
recommend to each Fund's shareholders that they approve a new advisory agreement
with another entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with
52
<PAGE>
principal offices at One Exchange Place, Boston, Massachusetts 02109, serves as
the co-administrator of Nations Fund pursuant to Co-Administration Agreements.
Under the Co-Administration Agreements, TSSG provides various administrative and
accounting services to the Funds including performing the calculations necessary
to determine net asset value per share and dividends, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds. For the services rendered pursuant to
the Administration and Co-Administration Agreements, Stephens and TSSG are
entitled to receive a combined fee at the annual rate of up to 0.10% of each
Fund's average daily net assets.
For the fiscal year ended November 30, 1994, after waivers, Nations Fund Trust
paid its administrators fees at the indicated rate of the following Funds'
average daily net assets: Nations Government Money Market Fund, Nations Tax
Exempt Fund, Nations Value Fund, Nations Capital Growth Fund, Nations Emerging
Growth Fund, Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations
Balanced Assets Fund, Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund, Nations Mortgage-Backed Securities Fund, Nations Municipal Income
Fund, Nations Intermediate Municipal Bond Fund, Nations Florida Intermediate
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate
Municipal Bond Fund and Nations Virginia Intermediate Municipal Bond
Fund -- 0.09%; Nations Short-Term Municipal Income Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund and Nations Texas
Municipal Bond Fund -- 0.06%; Nations Florida Municipal Bond Fund -- 0.07%; and
Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund and Nations Virginia Municipal Bond
Fund -- 0.05%.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
its administrators fees at the rate of 0.09% of the average daily net assets of
the following Funds: Nations Prime Fund, Nations Treasury Fund, Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Trust Shares of the Funds.
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund and Nations Global Government Income Fund.
TSSG serves as the Transfer Agent for each of the Fund's Trust Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Morgan
Guaranty, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Trust Shares,
is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to out-of-
pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the
average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Trust Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from TSSG of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to NationsBank, Stephens and TSSG; taxes; interest;
fees (including fees paid to Nations Fund's trustees, directors and officers);
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for
53
<PAGE>
distribution to existing shareholders; charges of the Custodians and Transfer
Agent; certain insurance premiums; outside auditing and legal expenses; costs of
shareholder reports and shareholder meetings; other expenses which are not
expressly assumed by NationsBank, Stephens or TSSG under their respective
agreements with Nations Fund; and any extraordinary expenses. Any general
expenses of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios
that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust, Nations Fund, Inc.
and/or Nations Portfolios or in such other manner as the Board of Trustees or
the relevant Board of Directors determines is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Money Market Funds currently offer six classes of
shares -- Trust A Shares, Trust B Shares, Investor A Shares, Investor B Shares,
Investor C Shares and Investor D Shares. The Non-Money Market Funds currently
offer five classes of shares -- Trust A Shares, Trust B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. Certain Funds, however, do not
offer shares of each class. This Prospectus relates only to the Trust A Shares
of the following funds of Nations Fund Trust: Nations Government Money Market
Fund, Nations Tax Exempt Fund, Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity
Index Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Mortgage-Backed Securities Fund, Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal
Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations North Carolina Municipal Bond Fund, Nations South
Carolina Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations
Texas Municipal Bond Fund and Nations Virginia Municipal Bond Fund. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust 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 Nations
Fund Trust's Board of Trustees. Nations Fund Trust'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 Nations Fund Trust 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 Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
54
<PAGE>
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Trust A Shares of the following
funds of Nations Fund, Inc.: Nations Prime Fund, Nations Treasury Fund, Nations
Equity Income Fund, Nations International Equity Fund and Nations Government
Securities Fund. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Institution (as
defined below) or Nations Fund at 1-800-626-2275.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Trust A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations
Portfolios' SAI. It is anticipated that Nations Portfolios will not hold annual
shareholder meetings on a regular basis unless required by the 1940 Act or
Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
55
<PAGE>
About Your Investment
How To Buy Shares
Trust A Shares are sold primarily to bank trust departments and other financial
institutions (including NationsBank and its affiliated and correspondent banks)
("Institutions") acting on behalf of their customers ("Customers") having a
qualified trust account at or relationship with the Institution.
Trust Shares are purchased at net asset value per share without the imposition
of a sales charge according to procedures established by the Institution.
Institutions, however, may charge their Customers' accounts for services
provided in connection with the purchase of shares.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Trust A Shares is recorded on the books of the Funds, and share certificates are
not issued. It is the responsibility of Institutions to record beneficial
ownership of Trust A Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 2:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund). A
purchase order received by Stephens or the Transfer Agent after such time will
not be accepted; notice thereof will be given to the Institution placing the
order, and any funds received will be returned promptly to the sending
Institution. If federal funds are not available by 4:00 p.m., Eastern time, the
order will be canceled. Trust Shares are purchased at the net asset value per
share next determined after receipt of the order by Stephens or by the Transfer
Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for Trust
A Shares in the Non-Money Market Funds which are received by Stephens or by the
Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
placing the order. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the sending Institution. Trust Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Trust A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Customers may redeem all or part of their Trust A Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Cus-
56
<PAGE>
tomer accounts for these or other services provided in connection with the
redemption of Trust Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders are effected at
the net asset value per share next determined after acceptance of the order by
Stephens or by the Transfer Agent.
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 2:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Tax Exempt Fund), and payment will normally be wired the same day to
the Institutions. Nations Fund reserves the right to wire redemption proceeds
within three Business Days after receiving the redemption orders if, in the
judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders will not be accepted by Stephens or by the Transfer Agent
after 2:00 p.m., Eastern time (12
noon, Eastern time, with respect to Nations Tax Exempt Fund) for execution on
that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution within three
Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Trust Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Trust Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 2:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund),
each Bank Business Day. Shares of the Non-Money Market Funds are valued as of
the close of regular trading on the Exchange (currently 4:00 p.m., Eastern time)
on each NYSE Business Day. Currently, the days on which the Federal Reserve Bank
of New York is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Memorial Day (observed), Independence Day, Labor
Day, Columbus Day, Thanksgiving Day and Christmas Day. Currently, the days on
which the Exchange is closed (other than weekends) are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 2:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Tax Exempt Fund), on the day of
declaration. Trust A Shares begin earning dividends on the day the purchase
order is executed and continue earning dividends through and including the day
before the redemption order is executed (E.G., the settlement date). Dividends
are paid within five Business Days after the end of each month. Dividends are
paid in the form of additional Trust A Shares of the same Fund unless the
Customer has elected prior to the date of distribution to receive payment in
cash. Such election, or any revocation thereof,
57
<PAGE>
must be made in writing to the Fund's Transfer Agent and will become effective
with respect to dividends paid after its receipt. Dividends are paid in cash
within five Business Days after a shareholder's complete redemption of his Trust
A Shares in a Fund. To the extent that there are any net short-term capital
gains, they will be paid at least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each fiscal quarter by the Equity Funds and the Balanced Fund.
Each Fund's net realized capital gains (including net short-term capital gains)
are distributed at least annually.
Trust A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Trust A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Trust A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Certain purchasing Institutions may
provide for the reinvestment of dividends in additional Trust A Shares of the
same Fund. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his or
her Trust A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders may be entitled to the dividends received deduction for
distributions from those Funds investing in the stock of domestic corporations
to the extent of the total qualifying dividends received by the distributing
Fund. Corporate shareholders of the Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income taxes as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including
58
<PAGE>
exchange redemptions). Amounts withheld are applied to the shareholder's Federal
tax liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
NATIONS TAX EXEMPT FUND, NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM
MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As regulated investment companies, each of these Funds is entitled to pass
through to their shareholders tax-exempt interest income ("exempt-interest
dividends") subject to certain conditions which these Funds intend to satisfy.
To the extent that any of these Funds earn taxable income or realize long-term
capital gains, distributions to shareholders from such sources will be subject
to Federal income taxes. The policy of the Nations Municipal Income Fund,
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds is to pay to their shareholders an amount equal to at least 90% of their
exempt-interest income net of certain deductions and 90% of their investment
company taxable income. The Nations Tax Exempt Fund does not intend to earn
investment company taxable income or long-term capital gains. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund, Nations Municipal Income Fund, Nations Intermediate Municipal Bond Fund
and Nations Short-Term Municipal Income Fund may be taxable to investors under
state or local law even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
If any of these Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida, Georgia
and North Carolina impose a tax upon intangible personal property which may
apply to shares of the Funds held by residents of those states. Florida has
issued a Technical Assistance Advisement indicating that shares in the Nations
Florida Intermediate Municipal Bond Fund and the Nations Florida Municipal Bond
Fund will not be subject to Florida's intangibles tax, subject to certain
requirements which these two Funds intend to satisfy. See Nations Fund Trust's
SAI for further details about state tax treatment relevant to shareholders of
these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their
59
<PAGE>
own tax situations. Further tax information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. 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 are not 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 represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and 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. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates 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
60
<PAGE>
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.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. 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 NationsBank and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage backed securities, see the related
SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
61
<PAGE>
organizations that issue Asset Backed Securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset Backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset Backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset Backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset Backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other Asset Backed Securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by NationsBank to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or
emer-
62
<PAGE>
gency purposes. In addition, the Nations Treasury Fund may use reverse
repurchase agreements for the purpose of investing the proceeds in tri-party
repurchase agreements as discussed below. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. 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). 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
NationsBank 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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 Nations Treasury Fund has entered into an arrangement whereby it reinvests
the proceeds of a reverse repurchase agreement in a tri-party repurchase
agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. The Nations 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 Nations Fund, Inc.'s Board of Directors on the advice of
NationsBank.
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, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by NationsBank and/or Nations Gartmore at the time of purchase to
be of comparable quality to rated instruments that may be acquired by a Fund.
Commercial instruments include variable rate master demand notes, which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate, and variable and floating
rate instruments.
The Nations Prime Fund also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and
companies meet the quality standards set forth above.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
63
<PAGE>
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and the Fund's
sub-adviser believe that the currency of a particular foreign country may
experience a substantial movement against another currency. Under certain
circumstances, the Fund may commit a substantial portion of its portfolio to the
execution of these contracts. NationsBank and the Fund's sub-adviser will
consider the effects such a commitment would have on the investment program of
the Fund and the flexibility of the Fund to purchase additional securities.
Although forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted. The Nations International Equity
Fund will generally not enter into a forward contract with a term of greater
than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
64
<PAGE>
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") 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 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 NationsBank. 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. Therefore, GICs are generally considered
to be illiquid investments.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not knowingly invest more than 10% of the value of their respective net assets
in securities that are illiquid or such lower percentage as may be required by
the states in which the appropriate Fund sells its shares. The Non-Money Market
Funds will not knowingly invest more than 15% of the value of their respective
net assets in securities that are illiquid or such lower percentage as may be
required by the states in which the appropriate Fund sells its shares.
Repurchase agreements and time deposits that do not provide for payment to a
Fund within seven days after notice, guaranteed investment contracts and some
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") (other than variable amount
master demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the Nations Prime Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
NationsBank or Nations Gartmore, acting under guidelines approved and monitored
by such Fund's Board, after considering trading activity, availability of
reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the level of illiquidity of a Fund holding such
securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expects to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
65
<PAGE>
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Fund's Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or
less. Money market instruments may include, among other instruments, certain
U.S. Treasury obligations, U.S. Government obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with respect to a particular instrument
purchased by a Fund, a Fund may demand payment of the principal and accrued
interest on the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by
NationsBank 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
66
<PAGE>
a bank letter of credit. In other cases, they may be unsecured or may be secured
by assets not easily liquidated. Moreover, such loans in most cases are not
backed by the taxing authority of the issuers and may have limited marketability
or may be marketable only by virtue of a provision requiring repayment following
demand by the lender. Such loans made by a Fund may have a demand provision
permitting the Fund to require payment within seven days. Participations in such
loans, however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the ability of the municipal borrower to meet an obligation for full repayment
of principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, NationsBank will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income 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. A Fund 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 NationsBank. 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.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
For the past forty years, the economy of the State of Florida has consisted
primarily of tourism, retirement and agriculture. More recently, military and
defense spending have fueled economic diversification as well as the aerospace
industry, laser optics research, computer manufacturing and international trade
and commerce. Currently, Moody's rates Florida's general obligation bonds "Aa",
and S&P rates such bonds "AA".
The State of Georgia has a diversified economy, which has performed relatively
well in recent years. Important industries in the State include pulp and paper
products, agriculture and textiles. Currently, Moody's rates Georgia general
obligation bonds "Aaa" and S&P rates such bonds "AA+."
The State of Maryland's leading areas of employment are services (including
mining), wholesale and retail trade, government, and manufacturing (primarily
printing and publishing, food and kindred products, instruments and related
products, electronic equipment, industrial machinery, and transportation
equipment). Maryland has a higher than average number of people employed by the
Government. The Port of Baltimore is one of the larger international ports in
the United States and in the world. Currently, Moody's rates Maryland general
obligation bonds "Aaa" and S&P rates such bonds "AAA."
The State of North Carolina has an economic base consisting of a combination of
manufacturing, services, agriculture and tourism. During the period from 1980 to
1993, the per capita income in the State grew from $7,999 to $18,702, an
increase of 133.8%. During the same period, the State's labor force increased
24.5%. Currently, Moody's rates the state of North Carolina's general obligation
bonds "Aaa" and S&P rates such bonds "AAA."
The State of South Carolina's economy has been dominated since the early 1920's
by the textile industry, with over one-third of the manufacturing workers
directly or indirectly related to the textile industry. The economic base of the
State is gradually becoming more diversified
67
<PAGE>
as the trade and service sectors and durable goods manufacturing industries have
developed. Currently, Moody's rates South Carolina general obligation bonds
"Aaa" and S&P rates such bonds "AA+."
The State of Tennessee has an economic base consisting primarily of
manufacturing, services, agriculture and tourism. Currently, Moody's rates the
State of Tennessee's general obligation bonds "Aaa" and S&P rates such bonds
"AA+."
The State of Texas has long been identified with the oil and gas industry, but
the Texas economy recently has become more diversified. Oil and gas related
industries accounted for 27% of the state's total output of goods and services
in 1981, but currently account for only 12% of the state's economy. Servicing
sectors (which include transportation and public utilities; finance and
insurance; trade; services; and government) are the major sources of job growth
in Texas. Texas' location and transportation and accessibility have made it a
distribution center for the southwestern United States as well as an
international center for finance and distribution. The high-technology sector,
growth of exports and manufacturing job growth are expected to contribute to
Texas' future growth. Currently Moody's rates Texas general obligations bonds
"Aa" and S&P rates such bonds "AA".
The Commonwealth of Virginia has a diversified economy with government,
manufacturing, high technology (both manufacturing and non-manufacturing)
industries, agriculture, mining, construction, services, and tourism all
represented. Virginia also has benefited from its port facilities, a large
number of federal government and military installations, and its proximity to
Washington, D.C. Currently Moody's rates Virginia general obligation bonds "Aaa"
and S&P rates such bonds "AAA."
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in Nations Fund Trust's SAI.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
SHORT SALES: A short sale is the sale of a security that a Fund does not own. A
short sale is "against the box" if at all times when the short position is open
a Fund owns an equal amount of securities convertible into, or exchangeable
without further consideration for, securities of the same issuer as the
securities sold short.
68
<PAGE>
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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.
69
<PAGE>
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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 suffi-
70
<PAGE>
cient 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 be 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 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.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
71
<PAGE>
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
72
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Trust A Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.00)** 0.01 0.13
Net realized and unrealized gain/(loss) on
investments...................................... (0.12) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.12) (0.29) 0.17
Distributions:
Dividends from net investment income............. N/A N/A (0.13)
Total Distributions.............................. N/A N/A (0.13)
Net asset value, end of period..................... $ 9.88 $ 9.71 $ 10.04
Total return++..................................... (1.20)% (2.90)% 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 14,529 $ 28,727 $ 20,402
Ratio of operating expenses to average net
assets........................................ 1.90%+ 1.70%+ 1.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (0.03)%+ 0.15%+ 5.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Trust A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
TRUST A SHARES
SEPTEMBER 30, 1995
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities
Fund
Nations Global Government Income
Fund
INVESTMENT ADVISER: NationsBank, N.A. (Carolinas)
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus
TRUST A SHARES
SEPTEMBER 30, 1995
This Prospectus describes the twenty investment
portfolios listed in the column to the right (each a
"Fund"), of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
one class of shares of each Fund -- Trust A Shares.
The Nations Disciplined Equity Fund was formerly
called "Nations Special Equity Fund."
THE NATIONS PRIME FUND, NATIONS TREASURY FUND AND
NATIONS GOVERNMENT MONEY MARKET FUND (THE "MONEY
MARKET FUNDS") SEEK TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE. INVESTMENTS IN THESE FUNDS ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THESE
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Trust A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations International Equity Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities Fund
Nations Global Government Income Fund
For purchase, redemption and
performance information
call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND [logo]
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 5
Objectives 16
How Objectives Are Pursued 18
How Performance Is Shown 30
How The Funds Are Managed 32
Organization And History 37
About Your
Investment
How to Buy Shares 38
How to Redeem Shares 39
How the Funds Value Their Shares 40
How Dividends and Distributions Are Made;
Tax Information 40
Appendix A -- Portfolio Securities 42
Appendix B -- Description of Ratings 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About the Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Trust A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Government
Nations Prime Nations Money Market
Fund Treasury Fund Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .14% .17% .16%
All Other Expenses .16% .13% .14%
Total Operating Expenses1 .30% .30% .30%
</TABLE>
1 After any waivers and reimbursements. See page 5 for a discussion of the
actual expenses.
NATIONS FUND EQUITY/BALANCED FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Nations Emerging Pacific
Value Income International Markets Growth
Fund Fund Equity Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .75% .70% .90% 1.10% .90%
All Other Expenses .17% .25% .20% .80% .80%
Total Operating Expenses1 .92% .95% 1.10% 1.90% 1.70%
</TABLE>
3
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
Capital Emerging Disciplined Equity Balanced
Growth Growth Equity Index Assets
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .75% .75% .75% .10% .75%
All Other Expenses .17% .20% .25% .30% .20%
Total Operating Expenses1 .92% .95% 1.00% .40% .95%
</TABLE>
1 After any waivers and reimbursements. See page 5 for a discussion of the
actual expenses.
NATIONS FUND BOND FUNDS TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Nations Short- Nations Nations Short- Mortgage- Nations
Intermediate Government Term Nations Nations Backed Global
Government Securities Income Diversified Strategic Fixed Securities Government
Fund Fund Fund Income Fund Income Fund Fund Income Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None
Deferred Sales Load None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 .40% .50% .30% .50% .50% .50% .70%
All Other Expenses .18% .30% .22% .32% .17% .20% .60%
Total Operating Expenses1 .58% .80% .52% .82% .67% .70% 1.30%
</TABLE>
1 After any waivers and reimbursements. See page 5 for a discussion of the
actual expenses.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Trust A Shares of
the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Government Nations Nations Nations
Nations Nations Money Nations Equity International Nations Pacific
Prime Treasury Market Value Income Equity Emerging Growth
Fund Fund Fund Fund Fund Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 9 $ 10 $ 11 $19 $17
3 Years $10 $10 $10 $ 29 $ 30 $ 35 $60 $54
5 Years $17 $17 $17 $ 51 $ 53 $ 61 N/A N/A
10 Years $38 $38 $38 $113 $117 $134 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Capital Emerging
Growth Growth
Fund Fund
<S> <C> <C>
1 Year $ 9 $ 10
3 Years $ 29 $ 30
5 Years $ 51 $ 53
10 Years $113 $117
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Nations Nations
Nations Nations Nations Short- Nations Nations Nations Strategic
Disciplined Equity Balanced Intermediate Government Short-Term Diversified Fixed
Equity Index Assets Government Securities Income Income Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 10 $ 4 $ 10 $ 6 $ 8 $ 5 $ 8 $ 7
3 Years $ 32 $13 $ 30 $19 $26 $17 $ 26 $21
5 Years $ 55 $22 $ 53 $32 $44 $29 $ 46 $37
10 Years $122 $51 $117 $73 $99 $65 $101 $82
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Mortgage- Global
Backed Government
Securities Income
Fund Fund
<S> <C> <C>
1 Year $ 7 $13
3 Years $22 $41
5 Years $39 N/A
10 Years $87 N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Trust A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How the Funds are Managed."
Absent fee waivers and reimbursements, "Management Fees" and "Total Operating
Expenses" for Trust A Shares of the indicated Fund would have been as follows:
Nations Prime Fund -- .20% and .36%, respectively; Nations Treasury Fund -- .20%
and .33%, respectively; Nations Government Money Market Fund -- .40% and .54%,
respectively; Nations Value Fund -- .75% and .92%, respectively; Nations Equity
Income Fund -- .70% and .95%, respectively; Nations International Equity
Fund -- .90%, and 1.10%, respectively; Nations Emerging Markets Fund -- 1.10%
and 1.90%, respectively; Nations Pacific Growth Fund -- .90% and 1.70%,
respectively; Nations Capital Growth Fund -- .75%, and .92%, respectively;
Nations Emerging Growth Fund -- .75% and .95%, respectively; Nations Disciplined
Equity Fund -- .75% and 1.00%, respectively; Nations Equity Index Fund -- .50%
and .80%, respectively; Nations Balanced Assets Fund -- .75% and .95%,
respectively; Nations Short-Intermediate Government Fund -- .60% and .78%,
respectively; Nations Government Securities Fund -- .64% and .94%, respectively;
Nations Short-Term Income Fund -- .60% and .82%, respectively; Nations
Diversified Income Fund -- .60% and .92%, respectively; Nations Strategic Fixed
Income Fund -- .60% and .77%, respectively; and Nations Mortgage-Backed
Securities Fund -- .60% and .80%, respectively; Nations Global Goverment Income
Fund -- .70% and 1.30%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of a Fund will receive
unaudited semi-annual reports describing the Fund's investment operations and
annual financial statements audited by the Funds' independent accountant.
5
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0519 0.0318 0.0328 0.0506 0.0749
Dividends from net investment income (0.0519) (0.0318) (0.0328) (0.0506) (0.0749)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.32% 3.22% 3.33% 5.19%+++ 7.75%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476 $ 574,993
Ratio of operating expenses to average net assets 0.30 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average net assets 5.23 3.20% 3.25% 5.03% 7.47%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.38 0.37% 0.36% 0.42% 0.44%
Net investment income per share without waivers and
reimbursements $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494 $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
TRUST A SHARES 5/31/90 5/31/89 5/31/88 5/31/87*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675 0.0277
Dividends from net investment income (0.0855) (0.0839) (0.0675) (0.0277)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 433,298 $ 115,295 $ 264,063 $ 252,562
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36% 0.35%+
Ratio of net investment income to average net assets 8.43% 8.11% 6.73% 5.99%+
Ratio of operating expenses to average net assets without waivers and
reimbursements 0.50%+++ 0.55%+++ 0.56%+++ 0.65%+++
Net investment income per share without waivers and reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++ $ 0.0247+++
</TABLE>
* The Nations Prime Fund Trust A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
6
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TREASURY FUND
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0494 0.0297 0.0307 0.0483 0.0721
Dividends from net investment income (0.0494) (0.0297) (0.0307) (0.0483) (0.0721)
Distribution from net realized capital gains (0.0000)** -- -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.05% 2.99% 3.12% 4.95%+++ 7.46%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $2,896,868 $2,679,992 $2,956,796 $1,094,741 $ 955,186
Ratio of operating expenses to average net assets 0.30 0.30% 0.30% 0.29% 0.25%
Ratio of net investment income to average net assets 4.99 2.97% 3.02% 4.82% 7.04%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.35 0.36% 0.36% 0.42% 0.43%
Net investment income per share without waivers and
reimbursements $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470 $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
TRUST A SHARES 5/31/90 5/31/89 5/31/88 5/31/87*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630 0.0262
Dividends from net investment income (0.0829) (0.0802) (0.0630) (0.0262)
Distributions from net realized capital gains -- -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 392,843 $ 90,946 $ 111,414 $ 66,221
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38% 0.35%+
Ratio of net investment income to average net assets 8.18% 7.93% 6.31% 5.68%+
Ratio of operating expenses to average net assets without
waivers and reimbursements .059%+++ 0.58%+++ 0.65%+++ 0.75%+++
Net investment income per share without waivers and
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++ $ 0.0222+++
</TABLE>
* The Nations Treasury Fund Trust A Shares commenced operations on December
15, 1986.
** Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
7
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0280 0.0375 0.0294 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0280) (0.0375) (0.0294) (0.0358) (0.0571)
Dividends from net realized gains -- (0.0000)# -- -- --
Total distributions (0.0280) (0.0375) (0.0294) (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.83% 3.84% 2.96% 3.63%+++ 5.87%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 395,770 $ 432,729 $ 475,180 $ 414,412 $ 333,979
Ratio of operating expenses to average
net assets 0.30%+ 0.30% 0.30% 0.42% 0.43%+
Ratio of net investment income to
average net assets 5.61%+ 3.79% 2.91% 3.55% 5.49%+
Ratio of operating expenses to average
net assets before fee waivers 0.56%+ 0.59% 0.56% 0.58% 0.62%+
Net investment income per share before
fee waivers $ 0.0267 $ 0.0347 $ 0.0269 $ 0.0341 $ 0.0551
</TABLE>
* The Nations Government Money Market Fund Trust A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated.
+++ Unaudited.
# Value represents less than $(0.0001) per shares.
8
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90 11/30/89*#
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71 $ 10.04 $ 10.00
Net investment income 0.14 0.24 0.24 0.28 0.34 0.35 0.08
Net realized and unrealized
gain/(loss) on
investments 2.12 (0.23) 1.38 1.57 1.47 (0.36) (0.04)
Net increase/(decrease) in
net assets resulting from
investment operations 2.26 0.01 1.62 1.85 1.81 (0.01) 0.04
Distributions:
Dividends from net
investment income (0.14) (0.23) (0.24) (0.27) (0.36) (0.32) --
Distributions from net
realized capital gains (0.67) (0.54) (0.09) (0.29) -- -- --
Total distributions (0.81) (0.77) (0.33) (0.56) (0.36) (0.32) --
Net asset value, end of
period $ 14.43 $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71 $ 10.04
Total return++ 18.64% (0.08)% 13.19% 17.00%+++ 18.79%+++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 872,044 $ 799,743 $ 707,185 $ 282,138 $ 82,360 $ 19,769 $ 5,161
Ratio of operating expenses
to average net assets 0.91%+ 0.93% 0.96% 0.90% 0.53% 0.21% 0.49%+
Ratio of net investment
income to average net
assets 2.17%+ 1.85% 1.98% 2.31% 3.33% 4.19% 4.41%+
Portfolio turnover rate 36% 75% 64% 60% 51% 24% --
Ratio of operating expenses
to average net assets
before fee waivers and/or
expense reimbursements 0.91%+ 0.93% 0.97% 0.97% 0.99% 1.11% 1.41%+
Net investment income per
share before fee waivers
and/or expense
reimbursements $ 0.14 $ 0.24 $ 0.24 $ 0.27 $ 0.30 $ 0.26 $ 0.06
</TABLE>
* The Nations Value Fund Trust A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the
results of operations.
9
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.43 $ 12.06 $ 11.41 $ 10.19 $ 10.00
Net investment income 0.42 0.38 0.37 0.34 0.05
Net realized and unrealized gain on investments 1.11 0.22 1.08 1.25 0.14
Net increase in net assets resulting from investment
operations 1.53 0.60 1.45 1.59 0.19
Distributions:
Dividends from net investment income (0.42) (0.42) (0.35) (0.30) --
Distributions from net realized capital gains (0.73) (0.81) (0.45) (0.07) --
Total distributions (1.15) (1.23) (0.80) (0.37) 0.00
Net asset value, end of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Total return++ 14.79% 5.00% 13.30% 15.91%+++ 1.90%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 283,082 $ 225,740 $ 175,949 $ 18,104 $ 10,194
Ratio of operating expenses to average net assets 0.92% 0.94% 0.92% 1.10% 1.12%+
Ratio of net investment income to average net assets 3.75% 3.41% 3.37% 3.15% 3.66%+
Portfolio turnover rate 158% 116% 55% 84% 9%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.93% 0.95% 1.04% 2.21% 1.80%+
Net investment income per share without waivers and
reimbursements $ 0.42 $ 0.38 $ 0.36 $ 0.22 $ (0.06)
</TABLE>
* The Nations Equity Income Fund Trust A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95# 5/31/94# 5/31/93# 5/31/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.06 $ 10.60 $ 10.40 $ 10.00
Net investment income/(loss) 0.14 0.09 0.09 0.08
Net realized and unrealized gain/(loss) on investments (0.20) 1.44 0.21 0.36
Net increase/(decrease) in net assets resulting from investment
operations (0.06) 1.53 0.30 0.44
Distributions:
Dividends from net investment income (0.03) (0.05) (0.08) (0.04)
Distributions from net realized capital gains (0.12) (0.02) (0.02) --
Distributions in excess of net realized capital gains (0.10) -- -- --
Total distributions (0.25) (0.07) (0.10) (0.04)
Net asset value, end of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Total return++ (0.46)% 14.37% 3.14% 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 572,940 $ 401,599 $ 118,873 $ 83,970
Ratio of operating expenses to average net assets 1.03% 1.17% 1.30% 1.33%+
Ratio of net investment income/(loss) to average net assets 1.17%+ 0.75% 1.03% 1.81%+
Portfolio turnover rate 92% 39% 41% 11%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.04% 1.18% 1.32% 1.43%+
Net investment income/(loss) per share without waivers and
reimbursements $ 0.14 $ 0.08 $ 0.10 $ 0.03
</TABLE>
* The Nations International Equity Fund Trust A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
10
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.23 $ 11.08 $ 10.68 $ 10.00
Net investment income/(loss) 0.06 0.09 0.09 0.02
Net realized and unrealized gain on investments 1.37 0.14 0.42 0.66##
Net increase in net assets resulting from investment operations 1.43 0.23 0.51 0.68
Distributions:
Dividends from net investment income (0.05) (0.08) (0.10) --
Distributions from net realized gains (0.26) (0.00)(a) (0.01) --
Total distributions (0.31) (0.08) (0.11) --
Net asset value, end of period $ 12.35 $ 11.23 $ 11.08 $ 10.68
Total return++ 13.19% 2.14% 4.84% 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 783,103 $ 717,914 $ 646,661 $ 728,629
Ratio of operating expenses to average net assets 0.91%+ 0.90% 0.80% 0.30%+
Ratio of net investment income/(loss) to average net assets 1.03%+ 0.85% 0.84% 1.33%+
Portfolio turnover rate 43% 56% 81% 7%
Ratio of operating expenses to average net assets before fee waivers 0.97%+ 0.91% 0.89% 1.05%+
Net investment income/(loss) per share before fee waivers $ 0.06 $ 0.09 $ 0.08 $ 0.01
</TABLE>
* The Nations Capital Growth Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
(a) Value represents less than $0.01 per share.
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94# 11/30/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.41 $ 10.87 $ 10.00
Net investment income/(loss) 0.01 (0.03) (0.01)
Net realized and unrealized gain on investments 0.97 0.71 0.89
Net increase in net assets resulting from investment operations 0.98 0.68 0.88
Distributions:
Distributions from net realized gains (0.40) (0.14) (0.01)
Total distributions (0.40) (0.14) (0.01)
Net asset value, end of period $ 11.99 $ 11.41 $ 10.87
Total return++ 9.11% 6.26% 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 210,203 $ 182,459 $ 121,281
Ratio of operating expenses to average net assets 0.97%+ 1.01% 0.80%+
Ratio of net investment income/(loss) to average net assets 0.10%+ (0.29)% (0.15)%+
Portfolio turnover rate 69% 1.29% 159%
Ratio of operating expenses to average net assets before fee waivers 0.98%+ 1.01% 1.01%+
Net investment income/(loss) per share before fee waivers $ 0.00(a) $ (0.03) $ (0.03)
</TABLE>
* The Nations Emerging Growth Fund Trust A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
(a) Value represents less than $0.01 per share.
11
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD PERIOD PERIOD
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED)# 11/30/94* 04/29/94* 04/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.08 $ 13.31 $ 13.65 $ 10.00
Net investment income/(loss) 0.09 0.01 (0.05) (0.03)
Net realized and unrealized gain/(loss) on investments 1.35 (0.23)## 2.66 3.74
Net increase/(decrease) in net assets resulting from investment
operations 1.44 (0.22) 2.61 3.71
Distributions:
Dividends from net investment income (0.02) (0.01) -- --
Distributions from net realized gains -- -- (2.95) (0.06)
Return of capital -- (0.00)(a) -- --
Total distributions (0.02) (0.01) (2.95) (0.06)
Net asset value, end of period $ 14.50 $ 13.08 $ 13.31 $ 13.65
Total return++ 11.01% (1.62)% 18.79% 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,077 $ 9,947 $ 8,079 $ 4,638
Ratio of operating expenses to average net assets 0.94%+ 1.13%+ 1.20%+ 1.20%+
Ratio of net investment income/(loss) to average net assets 1.37%+ 0.12%+ (0.60)%+ (0.58)%+
Portfolio turnover rate 98% 177% 475% 203%
Ratio of operating expenses to average net assets before fee
waivers 1.65%+ 1.56%+ 1.53%+ 1.31%+
Net investment income/(loss) per share before fee waivers $ 0.04 $ (0.03) $ (0.08) $ (0.03)
</TABLE>
* The current period for the Nations Disciplined Equity Fund Trust A Shares
reflects operations from April 30, 1994 through November 30, 1994. The
financial information for the fiscal periods through April 29, 1994 is based
on the financial information for The Capitol Mutual Funds Special Equity
Portfolio Class A Shares, which were reorganized into Trust A Shares of
Nations Disciplined Equity Fund as of the close of business on April 29,
1994. The Capitol Mutual Funds Special Equity Portfolio Class A Shares
commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
TRUST A SHARES (UNAUDITED) 11/30/94*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 10.00
Net investment income 0.08 0.24
Net realized and unrealized gain/(loss) on investments 1.64 (0.21)
Net increase in net assets resulting from investment operations 1.72 0.03
Distributions:
Dividends from net investment income (0.07) (0.19)
Distributions from net realized gains (0.08) --
Total distributions (0.15) (0.19)
Net asset value, end of period $ 11.41 $ 9.84
Total return++ 19.01% 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 129,706 $ 123,147
Ratio of operating expenses to average net assets 0.35%+ 0.35%+
Ratio of net investment income to average net assets 2.68%+ 2.64%+
Portfolio turnover rate 7% 14%
Ratio of operating expenses to average net assets before fee waivers 0.75%+ 0.79%+
Net investment income per share before fee waivers $ 0.07 $ 0.20
</TABLE>
* The Nations Equity Index Fund Trust A Shares commenced operations on December
16, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
12
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.44 $ 10.87 $ 10.24 $ 10.00
Net investment income 0.17 0.25 0.29 0.06
Net realized and unrealized gain/(loss) on investments 1.13 (0.43) 0.64 0.18##
Net increase/(decrease) in net assets resulting from investment
operations 1.30 (0.18) 0.93 0.24
Distributions:
Dividends from net investment income (0.14) (0.25) (0.30) --
Distributions from net realized gains (0.02) -- -- --
Total distributions (0.16) (0.25) (0.30) --
Net asset value, end of period $ 11.58 $ 10.44 $ 10.87 $ 10.24
Total return++ 12.59% (1.73)% 9.22% 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 157,581 $ 162,215 $ 178,270 $ 111,953
Ratio of operating expenses to average net assets 0.99%+ 0.98% 0.90% 0.30%+
Ratio of net investment income to average net assets 3.11%+ 2.31% 2.82% 3.85%+
Portfolio turnover rate 101% 156% 50% 79%
Ratio of operating expenses to average net assets before fee waivers 0.99%+ 0.99% 0.97% 1.05%+
Net investment income per share before fee waivers $ 0.17 $ 0.25 $ 0.29 $ 0.05
</TABLE>
* The Nations Balanced Assets Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of
the portfolio.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28 $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.12 0.23 0.23 0.28 0.10
Net realized and unrealized gain/(loss) on investments 0.16 (0.33) 0.14 (0.01) 0.17
Net increase/(decrease) in net assets resulting from
investment operations 0.28 (0.10) 0.37 0.27 0.27
Distributions:
Dividends from net investment income (0.12) (0.23) (0.23) (0.28) (0.10)
Distributions in excess of net investment income -- (0.00)# -- -- --
Distributions from net realized capital gains -- (0.02) (0.02) -- --
Total distributions (0.12) (0.25) (0.25) (0.28) (0.10)
Net asset value, end of period $ 4.09 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Total return++ 7.25% (2.23)% 9.03% 6.70%+++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $411,934 $ 433,278 $ 443,426 $ 360,497 $ 158,435
Ratio of operating expenses to average net assets 0.58%+ 0.59% 0.55% 0.37% 0.08%+
Ratio of net investment income to average net assets 6.07%+ 5.76% 5.40% 6.48% 7.21%+
Portfolio turnover rate 130% 133% 92% 25% 11%
Ratio of operating expenses to average net assets before
fee waivers and/or expense reimbursements 0.79%+ 0.80% 0.79% 0.77% 0.82%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.11 $ 0.22 $ 0.22 $ 0.26 $ 0.00
</TABLE>
* The Nations Short-Intermediate Government Fund Trust A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
13
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
TRUST A SHARES 05/31/95# 05/31/94 05/31/93 05/31/92 05/31/91*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46 $ 10.36 $ 10.05 $ 10.00
Net investment income 0.64 0.64 0.71 0.74 0.10
Net realized and unrealized gain/(loss) on investments 0.06 (0.61) 0.13 0.37 0.02
Net increase/(decrease) in net assets resulting from
investment operations 0.70 0.03 0.84 1.11 0.12
Distributions:
Dividends from net investment income (0.60) (0.58) (0.70) (0.77) (0.07)
Dividends in excess of net investment income -- (0.02) -- -- --
Distributions in excess of net realized capital gains -- (0.05) (0.04) (0.03) --
Distributions from capital (0.04) (0.04) -- -- --
Total distributions (0.64) (0.69) (0.74) (0.80) (0.07)
Net asset value, end of period $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Total return++ 7.55% 0.06% 8.37% 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,909 $ 44,536 $ 40,472 $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 0.76%+ 0.73% 0.85% 1.06% 1.10%+
Ratio of net investment income to average net assets 6.69%+ 6.08% 6.67% 7.15% 7.18%+
Portfolio turnover rate 413% 56% 103% 130% 5%
Ratio of operating expenses to average net assets without
waivers and reimbursements 0.94%+ 0.94% 1.00% 1.72% 1.69%+++
Net investment income per share without waivers and
reimbursements $ 0.62 $ 0.61 $ 0.60 $ 0.07 $ 0.09+++
</TABLE>
* The Nations Government Securities Fund Trust A Shares commenced operations
on April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share amounts have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the results
of operations.
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/95# ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94# 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 10.01 $ 9.75 $ 10.00
Net investment income 0.30 0.50 0.53 0.09
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26 (0.25)
Net increase/(decrease) in net assets resulting from investment
operations 0.58 (0.01) 0.79 (0.16)
Distributions:
Dividends from net investment income (0.30) (0.48) (0.53) (0.09)
Distributions in excess of net investment income -- (0.02) -- --
Distributions from capital -- (0.02) -- --
Total distributions (0.30) (0.52) (0.53) (0.09)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01 $ 9.75
Total return++ 6.25% (0.11)% 8.26% (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 169,616 $ 176,712 $ 201,738 $ 190,680
Ratio of operating expenses to average net assets 0.51%+ 0.50% 0.37% 0.30%+
Ratio of net investment income to average net assets 6.35%+ 5.23% 5.27% 5.54%+
Portfolio turnover rate 145% 293% 121% 45%
Ratio of operating expenses to average net assets
before fee waivers and/or expense reimbursements 0.86%+ 0.82% 0.79% 0.90%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.29 $ 0.47 $ 0.48 $ 0.08
</TABLE>
* The Nations Short-Term Income Fund Trust A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed method did not accord with the results of
operations.
14
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
05/31/95 ENDED YEAR ENDED
TRUST A SHARES (UNAUDITED) 11/30/94# ENDED 11/30/93# 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.97 $10.00
Net investment income 0.38 0.74 0.78 0.06
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.91 (0.03)
Net increase/(decrease) in net assets resulting from investment
operations 1.24 (0.32) 1.69 0.03
Distributions:
Dividends from net investment income (0.38) (0.74) (0.78) (0.06)
Distributions in excess of net investment income -- (0.00)## -- --
Distributions from net realized capital gains -- (0.15) -- --
Total distributions (0.38) (0.89) (0.78) (0.06)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88 9.97
Total return++ 13.05% (3.05)% 17.40% 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,598 $ 22,298 $ 28,553 3,962
Ratio of operating expenses to average net assets 0.77%+ 0.74% 0.55% 0.25%+
Ratio of net investment income to average net assets 7.53%+ 7.31% 7.02% 7.76%+
Portfolio turnover rate 67% 144% 86% 46%
Ratio of operating expenses to average net assets
before fee waivers and/or expense reimbursements 0.93%+ 0.95% 0.95% 0.85%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.37 $ 0.72 $ 0.70 0.05
</TABLE>
* The Nations Diversified Income Fund Trust A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately represents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94 $ 10.00
Net investment income 0.29 0.53 0.56 0.05
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62 (0.06)
Net increase/(decrease) in net assets resulting from investment
operations 0.99 (0.36) 1.18 (0.01)
Distributions:
Dividends from net investment income (0.29) (0.51) (0.56) (0.05)
Distributions in excess of net investment income -- (0.02) -- --
Distributions from net realized capital gains -- (0.34) (0.01) --
Total distributions (0.29) (0.87) (0.57) (0.05)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55 $ 9.94
Total return++ 10.85% (3.58)% 12.05% (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 608,173 $ 550,697 $ 545,538 $ 581,329
Ratio of operating expenses to average net assets 0.68%+ 0.68% 0.61% 0.26%+
Ratio of net investment income to average net assets 6.18%+ 5.43% 5.40% 6.15%+
Portfolio turnover rate 155% 307% 161% 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.79%+ 0.76% 0.77% 0.86%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.29 $ 0.52 $ 0.55 $ 0.04
</TABLE>
* The Nations Strategic Fixed Income Fund Trust A Shares commenced operations
on October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
15
<PAGE>
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MORTGAGE-BACKED SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/95 ENDED ENDED ENDED
TRUST A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.97 $ 9.95 $ 9.97 $ 10.00
Net investment income 0.31 0.65 0.68 0.06
Net realized and unrealized gain/(loss) on investments 0.59 (0.97) (0.02) (0.03)
Net increase/(decrease) in net assets resulting from investment
operations 0.90 (0.32) 0.66 0.03
Distributions:
Dividends from net investment income (0.32) (0.57) (0.68) (0.06)
Distributions from capital -- (0.09) -- --
Total distributions (0.32) (0.66) (0.68) (0.06)
Net asset value, end of period $ 9.55 $ 8.97 $ 9.95 $ 9.97
Total return++ 10.14% (3.41)% 6.73% 0.35%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 58,588 $ 61,946 $ 72,596 $ 63,583
Ratio of operating expenses to average net assets 0.71%+ 0.75% 0.67% 0.25%+
Ratio of net investment income to average net assets 6.86%+ 6.81% 6.70% 8.16%+
Portfolio turnover rate 199% 207% 167% 4%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.81%+ 0.86% 0.86% 0.85%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.30 $ 0.64 $ 0.66 $ 0.06
</TABLE>
* The Nations Mortgage-Backed Securities Fund Trust A Shares commenced
operations on October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund, described below, endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: The Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: The Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: The Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which NationsBank believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
16
<PAGE>
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of NationsBank, have
above average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by NationsBank to have the potential for
significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: The investment objective of the Nations Equity Index
Fund is to seek investment results that correspond, before fees and expenses, to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index").(1)
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing " investment approach, attempts to
duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Nations Equity Index Fund.
three major asset groups: common stocks, fixed income securities, and cash
equivalents.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS MORTGAGE-BACKED SECURITIES FUND: The Nations Mortgage-Backed Securities
Fund's investment objective is to seek as high a level of total investment
return as is consistent with prudent investment risk, by investing primarily in
mortgage-backed securities.
17
<PAGE>
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: 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 or instrumentalities ("U.S.
Government Obligations"), bank and commercial instruments that may be available
in the money markets, high quality short-term taxable obligations issued by
state and local governments, their agencies and instrumentalities and repurchase
agreements relating to U.S. Government Obligations. The Fund also may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may invest in guaranteed investment contracts and in
instruments issued by trusts, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by the trust. In addition, the Fund may lend its portfolio
securities to qualified institutional investors. For more information concerning
these instruments, see "Appendix A."
NATIONS TREASURY FUND: The Fund invests in U.S. Treasury Obligations and
repurchase agreements secured by such obligations. The Fund also may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: The Fund invests in U.S. Government
Obligations and repurchase agreements relating to such obligations. The Fund
also may purchase securities issued by other investment companies, consistent
with the Fund's investment objective and policies, and may engage in reverse
repurchase agreements. The Fund also may lend its portfolio securities to
qualified institutional investors. For more information concerning these
instruments, see "Appendix A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by NationsBank. NationsBank closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by NationsBank to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. NationsBank also analyzes key financial ratios that measure the growth,
profitability, and leverage of such issuers that it believes will help maintain
a portfolio of above-average quality.
Stocks are selected from this universe based on NationsBank's judgment of their
total return potential. NationsBank buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by
NationsBank in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. NationsBank believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. NationsBank will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in U.S. Government Obligations, and
investment grade bonds and other debt securities of domestic companies.
Obligations with the lowest investment grade rating (e.g. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("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
18
<PAGE>
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. NationsBank 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
NationsBank to be of comparable quality at the time of purchase to rated
obligations that may be acquired.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, NationsBank believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the S&P 500 Index, a broad-based
and widely used index of common stock prices. Second, dividends are normally a
more stable and predictable source of return than capital appreciation. While
the price of a company's stock generally increases or decreases in response to
short-term earnings and market fluctuations, its dividends are generally less
volatile. Finally, NationsBank believes that stocks which distribute a high
level of current income tend to have less price volatility than those which pay
below average dividends.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by NationsBank. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by NationsBank). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) 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. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by NationsBank.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
NationsBank believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest 10% or more
of its total assets in debt obligations of foreign issuers and stocks of foreign
corporations. The Fund will treat foreign securities as illiquid unless there is
an active and substantial secondary market for such securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that
NationsBank and the Fund's sub-investment adviser believe have potential for
growth of capital. The Fund may invest up to 35% of its assets in any other type
of security including: convertible
19
<PAGE>
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
NationsBank and/or the Fund's sub-investment adviser to be comparable in quality
to instruments so rated. Obligations with the lowest investment grade rating
(e.g., rated "Baa" by Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of
these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund," below. When allocating investments among individual countries,
NationsBank and/or the Fund's sub-investment adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. NationsBank and the Fund's sub-investment adviser
seek to identify and invest in those emerging markets that have a relatively low
gross national product per capita, compared to the world's major economies, and
which exhibit potential for rapid economic growth. NationsBank and the Fund's
sub-investment adviser believe that investment in equity securities of emerging
market issuers offers significant potential for long-term capital appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and Far East include Australia, Hong Kong, India, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by NationsBank and/or
the Fund's sub-investment adviser to be comparable in quality to instruments so
rated. Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) have speculative characteristics, and changes in
economic conditions or other circumstances
20
<PAGE>
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See "Appendix B"
for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund," below. When allocating investments among individual countries,
NationsBank and/or the Fund's sub-investment adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships. The Fund may invest in ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above average market performance. Through intensive
research, visits to many companies each year and efficient response to changing
market conditions, NationsBank seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
21
<PAGE>
growth companies monitored by NationsBank. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and NationsBank will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, NationsBank will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For more information concerning these
instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that NationsBank, as
investment adviser, believes are likely to experience significant increases in
earnings. By pursuing this investment philosophy, the Fund seeks to provide
investors with long-term capital appreciation which exceeds that of the S&P 500
Index.
In selecting stocks for purchase by the Fund, NationsBank utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. NationsBank believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. NationsBank also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, 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 will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
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 a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
NationsBank). Obligations rated in the lowest of the top four investment grade
rating categories 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.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New
22
<PAGE>
York Stock Exchange. Different stocks have different weightings in the Index,
depending on the amount of stock outstanding and its current price. In seeking
to duplicate the performance of the S&P 500 Index, NationsBank will attempt to
allocate the Fund's portfolio among common stocks in approximately the same
weightings as the S&P 500 Index, beginning with the heaviest weighted stocks
that make up a larger portion of the Index's value.
NationsBank generally will seek to match the composition of the S&P 500 Index as
much as possible, but may not always invest the Fund's portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, NationsBank
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. NationsBank may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
Under normal conditions, NationsBank will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If NationsBank believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
ABOUT THE INDEX. The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The 500 securities, most of which trade on the New York Stock Exchange,
represented, as of February 28, 1995, approximately 70% of the market value of
all U.S. common stocks. Each stock in the S&P 500 Index is weighted by its
market value. Because of the market-value weighting, the 50 largest companies in
the S&P 500 Index currently account for approximately 47% of the Index.
Typically, companies included in the S&P 500 Index are the largest and most
dominant firms in their respective industries. As of February 28, 1995, the five
largest companies in the Index were: General Electric (2.6%), Exxon Corporation
(2.2%), American Telephone & Telegraph (2.2%), Coca-Cola (2.0%) and Royal
Dutch/Shell (1.7%). The largest industry categories were telephone companies
(8.2%), pharmaceuticals (5.8%), financial institutions (5.4%), retail (5.1%) and
producer goods (5.0%).
GENERAL: Each Equity 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
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, NationsBank will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, NationsBank will evaluate
23
<PAGE>
current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. In general,
NationsBank believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with above
average earnings growth and return on equity offer the best growth prospects
among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet NationsBank's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
or its affiliate IBCA Inc. (collectively "IBCA") or Thomson BankWatch, Inc.
("BankWatch"), or, if unrated, determined by NationsBank to be comparable in
quality to instruments so rated. S&P, Moody's, D&P, Fitch, IBCA and BankWatch
are the six Nationally Recognized Statistical Rating Organizations
(collectively, "NRSROs"). Obligations with the lowest investment grade rating
(e.g. rated "BBB" by 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. See "Appendix B" for a description of
these ratings designations. 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. NationsBank 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
NationsBank to be of comparable quality at the time of purchase to rated
obligations that may be acquired. Under normal circumstances, at least 25% of
the total value of the Fund's assets will be invested in fixed income
securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defense measure if market
conditions warrant. For additional information concerning these instruments, see
"Appendix A."
The Fund also 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 portfolio securities to
qualified institutional investors. The Fund also may engage in dollar roll
transactions. The Fund also may invest in restricted, private placement and
other illiquid securities, and also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in U.S. Government
Obligations and repurchase agreements relating to such obligations. U.S.
Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include U.S. Treasury
Obligations, which differ only in their interest rates, maturities and times of
issuance. U.S. Government Obligations also include obligations issued or
guaranteed by U.S. Government agencies,
24
<PAGE>
authorities or instrumentalities, some of which are backed by the full faith and
credit of the U.S. Treasury, such as direct pass-through certificates of the
Government National Mortgage Association ("GNMA"); some of which are supported
by the right of the issuer to borrow from the U.S. Government, such as
obligations of Federal Home Loan Banks; and some of which are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association ("FNMA"). For a more detailed description of the investment
practices of this Fund, see "Appendix A -- U.S. Government Obligations" and
"Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in NationsBank's opinion, existing
circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, Nations
Short-Term Income Fund may invest in a broad range of debt obligations such as
U.S. Government Obligations; corporate debt obligations, including bonds, notes
and debentures rated investment grade by one of the six NRSROs, or, if not so
rated, determined by NationsBank to be of comparable quality to instruments so
rated; dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments (see "Appendix A -- Foreign Securities");
and mortgage-related securities of governmental issuers, including GNMA, FNMA
and the Federal Home Loan Mortgage Corporation ("FHLMC"), or of private issuers,
including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs," real estate investment trust securities or
mortgage-backed bonds; other Asset-Backed Securities rated by one of the six
NRSROs, or, if not so rated, determined by NationsBank to be of comparable
quality to instruments so rated. (For more information concerning Asset Backed
Securities, including Mortgage-Backed Securities, see "Appendix A -- Asset
Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by 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.
NationsBank will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, prevailing
market or economic circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed
25
<PAGE>
securities rated by one of the six NRSROs, or if not so rated, determined by
NationsBank to be of comparable quality. (For more information concerning Asset
Backed Securities, including Mortgage-Backed Securities, see "Appendix
A -- Asset Backed Securities.") In pursuing its investment objective, the Fund
also may invest in dividend-paying convertible and non-convertible preferred and
common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by NationsBank to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by 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.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by NationsBank to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by NationsBank to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in NationsBank's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates. See "Appendix A" below for additional information
concerning the investment practices of this Fund.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income 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 six NRSROs, or if not so
rated, determined by NationsBank to be of comparable quality to instruments so
rated; U.S. Government obligations; dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments (see
"Appendix A -- Foreign Securities"); mortgage-backed securities of governmental
issuers, including GNMA, FNMA and FHLMC, or of private issuers, including
mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by NationsBank to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") Pursuant to its investment objective, the Fund also may invest in
dividend paying preferred and common stock.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (e.g. rated "BBB" by 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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating
26
<PAGE>
categories or unrated instruments deemed by NationsBank to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in NationsBank's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its assets in securities of foreign issuers. The value of
the Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS MORTGAGE-BACKED SECURITIES FUND: In pursuing its investment objective,
the Nations Mortgage-Backed Securities Fund may invest in a broad range of debt
obligations such as: obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; GNMA, FHLMC and FNMA mortgage pass-through
securities and collateralized mortgage obligations, other mortgage-backed
securities, and other asset backed securities; and corporate debt. (For more
information concerning Asset Backed Securities, including Mortgage-Backed
Securities, see "Appendix A -- Asset Backed Securities.") Share price
fluctuation is expected to be greater than in funds holding shorter-term
securities.
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in Mortgage-Backed Securities. Most obligations acquired by
the Fund will be issued by companies or governmental entities located within the
United States. Debt obligations acquired by the Fund will, at the time of
purchase, be within the three highest quality ratings of at least one of the six
NRSROs or, if unrated, determined by NationsBank to be comparable in quality.
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may invest in repurchase agreements, commercial paper, bankers'
acceptances, certificates of deposit, time deposits, when-issued and delayed
delivery securities and firm commitment agreements. Except as otherwise
indicated in this Prospectus, these investments may be in such proportions as,
in NationsBank's opinion, existing circumstances warrant. The value of the
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund" below. Because the Fund intends to invest a large portion of its
assets in foreign Government Securities, the Fund is a "non-diversified"
investment company for purposes of the Investment Company Act of 1940 (the "1940
Act"). The Fund may invest in securities of issuers located in any region or
country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with NationsBank's and/or the Fund's
sub-investment adviser, assessment of the relative yield and appreciation of
such securities. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by NationsBank and/or the Fund's
sub-investment adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated A or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by NationsBank and/or the Fund's sub-investment adviser. The
Fund also may invest in securities rated "Baa" by Moody's or "BBB" by S & P, but
does not, as a general matter, intend to invest
27
<PAGE>
more than 10% of its total assets in such securities. 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. NationsBank
and/or the Fund's sub-investment adviser will consider such event in determining
whether the Fund should continue to hold the obligation. In no event will the
Fund hold more than 5% of its total net assets in securities rated below
investment grade. See "Appendix B" below for a description of these rating
designations. NationsBank and the Fund's sub-investment adviser expect that the
Fund's dollar-weighted average maturity will not be greater than fifteen years
under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
GENERAL: The Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income
Fund, Nations Strategic Fixed Income Fund and Nations Mortgage-Backed Securities
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 Nations Short-Intermediate Government Fund, Nations
Government Securities Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund and Nations Mortgage-Backed
Securities Fund also may lend its portfolio securities to qualified
institutional investors. The Nations Short-Intermediate Government Fund, Nations
Government Securities Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund and Nations Mortgage-Backed
Securities Fund also may invest in restricted, private placement and other
illiquid securities and may engage in reverse repurchase agreements and dollar
roll transactions. The Nations Global Government Income Fund may invest in money
market instruments, forward foreign currency exchange contracts, futures and
options and other instruments. Additionally, each Bond Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH
FUND AND NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and
consider carefully the special risks involved in foreign investing. In addition,
each of those Funds presents unique risks that investors should be aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and Far
East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
28
<PAGE>
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of those Funds, investing in securities denominated in
foreign currencies and utilization of forward foreign currency exchange
contracts and other currency hedging techniques involve certain considerations
comprising both opportunities and risks not typically associated with investing
in U.S. dollar-denominated securities. Additionally, changes in the value of
foreign currencies can significantly affect a Fund's share price. General
economic and political factors in the various world markets also can impact a
Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. While it is not possible to predict exactly
annual portfolio turnover rates, it is expected that under normal market
conditions, annual portfolio turnover rates will not exceed 75% for Nations
Emerging Markets Fund and Nations Pacific Growth Fund and 175% for Nations
Global Government Income Fund. If a Fund's portfolio turnover rate exceeds 100%,
it may result in higher brokerage costs and possible tax consequences for the
Fund and its shareholders. For the other Funds' portfolio turnover rates, see
"Financial Highlights."
RISK CONSIDERATIONS: Although NationsBank and Nations Gartmore Investment
Management ("Nations Gartmore") the sub-investment adviser for the Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund and Nations Global Government Income Fund, will seek to achieve the
investment objective of each Fund, there is no assurance that it will be able to
do so. No single Fund should be considered, by itself, to provide a complete
investment program for any investor. The net asset value of the shares of the
Funds will fluctuate based on market conditions. Therefore, investors should not
rely upon the Funds for short-term financial needs, nor are the Funds meant to
provide a vehicle for participating in short-term swings in the stock market.
Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities 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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
29
<PAGE>
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 (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. 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. Each Fund (other than the Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. 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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
In order for the Money Market Funds to value their investments on the basis of
amortized cost, investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. These include
maturity, quality and diversification requirements. Maturity is limited to a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar-denominated instruments
determined to present minimal credit risks and that at the time of acquisition
are rated in the top two rating categories by the required number of NRSROs (at
least two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a Money Market Fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer or invest more than 5% of its assets in securities (and no
more than 1% in any one issuer) that have not been rated in the highest category
by the required number of NRSROs or, if unrated, are described in (i) or (ii)
above. Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities, and fully-collateralized repurchase agreements secured by
such obligations, are exempt from the quality requirements, other than minimal
credit risk. In the event that a Money Market Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Money Market Fund's own restrictions will govern.
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares. YIELD AND EFFECTIVE YIELD
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "yield" of a class of shares in a Fund refers to the income
generated by an investment in such class over a seven-day period identified in
the advertisement. This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
30
<PAGE>
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. TOTAL RETURN AND
YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" of a class of shares of Non-Money Market
Fund may be calculated on an average annual total return basis or an aggregate
total return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, assuming the reinvestment of all dividend and capital gains
distributions. Aggregate total return reflects the total percentage change in
the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return may
also be presented for other periods.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by the Gartmore Group, as defined below. The performance data
for these accounts is deemed relevant because the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite
have investment objectives, policies and restrictions that are substantially
similar to those of the Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. There is
substantial continuity between the portfolio managers of the Gartmore Group who
were responsible for managing those accounts and the portfolio managers of
Nations Gartmore who are responsible for managing the Nations Pacific Growth
Fund, Nations Emerging Markets Fund and Nations Global Government Income Fund,
respectively. THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT
NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF NATIONSBANK, NATIONS
GARTMORE OR THE FUNDS.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
through
PACIFIC EX-JAPAN COMPOSITE March 31, 1995*
<S> <C>
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1,
1988 22.20%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
10.70% 56.10% (1.50%) 20.30% 21.10% 106.90% (15.10%)
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
through
EMERGING MARKETS COMPOSITE March 31, 1995*
<S> <C>
One Year (24.40%)
Since Inception on January 1,
1993 9.60%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
1993 1994
<S> <C>
73.90% (20.20%)
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
GLOBAL GOVERNMENT BOND through
EX-U.K. COMPOSITE* March 31, 1995**
<S> <C>
One Year 7.90%
Three Year 9.40%
Since Inception on September 1,
1990 11.40%
</TABLE>
31
<PAGE>
Annual Total Returns**
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J. P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
Average Annual Total Return
for the Periods Indicated
NATIONS INTERNATIONAL through
EQUITY FUND March 31, 1995
<S> <C>
One Year 1.22%
Three Year 6.98%
Since Inception on December 2,
1991 5.30%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C>
(8.57%) 27.21% 2.60%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Trust A Shares, the Money Market Funds offer Trust B, Investor A,
Investor B, Investor C and Investor D Shares. In addition to Trust A Shares, the
Non-Money Market Funds offer Trust B, Investor A, Investor C and Investor N
Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, loads and other expenses, which may cause the performance of a
class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of a Fund's shares. Any
fees charged by an institution directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your Institution, as defined below.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolio are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAI contains the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. Although Nations Portfolios, as
a
32
<PAGE>
new registrant, does not have an operating history, NationsBank has significant
experience managing mutual funds.
Nations Gartmore, with principal offices at One NationsBank Plaza, Charlotte,
North Carolina 28255, serves as sub-investment adviser to Nations International
Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund pursuant to a sub-advisory agreement.
Nations Gartmore is a joint venture structured as a general partnership between
NB Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK based
international fund management group of companies (the "Gartmore Group"). Banque
Indosuez S.A., a leading French bank, owns 75% of the equity of Gartmore plc.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and advisory
services to pension funds, unit trusts, offshore funds and investment funds. As
of December 31, 1994 the Gartmore Group had over $30 billion in assets under
management. Although Nations Gartmore is newly formed with no experience
managing mutual funds, many of its professionals have, in their capacity as
employees of the Gartmore Group, managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, NationsBank (and/or Nations
Gartmore) formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. With respect to the Non-Money Market Funds, NationsBank (and/or
Nations Gartmore) is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with
NationsBank (and/or Nations Gartmore) or which have sold shares in such Funds,
if NationsBank (and/or Nations Gartmore) believes that the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
various Advisory Agreements, NationsBank is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; 0.40% of the average daily net assets of
Nations Government Money Market Fund; 0.50% of the average daily net assets of
Nations Equity Index Fund; 0.60% of the average daily net assets of each of the
Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Mortgage-Backed Securities Fund; 0.75% of the average daily net assets of each
of Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund and Nations Balanced Assets Fund; 0.65% of
the first $100 million of the Nations Government Securities Fund's average daily
net assets, plus 0.55% of the Fund's average daily net assets in excess of $100
million and up to $250 million, plus 0.50% of the Fund's average daily net
assets in excess of $250 million; 0.75% of the first $100 million of the Nations
Equity Income Fund's average daily net assets, plus 0.70% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.60% of
the Fund's average daily net assets in excess of $250 million; 0.90% of the
average daily net assets of Nations International Equity Fund; 1.10% of the
average daily net assets of Nations Emerging Markets Fund; 0.90% of the average
daily net assets of Nations Pacific Growth Fund; and 0.70% of the average daily
net assets of Nations Global Government Income Fund.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NationsBank sub-advisory fees,
computed daily and paid monthly at the annual rates of 0.70% of the Nations
International Equity Fund's average daily net assets. 0.85% of Nations Emerging
Markets Fund's daily net assets; 0.70% of Pacific Growth Fund's daily net assets
and 0.54% of Nations Global Government Income Fund's daily net assets. Although
the advisory fees for Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations Global Government Income Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund and Nations
Balanced Assets Fund are higher than the advisory fees paid by most other mutual
funds, Nations Fund believes that the fees are comparable to the advisory fees
paid by many other funds with similar investment objectives and policies.
From time to time, NationsBank and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank advisory fees at the indicated rate of the following
Funds' average
33
<PAGE>
daily net assets: Nations Government Money Market Fund -- 0.16%; Nations Value
Fund -- 0.74%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.05%; Nations Equity Index
Fund -- 0.10%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.40%; Nations Short-Term Income Fund -- 0.29%; Nations
Diversified Income Fund -- 0.40%; Nations Strategic Fixed Income Fund -- 0.52%;
and Nations Mortgage-Backed Securities Fund -- 0.50%. For the fiscal year ended
November 30, 1994, after waivers, Nations Disciplined Equity Fund paid its prior
sub-adviser fees at the rate of 0.21% of the Fund's average daily net assets.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank advisory fees at the indicated rate of the following Funds' average
daily net assets: Nations Prime Fund -- 0.13%; Nations Treasury Fund -- 0.16%;
Nations Government Securities Fund -- 0.46%; Nations Equity Income
Fund -- 0.68%; and Nations International Equity Fund -- 0.40%. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid the prior
sub-adviser to Nations International Equity Fund 0.38% of such Fund's average
daily net assets.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Andrew Fleming is the principal portfolio manager of the Nations Emerging
Markets Fund. Mr. Fleming is Chief Investment Officer for Nations Gartmore and
head of the emerging markets team. Mr. Fleming joined Gartmore in 1984 as an
analyst and fund manager on the European desk. In 1986, he joined the Far East
team and, in 1993, became head of the Far East desk. Mr. Fleming was then
promoted to head of overseas equities. He graduated from the University of York,
England.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A., in Economics from the University of Michigan and a M.B.A. from the
University of North Carolina in Charlotte. He is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style for NationsBank. Mr. Smiley also serves as one of
the officer members on the Growth Equity Style Group. Mr. Smiley is a member of
the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
34
<PAGE>
Steve Smith, a Senior Vice President at NationsBank, has been portfolio manager
for the Discipline Equity Fund since April 1995. Mr. Smith has approximately
twenty years of investment management experience, the last twelve years with
NationsBank and its affiliates. Mr. Smith is a Chartered Financial Analyst and a
member of the Association of Investment Management and Research. Mr. Smith
earned a B.S. in engineering and an M.B.A. from the University of Alabama.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Kathy E. Bowman joined NationsBank in March 1995 as a Vice President and Fixed
Income Portfolio Manager. She has been the principal portfolio manager for
Nations Mortgage-Backed Securities Fund and Nations Government Securities Fund
since April, 1995. Ms. Bowman is a member of the Fixed Income Team and has over
fourteen years of investment experience. Prior to joining NationsBank, she was a
Director of Fixed Income Securities at Providian Capital Management and managed
public bond portfolios for insurance products. Ms. Bowman received a BBA from
Memphis State University, and holds the Chartered Financial Analyst designation.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Short-Term
Income Fund since 1993. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has over 7 years of portfolio management experience.
Mr. Cobb received a B.A. from the University of North Carolina-Chapel Hill.
Mark S. Ahnrud is a Vice President and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for Nations Diversified
Income Fund since 1992, and has been the principal portfolio manager for Nations
Strategic Fixed Income Fund since 1993. Mr. Ahnrud is a member of the Fixed
Income Team and has eight years of investment experience. Mr. Ahnrud received a
B.S. from Babson College and an M.B.A. from Duke University. Mr. Ahnrud holds
the Chartered Financial Analyst designation.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund since 1995. Mr. Swaim is
a member of the Fixed Income Team and has over eight years of investment
experience. Mr. Swaim previously served as derivative products manager for the
NationsBank Texas Corporate Investment Division portfolio. Mr. Swaim received
his B.S. from the University of North Texas and holds an M.B.A. from the
University of Texas, Arlington.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank
has advised Nations Fund and NationsBank that NationsBank may perform the
services contemplated by the various Investment Advisory Agreements without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such federal or state
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent NationsBank from continuing to perform, in whole
or in part, such services. If NationsBank were prohibited from performing any of
such services, it is expected that the Board of Trustees of Nations Fund Trust
and the Boards of Directors of Nations Fund, Inc. and Nations Portfolios would
recommend to each Fund's shareholders that they approve a new advisory agreement
with another entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
35
<PAGE>
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal year ended November 30, 1994, after waivers, Nations Fund Trust
paid its administrators fees at the rate of 0.09% of the following Funds'
average daily net assets: Nations Government Money Market Fund, Nations Value
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced Assets
Fund, Nations Short-Intermediate Government Fund, Nations Short-Term Income
Fund, Nations Diversified Income Fund, Nations Strategic Fixed Income Fund and
Nations Mortgage-Backed Securities Fund.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
its administrators fees at the rate of 0.09% of the following Funds' average
daily net assets: Nations Prime Fund, Nations Treasury Fund, Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Trust Shares of the Funds.
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund and Nations Global Government Income Fund.
TSSG serves as the Transfer Agent for each of the Fund's Trust Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Morgan
Guaranty, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Trust Shares,
is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to out-of-
pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the
average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Trust Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from TSSG of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to NationsBank, Stephens and TSSG; taxes; interest;
fees (including fees paid to Nations Fund's trustees, directors and officers);
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by NationsBank, Stephens or TSSG under
their respective agreements with Nations Fund; and any extraordinary expenses.
Any general expenses of Nations Fund Trust, Nations Fund, Inc. and/or Nations
Portfolios that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios or in such other manner as the Board of
Trustees or the relevant Board of Directors determines is fair and equitable.
36
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Money Market Funds currently offer six classes of
shares -- Trust A Shares, Trust B Shares, Investor A Shares, Investor B Shares,
Investor C Shares and Investor D Shares. The Non-Money Market Funds currently
offer five classes of shares -- Trust A Shares, Trust B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. Certain Funds, however, do not
offer shares of each class. This Prospectus relates only to the Trust A Shares
of the following funds of Nations Fund Trust: Nations Government Money Market
Fund, Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations
Balanced Assets Fund, Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund and Nations Mortgage-Backed Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust 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 Nations
Fund Trust's Board of Trustees. Nations Fund Trust'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 Nations Fund Trust 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 related SAI for examples of when the 1940 Act
requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Trust A Shares of the following
funds of Nations Fund, Inc.: Nations Prime Fund, Nations Treasury Fund, Nations
Equity Income Fund, Nations International Equity Fund and Nations Government
Securities Fund. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Institution (as
defined below) or Nations Fund at 1-800-626-2275.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations
37
<PAGE>
Fund, Inc. There are no preemptive rights applicable to any of Nations Fund,
Inc.'s shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Trust A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Fund of Nations Portfolios. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
About Your Investment
How To Buy Shares
Trust A Shares are sold primarily to bank trust departments and other financial
institutions (including NationsBank and its affiliated and correspondent banks)
("Institutions") acting on behalf of their customers ("Customers") having a
qualified trust account at or relationship with the Institution.
Trust Shares are purchased at net asset value per share without the imposition
of a sales charge according to procedures established by the Institution.
Institutions, however, may charge their Customers' accounts for services
provided in connection with the purchase of shares.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the
38
<PAGE>
"Exchange") is open for business (a "NYSE Business Day"). Unless otherwise
specified, the term Business Day in this Prospectus refers to a Bank Business
Day with respect to a Money Market Fund, and a NYSE Business Day with respect to
a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Trust A Shares is recorded on the books of the Funds, and share certificates are
not issued. It is the responsibility of Institutions to record beneficial
ownership of Trust A Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 2:00 p.m.,
Eastern time. A purchase order received by Stephens or the Transfer Agent after
such time will not be accepted; notice thereof will be given to the Institution
placing the order, and any funds received will be returned promptly to the
sending Institution. If federal funds are not available by 4:00 p.m., Eastern
time, the order will be canceled. Trust Shares are purchased at the net asset
value per share next determined after receipt of the order by Stephens or by the
Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for Trust
A Shares in the Non-Money Market Funds which are received by Stephens or by the
Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
placing the order. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the sending Institution. Trust Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Trust A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Customers may redeem all or part of their Trust A Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Trust Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders are effected at
the net asset value per share next determined after acceptance of the order by
Stephens or by the Transfer Agent.
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 2:00 p.m., Eastern time, and payment will normally be wired
the same day to the Institutions. Nations Fund reserves the right to wire
redemption proceeds within three Business Days after receiving the redemption
orders if, in the judgment of NationsBank, an earlier payment could adversely
impact a Fund. However, redemption proceeds for shares purchased by check may
not be remitted until at least 15 days after the date of purchase to ensure that
the check has cleared; a certified check, however, is deemed to be cleared
immediately. Redemption orders will not be accepted by Stephens or by the
Transfer Agent after 2:00 p.m., Eastern time, for execution on that Business
Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution within three
Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Trust Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a mini-
39
<PAGE>
mum balance in his or her account at the Institution, and the balance in such
Institution account falls below that minimum, the shareholder may be obliged to
redeem all or a part of his or her Trust Shares in the Funds to the extent
necessary to maintain the required minimum balance in such Institution account.
Nations Fund also may redeem shares involuntarily or make payment for redemption
in readily marketable securities or other property under certain circumstances
in accordance with the 1940 Act.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 2:00 p.m.,
Eastern time, each Bank Business Day. Shares of the Non-Money Market Funds are
valued as of the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each NYSE Business Day. Currently, the days on which the
Federal Reserve Bank of New York is closed (other than weekends) are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 2:00 p.m., Eastern time, on
the day of declaration. Trust A Shares begin earning dividends on the day the
purchase order is executed and continue earning dividends through and including
the day before the redemption order is executed (E.G., the settlement date).
Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Trust A Shares of the same Fund
unless the Customer has elected prior to the date of distribution to receive
payment in cash. Such election, or any revocation thereof, must be made in
writing to the Fund's Transfer Agent and will become effective with respect to
dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his Trust A Shares in
a Fund. To the extent that there are any net short-term capital gains, they will
be paid at least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each fiscal quarter by the Equity Funds and the Balanced Fund.
Each Fund's net realized capital gains (including net short-term capital gains)
are distributed at least annually.
Trust A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Trust A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Trust A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Certain purchasing Institutions may
provide for the reinvestment of dividends in additional Trust A Shares of the
same Fund. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his or
her Trust A Shares in a Fund.
40
<PAGE>
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders may be entitled to the dividends received deduction for
distributions from those Funds investing in the stock of domestic corporations
to the extent of the total qualifying dividends received by the distributing
Fund. Corporate shareholders of the Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income taxes as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
41
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. 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 are not 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 represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and 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. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates 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 Cer-
42
<PAGE>
tificate purchased at a premium may result in a loss to the Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. 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 NationsBank and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage backed securities, see the related
SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
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
43
<PAGE>
of its duty not to do so, there is a risk that such party could acquire an
interest in the obligations superior to that of the holders of the Asset Backed
Securities. Also, although most such obligations grant a security interest in
the motor vehicle being financed, in most states the security interest in a
motor vehicle must be noted on the certificate of title to perfect such security
interest against competing claims of other parties. Due to the larger number of
vehicles involved, however, the certificate of title to each vehicle financed,
pursuant to the obligations underlying the Asset Backed Securities, usually is
not amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the Asset Backed Securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related Asset Backed Securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and Federal consumer credit laws, many of which give such
holders the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other Asset Backed Securities, credit card receivables are unsecured
obligations of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by NationsBank to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, the Nations Treasury Fund
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements as discussed below. Generally, the effect of
such a transaction is that the Funds can recover all or most of
44
<PAGE>
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while they will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. 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). 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
NationsBank 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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 Nations Treasury Fund has entered into an arrangement whereby it reinvests
the proceeds of a reverse repurchase agreement in a tri-party repurchase
agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. The Nations 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 Nations Fund, Inc.'s Board of Directors on the advice of
NationsBank.
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, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by NationsBank and/or Nations Gartmore at the time of purchase to
be of comparable quality to rated instruments that may be acquired by a Fund.
Commercial instruments include variable rate master demand notes, which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate, and variable and floating
rate instruments.
The Nations Prime Fund also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and
companies meet the quality standards set forth above.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfo-
45
<PAGE>
lio will tend to decrease in value when interest rates rise and increase when
interest rates fall. A Fund's share price and yield depend, in part, on the
maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and the Fund's
sub-adviser believe that the currency of a particular foreign country may
experience a substantial movement against another currency. Under certain
circumstances, the Fund may commit a substantial portion of its portfolio to the
execution of these contracts. NationsBank and the Fund's sub-adviser will
consider the effects such a commitment would have on the investment program of
the Fund and the flexibility of the Fund to purchase additional securities.
Although forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted. The Nations International Equity
Fund will generally not enter into a forward contract with a term of greater
than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional
46
<PAGE>
risks inherent in the use of futures, options, forward contracts and swaps
include: imperfect correlation between the price of futures, options and forward
contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAI.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") 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 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 NationsBank. 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. Therefore, GICs are generally considered
to be illiquid investments.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not knowingly invest more than 10% of the value of their respective net assets
in securities that are illiquid or such lower percentage as may be required by
the states in which the appropriate Fund sells its shares. The Non-Money Market
Funds will not knowingly invest more than 15% of the value of their respective
net assets in securities that are illiquid or such lower percentage as may be
required by the states in which the appropriate Fund sells its shares.
Repurchase agreements and time deposits that do not provide for payment to a
Fund within seven days after notice, guaranteed investment contracts and some
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") (other than variable amount
master demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the Nations Prime Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
NationsBank, or Nations Gartmore acting under guidelines approved and monitored
by such Fund's Board, after considering trading activity, availability of
reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the level of illiquidity of a Fund holding such
securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to
47
<PAGE>
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Fund's Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or
less. Money market instruments may include, among other instruments, certain
U.S. Treasury obligations, U.S. Government obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with respect to a particular instrument
purchased by a Fund, a Fund may demand payment of the principal and accrued
interest on the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases", and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's
48
<PAGE>
limitation on investments in illiquid securities. As it deems appropriate,
NationsBank will establish procedures to monitor the credit standing of each
such municipal borrower, including its ability to meet contractual payment
obligations.
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.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and 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 NationsBank. 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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
49
<PAGE>
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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
50
<PAGE>
capacity to pay interest and repay principal in accordance with the terms
of the obligation. BB represents the lowest degree of speculation and B a
higher degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be 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 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
51
<PAGE>
pay interest and repay principal is very strong, although not quite as
strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
52
<PAGE>
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
53
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Trust A Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.00)** 0.01 0.13
Net realized and unrealized gain/(loss) on
investments...................................... (0.12) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.12) (0.29) 0.17
Distributions:
Dividends from net investment income............. N/A N/A (0.13)
Total Distributions.............................. N/A N/A (0.13)
Net asset value, end of period..................... $ 9.88 $ 9.71 $ 10.04
Total return++..................................... (1.20)% (2.90)% 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 14,529 $ 28,727 $ 20,402
Ratio of operating expenses to average net
assets........................................ 1.90%+ 1.70%+ 1.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (0.03)%+ 0.15%+ 5.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Trust A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
TRUST A SHARES
SEPTEMBER 30, 1995
NATIONS INTERNATIONAL
EQUITY FUND
NATIONS EMERGING MARKETS FUND
NATIONS PACIFIC GROWTH FUND
NATIONS GLOBAL GOVERNMENT
INCOME FUND
INVESTMENT ADVISER: NationsBank, N.A. (Carolinas)
SUB-INVESTMENT ADVISER: Nations Gartmore Investment Management
DISTRIBUTOR: Stephens Inc.
(Nations Fund logo)
<PAGE>
Prospectus
TRUST A SHARES
SEPTEMBER 30, 1995
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a "Fund") -- of
the Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Trust A Shares.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Trust A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund, Inc. and Nations Fund Portfolios, Inc.
("Nations Portfolios") is contained in separate
Statements of Additional Information (the "SAIs"),
which have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, dated September 30, 1995 and
July 1, 1995, respectively, are incorporated by
reference in their entirety into this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income
Fund
For purchase, redemption and
performance information
call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 6
How Objectives Are Pursued 6
How Performance Is Shown 10
How the Funds Are Managed 12
Organization and History 14
About Your
Investment
How to Buy Shares 15
How to Redeem Shares 16
How the Funds Value Their Shares 16
How Dividends and Distributions are Made;
Tax Information 17
Appendix A -- Portfolio Securities 18
Appendix B -- Description of Ratings 21
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES. Open-end management investment companies.
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder.
See "How to Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) The Nations International Equity Fund's investment objective
is to seek long-term growth of capital primarily by investing
in marketable equity securities of established, non-United
States issuers.
(Bullet) The Nations Emerging Markets Fund's investment objective is
to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies
that conduct their principal business activities in emerging
markets.
(Bullet) The Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by
investing primarily in securities of issuers that conduct
their principal business activities in the Pacific
Basin and the Far East (excluding Japan).
(Bullet) The Nations Global Government Income Fund's investment
objective is to seek current income. It seeks
to achieve this objective by investing primarily in debt
securities issued by governments, banks and supranational
entities located throughout the world.
(Bullet) RISK FACTORS. The Funds are designed for long-term
investors seeking international diversification and who
are willing to bear the risks associated with
international investing, such as foreign currency
fluctuations and economic and political risks. For a
discussion of these factors, See "How Objectives Are
Pursued -- Special Risk Considerations Relevant to an
Investment in the Funds."
(Bullet) INVESTMENT ADVISER. NationsBank serves as the
investment adviser to the Funds. NationsBank provides
investment advice to 44 investment company portfolios
in the Nations Fund Family. Nations Gartmore Investment
Management provides sub-advisory services to the Funds.
See "How the Funds are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS. The Nations International
Equity, Nations Emerging Markets and Nations Pacific
Growth Funds declare and pay dividends from net
investment income each calendar quarter and the Nations
Global Government Income Fund declares dividends daily
and pays them monthly. Each Fund's net realized capital
gains, including net short-term capital gains, are
distributed at least annually.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Trust A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
TRUST A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Global
Nations Nations Nations Government
International Emerging Pacific Growth Income
Equity Fund Markets Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90% .70%
All Other Expenses .20% .80% .80% .60%
Total Operating Expenses 1.10% 1.90% 1.70% 1.30%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Trust A Shares of
the Funds, assuming (1) a 5% annual return and (2) redemption at the end of each
time period.
<TABLE>
<CAPTION>
Nations
Global
Nations Nations Nations Government
International Emerging Pacific Growth Income
Equity Fund Markets Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 11 $19 $17 $13
3 Years $ 35 $60 $54 $41
5 Years $ 61 N/A N/A N/A
10 Years $134 N/A N/A N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Trust A Shares will bear either directly or indirectly. The "All Other Expenses"
figures in the above table are based on estimates for the current fiscal year.
For more complete descriptions of the Funds' operating expenses, see "How the
Funds are Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund, Inc. Price Waterhouse LLP is the independent
accountant to Nations Fund, Inc. and Nations Portfolios. The reports of Price
Waterhouse LLP for the most recent fiscal years of Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
Nations Fund, Inc.'s SAI, which is available upon request. Financial information
is not available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of a Fund will receive
unaudited semi-annual reports describing the Fund's investment operations and
annual financial statements audited by the Funds' independent accountant.
FOR A TRUST A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
TRUST A SHARES 05/31/95# 5/31/94# 5/31/93#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments (0.20) 1.44 0.21
Net increase/(decrease) in net assets resulting from investment operations (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.03) (0.05) (0.08)
Distributions from net realized capital gains (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains (0.10) -- --
Total distributions (0.25) (0.07) (0.10)
Net asset value, end of period $ 11.75 $ 12.06 $ 10.60
Total return++ (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net assets 1.17% 0.75% 1.03%
Portfolio turnover rate 92% 39% 41%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers and reimbursements $ 0.14 $ 0.08 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
TRUST A SHARES 5/31/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net assets resulting from investment operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.43%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.03
</TABLE>
* The Nations International Equity Fund Trust A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
5
<PAGE>
Objectives
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
Although NationsBank and Nations Gartmore Investment Management ("Nations
Gartmore"), the Fund's sub-investment adviser, will seek to achieve the
investment objective of each Fund, there is no assurance that they will be able
to do so. No single Fund should be considered, by itself, to provide a complete
investment program for any investor. The net asset value of the shares of the
Funds will fluctuate based on market conditions. Therefore, investors should not
rely upon the Funds for short-term financial needs, nor are the Funds meant to
provide a vehicle for participating in short-term swings in the stock market.
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that
NationsBank and/or Nations Gartmore believe have potential for growth of
capital. The Fund may invest up to 35% of its assets in any other type of
security including: convertible securities; preferred stocks; bonds, notes and
other debt securities (including Eurodollar securities); and obligations of
domestic or foreign governments and their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
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 to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
6
<PAGE>
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by NationsBank
and/or Nations Gartmore to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these ratings
designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. When allocating investments
among individual countries, NationsBank and/or Nations Gartmore will consider
various criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. NationsBank and Nations Gartmore seek to identify
and invest in those emerging markets that have a relatively low gross national
product per capita, compared to the world's major economies, and which exhibit
potential for rapid economic growth. NationsBank and Nations Gartmore believe
that investment in equity securities of emerging market issuers offers
significant potential for long-term capital appreciation.
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 forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the CFTC and options thereon for market exposure risk management. The Fund may
lend its portfolio securities to qualified institutional investors. The Fund may
invest in restricted, private placement and other illiquid securities, and also
may invest in securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and Far East include Australia, Hong Kong, India, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by NationsBank and/or
Nations Gartmore to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these ratings
designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund
7
<PAGE>
may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. When allocating investments
among individual countries, NationsBank and/or Nations Gartmore will consider
various criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund may invest in ADRs, GDRs, EDRs and ADSs. 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 forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with
NationsBank's and/or Nations Gartmore's assessment of the relative yield and
appreciation of such securities. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by NationsBank
and/or Nations Gartmore in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security
within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated A or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by NationsBank and/or Nations Gartmore. The Fund also may
invest in securities rated "Baa" by Moody's or "BBB" by S & P, but does not, as
a general matter, intend to invest more than 10% of its total assets in such
securities. 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. NationsBank and/or Nations Gartmore will consider such
event in determining whether the Fund should continue to hold the obligation. In
no event will the Fund hold more than 5% of its total net assets in securities
rated below investment grade. See "Appendix B" below for a description of these
rating designations. NationsBank and Nations Gartmore expect that the Fund's
dollar-weighted average maturity will not be greater than fifteen years under
normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
8
<PAGE>
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. For defensive purposes, the Fund may
temporarily invest substantially all of its assets in U.S. financial markets or
in U.S. dollar-denominated instruments. See "Appendix A" below for additional
information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and Far
East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 75% for Nations Emerging Markets Fund
and Nations Pacific Growth Fund and 175% for Nations Global Government Income
Fund. For Nations International Equity Fund's portfolio turnover rate, see
"Financial Highlights." If a Fund's portfolio turnover
9
<PAGE>
rate exceeds 100%, it may result in higher costs to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and the reinvestment in other securities. Portfolio turnover also
can generate short-term capital gains tax consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
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 (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
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.
The Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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 such 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.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. 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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of a Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of a Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gains distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gains distributions.
Total return also may be presented for other periods.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by the Gartmore Group, as defined below. The performance data
for these accounts is deemed relevant because the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite
have investment objectives, policies and restrictions that are substantially
similar to those of the Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. There is
substantial continuity between the portfolio managers of the Gartmore Group who
were responsible for managing those accounts and the portfolio managers of
Nations Gartmore who are responsible for managing the Nations Pacific Growth
10
<PAGE>
Fund, Nations Emerging Markets Fund and Nations Global Government Income Fund,
respectively. THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT
NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF NATIONSBANK, NATIONS
GARTMORE INVESTMENT MANAGEMENT OR THE FUNDS.
Average Annual Total Return
for the Periods Indicated
through
PACIFIC EX-JAPAN COMPOSITE March 31, 1995*
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1,
1988 22.20%
Annual Total Returns*
1988 1989 1990 1991 1992 1993 1994
10.70% 56.10% (1.50%) 20.30% 21.10% 106.90% (15.10%)
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
Average Annual Total Return
for the Periods Indicated
through
EMERGING MARKETS COMPOSITE March 31, 1995*
One Year (24.40%)
Since Inception on January 1,
1993 9.60%
Annual Total Returns*
1993 1994
73.90% (20.20%)
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
Average Annual Total Return
for the Periods Indicated
GLOBAL GOVERNMENT BOND EX-U.K. through
COMPOSITE* March 31, 1995**
One Year 7.90%
Three Year 9.40%
Since Inception on September 1,
1990 11.40%
Annual Total Returns**
1991 1992 1993 1994
19.30% 3.30% 13.50% (2.40%)
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J. P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
Average Annual Total Return
for the Periods Indicated
NATIONS INTERNATIONAL EQUITY through
FUND March 31, 1995
One Year 1.22%
Three Year 6.98%
Since Inception on December 2,
1991 5.30%
Annual Total Returns
1992 1993 1994
(8.57%) 27.21% 2.60%
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
11
<PAGE>
In addition to Trust A Shares, the Funds offer Trust B, Investor A, Investor C
and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your Institution, as defined below.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. The SAIs
for Nations Fund and Nations Portfolios contain the names of and general
background information concerning each of their respective Directors.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is a wholly owned
subsidiary of NationsBank Corporation, a bank holding company organized as a
North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. Although Nations Portfolios, as
a new registrant, does not have an operating history, NationsBank has
significant experience managing mutual funds.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds pursuant to sub-advisory agreements. Nations Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, a wholly
owned subsidiary of Gartmore plc, a UK company listed on the London Stock
Exchange which is the holding company for a leading UK based international fund
management group of companies (the "Gartmore Group"). Banque Indosuez S.A., a
leading French bank, owns 75% of the equity of Gartmore plc. The initial asset
management company in the Gartmore Group was founded in 1969 and the Gartmore
Group currently provides investment management and advisory services to pension
funds, unit trusts, offshore funds and investment funds. As of December 31, 1994
the Gartmore Group had over $30 billion in assets under management. Although
Nations Gartmore is newly formed with no experience managing mutual funds, many
of its professionals have, in their capacity as employees of the Gartmore Group,
managed mutual funds.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, NationsBank and/or Nations Gartmore formulate guidelines and lists of
approved investments for each Fund, make decisions with respect to and place
orders for each Fund's purchases and sales of portfolio securities and maintain
records relating to such purchases and sales. NationsBank and Nations Gartmore
are 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 them or which have sold shares
in such Fund, if NationsBank or Nations Gartmore believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship.
For the services provided and expenses assumed pursuant to various Advisory
Agreements, NationsBank is entitled to receive advisory fees, computed daily and
paid monthly, at the annual rates of: 0.90% of the average daily net assets of
Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund; 0.90% of the average daily net assets of Nations
Pacific Growth Fund; and 0.70% of the average daily net assets of Nations Global
Government Income Fund. For the fiscal year ended May 31, 1995, Nations Fund,
Inc. paid NationsBank advisory fees at the rate of 0.40% of the Nations
International Equity Fund's average daily net assets. For the fiscal year ended
May 31, 1995, after waivers, Nations Fund Inc. paid the prior sub-adviser to
Nations International Equity Fund 0.38% of such Fund's average daily net assets.
12
<PAGE>
For services provided and expenses assumed pursuant to sub-advisory agreements,
NationsBank will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.70% of Nations International Equity Fund's
daily net assets; 0.85% of Nations Emerging Markets Fund's daily net assets;
0.70% of Pacific Growth Fund's daily net assets and 0.54% of Nations Global
Government Income Fund's daily net assets. Although the advisory fees for the
Funds are higher than the advisory fees paid by most other mutual funds, Nations
Portfolios believes that the fees are comparable to the advisory fees paid by
many other funds with similar investment objectives and policies. From time to
time, NationsBank and/or Nations Gartmore may waive (either voluntarily or
pursuant to applicable state limitations) advisory fees payable by the Funds.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February 1995. He joined the Gartmore Group as a
Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Andrew Fleming is the principal portfolio manager of the Nations Emerging
Markets Fund. Mr. Fleming is Chief Investment Officer for Nations Gartmore and
head of the emerging markets team. Mr. Fleming joined Gartmore in 1984 as an
analyst and fund manager on the European desk. In 1986, he joined the Far East
team and, in 1993, became head of the Far East desk. Mr. Fleming was then
promoted to head of overseas equities. He graduated from University of York,
England.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Morrison & Foerster, counsel to NationsFund, Inc. and Nations Portfolios and
special counsel to NationsBank, has advised Nations Fund, Inc., Nations
Portfolios and NationsBank that NationsBank may perform the services
contemplated by the Advisory Agreements without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent NationsBank from continuing to perform, in
whole or in part, such services. If NationsBank were prohibited from performing
any of such services, it is expected that the Boards of Directors of Nations
Fund, Inc. and Nations Portfolios would recommend to each Fund's shareholders
that they approve a new advisory agreement with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds. For the services rendered pursuant to the
Administration and Co-Administration Agreements, Stephens and TSSG are entitled
to receive a combined
13
<PAGE>
fee at the annual rate of up to 0.10% of each Fund's average daily net assets.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Portfolios
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to Institutions which assist customers in
purchasing Trust Shares of the Funds. For the fiscal year ended May 31, 1995,
after waivers, Nations Fund, Inc. paid its administrators fees at the rate of
0.09% of the average daily net assets of the Nations International Equity Fund.
Morgan Guaranty Trust Company (the "Custodian"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Funds.
TSSG serves as the Transfer Agent for the Funds' Trust Shares. NationsBank of
Texas, N.A. serves as the sub-transfer agent for the Funds' Trust Shares. The
sub-transfer agent is located at 1401 Elm Street, Dallas, Texas 75202. In return
for providing sub-transfer agency services for the Trust Shares of Nations Fund,
NationsBank of Texas, N.A. is entitled to receive an annual fee from TSSG of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to NationsBank, Stephens and TSSG; taxes; interest;
fees (including fees paid to Nations Fund's directors and officers); federal and
state securities registration and qualification fees; brokerage fees and
commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by NationsBank, Nations Gartmore,
Stephens or TSSG under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund, Inc. or Nations
Portfolios that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations Fund, Inc. or Nations
Portfolios or in such other manner as the relevant Board of Directors determines
is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and The Capitol Mutual Funds. The
Nations Fund Family currently has 44 distinct investment portfolios and total
assets in excess of $16 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Trust A Shares of the Nations
International Equity Fund of Nations Fund, Inc. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Institution (as defined below) or Nations Fund at 1-800-626-2275.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations
14
<PAGE>
Fund, Inc. There are no preemptive rights applicable to any of Nations Fund,
Inc.'s shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote more than 25% of the outstanding shares of Nations Fund,
Inc. and therefore could be considered to be a controlling person of Nations
Fund, Inc. for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which NationsBank and its
affiliates possessed or shared power to dispose or vote as of a certain date,
see Nations Fund, Inc.'s SAI. It is anticipated that Nations Fund, Inc. will not
hold annual shareholder meetings on a regular basis unless required by the 1940
Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Trust A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund, Inc. and
Nations Portfolios 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
Prospectus.
About Your Investment
How To Buy Shares
Trust A Shares are sold primarily to bank trust departments and other financial
institutions (including NationsBank and its affiliated and correspondent banks)
("Institutions") acting on behalf of their customers ("Customers") having a
qualified trust account at or relationship with the Institution.
Trust Shares are purchased at net asset value per share without the imposition
of a sales charge according to procedures established by the Institution.
Institutions, however, may charge their Customers' accounts for services
provided in connection with the purchase of shares. Purchases may be effected on
days on which the New York Stock Exchange (the "Exchange") is open for business
(a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
15
<PAGE>
Nations Fund reserves the right to reject any purchase order. The issuance of
Trust A Shares is recorded on the books of the Funds and share certificates are
not issued. It is the responsibility of Institutions to record beneficial
ownership of Trust A Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Trust A Shares in the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by a
Fund's Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Institution placing the order. Payment for orders which are
not received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Trust A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations
Portfolios.
How To Redeem Shares
Customers may redeem all or part of their Trust A Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is Stephens' responsibility to
transmit orders it receives to Nations Fund, Inc. and Nations Portfolios. No
charge for wiring redemption payments is imposed by Nations Fund, although the
Institutions may charge their Customer accounts for these or other services
provided in connection with the redemption of Trust Shares. Information
concerning these services and any charges are available from the Institutions.
Redemption orders are effected at the net asset value per share next determined
after acceptance of the order by Stephens or by the Transfer Agent. Redemption
proceeds are normally remitted in federal funds wired to the redeeming
Institution within three Business Days after receipt of the order.
Nations Portfolios may redeem a shareholder's Trust Shares if the balance in
such shareholder's account with a Fund drops below $500 as a result of
redemptions, and the shareholder does not increase the balance to at least $500
on 60 days' written notice. If a shareholder has agreed with a particular
Institution to maintain a minimum balance in his or her account at the
Institution, and the balance in such Institution account falls below that
minimum, the shareholder may be obliged to redeem all or a part of his or her
Trust Shares in the Funds to the extent necessary to maintain the required
minimum balance in such Institution account. Nations Portfolios also may redeem
shares involuntarily or make payment for redemption in readily marketable
securities or other property under certain circumstances in accordance with the
1940 Act.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the respective Boards of Directors.
16
<PAGE>
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Trust A Shares of the Funds are eligible to receive dividends when
declared provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed.
The net asset value of Trust A Shares in each Fund will be reduced by the amount
of any dividend or distribution. Dividends and distributions are paid in cash
within five Business Days of the end of the quarter or the month to which the
dividend relates. Certain purchasing Institutions may provide for the
reinvestment of dividends in additional Trust A Shares of the Funds. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his or her Trust A Shares in a
Fund.
TAX INFORMATION: Each of the Funds intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income
taxes to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional shares. (Federal income taxes for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders of the Nations International Equity, Nations Emerging
Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Funds, if
any, will be distributed at least annually to the Funds' shareholders. The Funds
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income taxes as long-term capital gains, regardless of how long the
shareholders have held a Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from dividends paid by Nations
Fund and/or redemptions (including exchange redemptions) that occur in certain
shareholder accounts if the shareholder has not properly furnished a certified
correct Taxpayer Identification Number and has not certified that withholding
does not apply. If the Internal Revenue Service has notified Nations Fund that
the Taxpayer Identification Number listed on a shareholder account is incorrect
according to its records, or that the shareholder is subject to backup
withholding, a Fund is required by the Internal Revenue Service to withhold 31%
of dividends and/or redemptions (including exchange redemptions). Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires each Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and
17
<PAGE>
therefore each Fund may elect to "pass through" to its shareholders these
foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies such Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% or more of such Fund's total assets
at the time of purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by NationsBank and/or
Nations Gartmore, at the time of purchase, to be of comparable quality to rated
instruments that may be acquired by the Fund. Commercial instruments include
variable rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate, and variable and floating rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions
18
<PAGE>
to convert foreign currencies to and from the United States Dollar. A Fund
enters into these transactions either on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by a Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and/or the Sub-Adviser
believe that the currency of a particular foreign country may experience a
substantial movement against another currency. Under certain circumstances, a
Fund may commit a substantial portion of its portfolio to the execution of these
contracts. NationsBank and the Sub-Adviser will consider the effects such a
commitment would have on the investment program of such Fund and the flexibility
of such Fund to purchase additional securities. Although forward contracts will
be used primarily to protect a Fund from adverse currency movements, they
involve the risk that anticipated currency movements will not be accurately
predicted. The Funds will generally not enter into a forward contract with a
term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject the Funds to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid, and their prices more volatile, than those of comparable domestic
issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by the Funds may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued," the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect against
adverse market movements by investing in futures, options and other derivative
instruments. These include the purchase and writing of options on securities
(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
equity swap contracts, interest rate swaps, currency swaps, caps, collars and
floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyze market conditions or do not employ the appropriate
strategy with respect to these instruments, such Fund could be left in a less
favorable position. Additional risks inherent in the use of futures, options,
forward contracts and swaps include: imperfect correlation between the price of
futures, options and forward contracts and movements in the prices of the
securities or
19
<PAGE>
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. A Fund will not knowingly
invest more than 15% of the value of its net assets in securities that are
illiquid or such lower percentage as may be required by the states in which such
Fund sells its shares. Repurchase agreements and time deposits that do not
provide for payment to a Fund within seven days after notice, guaranteed
investment contracts and some commercial paper issued in reliance upon the
exemption in Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act") (other than variable amount master demand notes with maturities of nine
months or less), are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, a Fund may
purchase securities which are not registered under the 1933 Act but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by such Fund's Board of Directors or NationsBank or Nations Gartmore,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A, the
level of illiquidity of a Fund holding such securities may increase during such
period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expect to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date, rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Funds may invest in securities issued by other
investment companies to the extent that such investments are consistent with a
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that such Fund bears directly in connection with its own
operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
bro-
20
<PAGE>
ker-dealer) to repurchase that security from such Fund at a specified price and
date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and The Capitol Mutual Funds.
SECURITIES LENDING: To increase return on portfolio securities, a Fund may lend
its portfolio securities to broker-dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by NationsBank or Nations Gartmore to be credit worthy
and when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indexes, non-U.S. interest rates and foreign currencies for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. These contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that a
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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
21
<PAGE>
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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
22
<PAGE>
The following summarizes the highest four ratings used by 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.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
23
<PAGE>
related supporting institutions) are considered to have a superior capacity for
repayment of senior short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of senior short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
24
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor A Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.01) (0.00)** 0.12
Net realized and unrealized gain/(loss) on
investments...................................... (0.12) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.13) (0.30) 0.16
Distributions:
Dividends from net investment income............. N/A N/A (0.12)
Total Distributions.............................. N/A N/A (0.12)
Net asset value, end of period..................... $ 9.87 $ 9.70 $ 10.04
Total return++..................................... (1.30)% (3.00)% 1.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 57 $ 161 $ 23
Ratio of operating expenses to average net
assets........................................ 2.15%+ 1.95%+ 1.55%+
Ratio of net investment income/(loss) to average
net assets.................................... (0.28)%+ (0.10)%+ 5.36%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor C Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.02) (0.02) 0.10
Net realized and unrealized gain/(loss) on
investments...................................... (0.13) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.15) (0.32) 0.14
Distributions:
Dividends from net investment income............. N/A N/A (0.10)
Total Distributions.............................. N/A N/A (0.10)
Net asset value, end of period..................... $ 9.85 $ 9.68 $ 10.04
Total return++..................................... (1.50)% (3.20)% 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 10 $ 46 $ 9
Ratio of operating expenses to average net
assets........................................ 2.90%+ 2.70%+ 2.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (1.03)%+ (0.85)%+ 4.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor C Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
INVESTOR A AND
INVESTOR C SHARES
SEPTEMBER 30, 1995
This Prospectus describes the NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS DISCIPLINED EQUITY FUND,
NATIONS INTERNATIONAL EQUITY FUND, NATIONS EMERGING
MARKETS FUND AND NATIONS PACIFIC GROWTH FUND (the
"Funds") of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
two classes of shares of the Funds -- Investor A
Shares and Investor C Shares. The Nations
Disciplined Equity Fund was formerly called "Nations
Special Equity Fund."
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor A and Investor C Shares ("Investor Shares")
should consider before investing. Investors should
read this Prospectus and retain it for future
reference. Additional information about Nations Fund
Trust, Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios") is contained
in separate Statements of Additional Information
(the "SAIs"), which have been filed with the
Securities and Exchange Commission (the "SEC") and
are available upon request without charge by writing
or calling Nations Fund at its address or telephone
number shown below. The SAIs for Nations Fund Trust,
Nations Fund, Inc. and Nations Portfolios, dated
September 30, 1995, September 30, 1995 and July 1,
1995, respectively, are incorporated by reference in
their entirety into this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity
Fund
INTERNATIONAL FUNDS:
Nations International
Equity Fund
Nations Emerging Markets
Fund
Nations Pacific
Growth Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NationsFund
GRPAC
<PAGE>
About The Funds
Table Of Contents
Expenses Summary 3
Financial Highlights 6
Objectives 14
How Objectives Are Pursued 14
How Performance is Shown 21
How the Funds Are Managed 23
Organization and History 26
About Your Investment
How to Buy Shares 28
Sales Charges 30
Shareholder Servicing and Distribution Plans 32
How to Redeem Shares 33
How to Exchange Shares 34
How the Funds Value Their Shares 36
How Dividends and Distributions are Made; Tax
Information 36
Appendix A -- Portfolio Securities 37
Appendix B -- Description of Ratings 43
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A and Investor C Shares of the Funds. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in the Funds over
specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Value Equity Balanced
Fund Income Fund Assets Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the
lower of the original purchase price or redemption
proceeds)1 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25% .25%
Other Expenses .17% .25% .20%
Total Operating Expenses 1.17% 1.20% 1.20%
<CAPTION>
Nations Nations
Capital Emerging
Growth Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price) 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the
lower of the original purchase price or redemption
proceeds)1 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25%
Other Expenses .17% .20%
Total Operating Expenses 1.17% 1.20%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Disciplined International
Equity Fund Equity Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .90%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25%
Other Expenses .25% .20%
Total Operating Expenses 1.25% 1.35%
<CAPTION>
Nations Nations
Emerging Pacific
Markets Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.10% .90%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25%
Other Expenses .80% .80%
Total Operating Expenses 2.15% 1.95%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject to
a Deferred Sales Charge if redeemed within two years of purchase. See "Sales
Charges."
3
<PAGE>
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75%
Rule 12b-1 Fees .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .17% .25% .20%
Total Operating Expenses 1.92% 1.95% 1.95%
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .75%
Rule 12b-1 Fees .75% .75%
Shareholder Servicing Fees .25% .25%
Other Expenses .17% .20%
Total Operating Expenses 1.92% 1.95%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Disciplined International Nations Emerging
Equity Fund Equity Fund Markets Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .90% 1.10%
Rule 12b-1 Fees .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .25% .20% .80%
Total Operating Expenses 2.00% 2.10% 2.90%
<CAPTION>
Nations Pacific
Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90%
Rule 12b-1 Fees .75%
Shareholder Servicing Fees .25%
Other Expenses .80%
Total Operating Expenses 2.70%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase.
4
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
1 Year $ 69 $ 69 $ 69
3 Years $ 93 $ 93 $ 93
5 Years $ 118 $ 120 $ 120
10 Years $ 192 $ 195 $ 195
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
1 Year $ 69 $ 69
3 Years $ 93 $ 93
5 Years $ 118 $ 120
10 Years $ 192 $ 195
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Nations
Disciplined International Emerging Market
Equity Fund Equity Fund Fund
1 Year $ 70 $ 70 $ 78
3 Years $ 95 $ 98 $ 121
5 Years $ 122 $ 127 N/A
10 Years $ 200 $ 211 N/A
<CAPTION>
Nations
Pacific Growth Fund
1 Year $ 76
3 Years $ 115
5 Years N/A
10 Years N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
1 Year $ 29 $ 30 $ 30
3 Years $ 60 $ 61 $ 61
5 Years $ 104 $ 105 $ 105
10 Years $ 224 $ 227 $ 227
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
1 Year $ 29 $ 30
3 Years $ 60 $ 61
5 Years $ 104 $ 105
10 Years $ 224 $ 237
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Nations
Disciplined International Emerging Market
Equity Fund Equity Fund Funds
1 Year $ 30 $ 31 $ 39
3 Years $ 63 $ 66 $ 90
5 Years N/A $ 113 N/A
10 Years N/A $ 243 N/A
<CAPTION>
Nations
Pacific Growth Fund
1 Year $ 37
3 Years $ 84
5 Years N/A
10 Years N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
1 Year $ 19 $ 20 $ 20
3 Years $ 60 $ 61 $ 61
5 Years $ 104 $ 105 $ 105
10 Years $ 224 $ 227 $ 227
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
1 Year $ 19 $ 20
3 Years $ 60 $ 61
5 Years $ 104 $ 105
10 Years $ 224 $ 227
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Nations
Disciplined Equity International Emerging Market
Fund Equity Fund Funds
1 Year $ 20 $ 21 $ 29
3 Years $ 63 $ 66 $ 90
5 Years N/A $ 113 N/A
10 Years N/A $ 243 N/A
<CAPTION>
Nations
Pacific Growth Fund
1 Year $ 27
3 Years $ 84
5 Years N/A
10 Years N/A
</TABLE>
5
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A and Investor C Shares of the Funds will bear either directly or
indirectly. Except for the Nations Emerging Markets Fund, and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, the figures in the
above tables are based on amounts incurred during each Fund's most recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. There is no assurance that any fee waivers and reimbursements will
continue beyond the current fiscal year. If fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders in the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How the
Funds Are Managed." For a more complete description of the Rule 12b-1 and
shareholder servicing fees payable by the Funds, see "Shareholder Servicing and
Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of the Funds will
receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
Financial information is not provided for the Investor A and Investor C Shares
of Nations Emerging Markets Fund and Nations Pacific Growth Fund because such
shares had not commenced operations during the periods presented.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of period $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.13 0.20 0.22 0.26 0.34
Net realized and unrealized gain/(loss) on
investments 2.11 (0.20) 1.35 1.59 1.47
Net increase/(decrease) in net assets
resulting from investment operations 2.24 0.00 1.57 1.85 1.81
Distributions:
Dividends from net investment income (0.12) (0.20) (0.21) (0.27) (0.36)
Distributions from net realized capital
gains (0.67) (0.54) (0.09) (0.29) --
Total distributions (0.79) (0.74) (0.30) (0.56) (0.36)
Net asset value, end of period $ 14.43 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 18.50% (0.17)% 12.80% 16.96%+++ 18.79%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 40,061 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating expenses to average net
assets 1.16%+ 1.18% 1.21% 1.06% 0.53%
Ratio of net investment income to average
net assets 1.92%+ 1.60% 1.73% 2.15% 3.33%
Portfolio turnover rate 36% 75% 64% 60% 51%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 1.16%+ 1.18% 1.22% 1.15% 0.99%
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.13 $ 0.20 $ 0.22 $ 0.25 $ 0.30
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.04
Net investment income 0.35
Net realized and unrealized gain/(loss) on
investments (0.36)
Net increase/(decrease) in net assets
resulting from investment operations (0.01)
Distributions:
Dividends from net investment income (0.32)
Distributions from net realized capital
gains --
Total distributions (0.32)
Net asset value, end of period $ 9.71
Total return++ (0.16)%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 7,020
Ratio of operating expenses to average net
assets 0.21%+
Ratio of net investment income to average
net assets 4.19%+
Portfolio turnover rate 24%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 1.11%+
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.26
</TABLE>
* The Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.90 $ 13.64 $ 12.41
Net investment income 0.08 0.12 0.13
Net realized and unrealized gain/(loss) on investments 2.10 (0.22) 1.32
Net increase/(decrease) in net assets resulting from investment
operations 2.18 (0.10) 1.45
Distributions:
Dividends from net investment income (0.08) (0.10) (0.13)
Distributions from net realized capital gains (0.67) (0.54) (0.09)
Total distributions (0.75) (0.64) (0.22)
Net asset value, end of period $ 14.33 $ 12.90 $ 13.64
Total return++ 18.03% (0.92)% 11.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,571 $ 2,983 $ 2,997
Ratio of operating expenses to average net assets 1.91%+ 1.93% 1.96%
Ratio of net investment income to average net assets 1.17%+ 0.85% 0.98%
Portfolio turnover rate 36% 75% 64%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.91%+ 1.93% 1.97%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.08 $ 0.12 $ 0.13
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 11.63
Net investment income 0.07
Net realized and unrealized gain/(loss) on investments 0.78
Net increase/(decrease) in net assets resulting from investment
operations 0.85
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Total distributions (0.07)
Net asset value, end of period $ 12.41
Total return++ 7.33%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,286
Ratio of operating expenses to average net assets 1.98%+
Ratio of net investment income to average net assets 1.22%+
Portfolio turnover rate 60%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.98%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Value Fund Investor C Shares commenced operations on June 17,
1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 05/31/95 05/31/94 05/31/93 05/31/92
Operating performance:
Net asset value, beginning of period $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.40 0.37 0.34 0.29
Net realized and unrealized gain on investments 1.10 0.21 1.05 1.27
Net increase in net assets resulting from investment
operations 1.50 0.58 1.39 1.56
Distributions:
Dividends from net investment income (0.40) (0.38) (0.32) (0.28)
Distributions from net realized capital gains (0.73) (0.81) (0.45) (0.07)
Total distributions (1.13) (1.19) (0.77) (0.35)
Net asset value, end of period $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 14.53% 4.74% 12.78% 15.59%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating expenses to average net assets 1.17% 1.19% 1.17% 1.35%
Ratio of net investment income to average net assets 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 158% 116% 55% 84%
Ratio of operating expenses to average net assets without
waivers and reimbursements 1.18%+ 1.20% 1.29% 2.46%
Net investment income per share without waivers and
reimbursements $ 0.40 $ 0.37 $ 0.33 $ 0.18
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.04
Net investment income 0.05
Net realized and unrealized gain on investments 0.10
Net increase in net assets resulting from investment
operations 0.15
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total distributions 0.00
Net asset value, end of period $ 10.19
Total return++ 1.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 497
Ratio of operating expenses to average net assets 1.37%+
Ratio of net investment income to average net assets 3.40%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net assets without
waivers and reimbursements 15.09%+
Net investment income per share without waivers and
reimbursements $ (1.30)
</TABLE>
* The Nations Equity Income Fund Investor A Shares commenced operations on
April 16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES 05/31/95 05/31/94
Operating performance:
Net asset value, beginning of period $ 11.47 $ 12.04
Net investment income 0.32 0.28
Net realized and unrealized gain on investments 1.08 0.21
Net increase in net assets resulting from investment operations 1.40 0.49
Distributions:
Dividends from net investment income (0.31) (0.25)
Distributions from net realized capital gains (0.73) (0.81)
Total distributions (1.04) (1.06)
Net asset value, end of period $ 11.83 $ 11.47
Total return++ 13.49% 3.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,278 $ 4,221
Ratio of operating expenses to average net assets 1.92% 1.94%
Ratio of net investment income to average net assets 2.75% 2.41%
Portfolio turnover rate 158% 116%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.93% 1.95%
Net investment income per share without waivers and reimbursements $ 0.32 $ 0.28
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*
Operating performance:
Net asset value, beginning of period $ 11.13
Net investment income 0.32
Net realized and unrealized gain on investments 1.32
Net increase in net assets resulting from investment operations 1.64
Distributions:
Dividends from net investment income (0.28)
Distributions from net realized capital gains (0.45)
Total distributions (0.73)
Net asset value, end of period $ 12.04
Total return++ 15.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,377
Ratio of operating expenses to average net assets 1.92%+
Ratio of net investment income to average net assets 2.37%+
Portfolio turnover rate 55%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.04%+
Net investment income per share without waivers and reimbursements $ 0.31
</TABLE>
* The Nations Equity Income Fund Investor C Shares commenced operations on
June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.86 $ 10.24
Net investment income 0.15 0.22 0.29
Net realized and unrealized gain/(loss) on investments 1.14 (0.44) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 1.29 (0.22) 0.91
Distributions:
Dividends from net investment income (0.13) (0.22) (0.29)
Distributions from net realized gains (0.02) -- --
Total distributions (0.15) (0.22) (0.29)
Net asset value, end of period $ 11.56 $ 10.42 $ 10.86
Total return++ 12.47% (2.02)% 8.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,006 $ 4,881 $ 5,191
Ratio of operating expenses to average net assets 1.24%+ 1.23% 1.15%
Ratio of net investment income to average net assets 2.86%+ 2.06% 2.57%
Portfolio turnover rate 101% 156% 50%
Ratio of operating expenses to average net assets before fee waivers 1.24%+ 1.24% 1.22%
Net investment income per share before fee waivers $ 0.15 $ 0.22 $ 0.28
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments 0.23##
Net increase/(decrease) in net assets resulting from investment
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 547
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.60%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets before fee waivers 1.30%+
Net investment income per share before fee waivers $ 0.01
</TABLE>
* The Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amounts shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.38 $ 10.82 $ 10.23
Net investment income 0.11 0.14 0.23
Net realized and unrealized gain/(loss) on investments 1.13 (0.43) 0.59
Net increase/(decrease) in net assets resulting from investment
operations 1.24 (0.29) 0.82
Distributions:
Dividends from net investment income (0.08) (0.15) (0.23)
Distributions from net realized gains (0.02) -- --
Total distributions (0.10) (0.15) (0.23)
Net asset value, end of period $ 11.52 $ 10.38 $ 10.82
Total return++ 11.93% (2.72)% 8.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 798 $ 951 $ 1,196
Ratio of operating expenses to average net assets 1.99%+ 1.98% 1.90%
Ratio of net investment income to average net assets 2.11%+ 1.31% 1.82%
Portfolio turnover rate 101% 156% 50%
Ratio of operating expenses to average net assets before fee waivers 1.99%+ 1.99% 1.97%
Net investment income per share before fee waivers $ 0.11 $ 0.14 $ 0.22
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments 0.22##
Net increase/(decrease) in net assets resulting from investment
operations 0.23
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.23
Total return++ 2.30%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 156
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income to average net assets 2.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets before fee waivers 2.05%+
Net investment income per share before fee waivers $ 0.01
</TABLE>
* The Nations Balanced Assets Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES: (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.04 0.07 0.07
Net realized and unrealized gain on investments 1.38 0.14 0.41
Net increase in net assets resulting from investment
operations 1.42 0.21 0.48
Distributions:
Dividends from net investment income (0.04) (0.06) (0.08)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.30) (0.06) (0.09)
Net asset value, end of period $ 12.33 $ 11.21 $ 11.06
Total return++ 13.07% 1.93% 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,369 $ 11,038 $ 11,182
Ratio of operating expenses to average net assets 1.16%+ 1.15% 1.05%
Ratio of net investment income/(loss) to average net
assets 0.78%+ 0.60% 0.59%
Portfolio turnover rate 43% 56% 81%
Ratio of operating expenses to average net assets before
fee waivers 1.22%+ 1.16% 1.14%
Net investment income/(loss) per share before fee waivers $ 0.04 $ 0.07 $ 0.06
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES: 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 0.66##
Net increase in net assets resulting from investment
operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,225
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income/(loss) to average net
assets 1.08%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before
fee waivers 1.30%+
Net investment income/(loss) per share before fee waivers $ 0.00(a)
</TABLE>
* The Nations Capital Growth Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES: (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) 0.01 (0.02) (0.00)(a)
Net realized and unrealized gain on investments 1.35 0.15 0.38
Net increase in net assets resulting from investment
operations 1.36 0.13 0.38
Distributions:
Dividends from net investment income -- -- (0.03)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.26) (0.00)(a) (0.04)
Net asset value, end of period $ 12.24 $ 11.14 $ 11.01
Total return++ 12.59% 1.22% 3.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,921 $ 2,394 $ 2,919
Ratio of operating expenses to average net assets 1.91%+ 1.90% 1.80%
Ratio of net investment income/(loss) to average net assets 0.03%+ (0.15)% (0.16)%
Portfolio turnover rate 43% 56% 81%
Ratio of operating expenses to average net assets before fee
waivers 1.97%+ 1.91% 1.89%
Net investment income/(loss) per share before fee waivers $ (0.01) $ (0.02) $ 0.00(a)
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES: 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)(a)
Net realized and unrealized gain on investments 0.67##
Net increase in net assets resulting from investment
operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions 0.00(a)
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 406
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets 0.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before fee
waivers 2.05%+
Net investment income/(loss) per share before fee waivers $ 0.00(a)
</TABLE>
* The Nations Capital Growth Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR A SHARES: (UNAUDITED) 11/30/94#
Operating performance:
Net asset value, beginning of period $ 11.35 $ 10.85
Net investment income/(loss) 0.00(a) (0.06)
Net realized and unrealized gain on investments 0.96 0.70
Net increase in net assets resulting from investment operations 0.96 0.64
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of period $ 11.91 $ 11.35
Total return++ 8.98% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,212 $ 3,234
Ratio of operating expenses to average net assets 1.22%+ 1.26%
Ratio of net investment income/(loss) to average net assets (0.15)%+ (0.54)%
Portfolio turnover rate 69% 129%
Ratio of operating expenses to average net assets before fee waivers 1.23%+ 1.26%
Net investment income/(loss) per share before fee waivers 0.00(a) $ (0.06)
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES: 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net assets resulting from investment operations 0.99
Distributions:
Distributions from net realized gains (0.01)
Total distributions (0.01)
Net asset value, end of period $ 10.85
Total return++ 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,095
Ratio of operating expenses to average net assets 1.05%+
Ratio of net investment income/(loss) to average net assets (0.40)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets before fee waivers 1.26%+
Net investment income/(loss) per share before fee waivers $ (0.04)
</TABLE>
* The Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
(a) Value represents less than $0.01 per share.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR C SHARES: (UNAUDITED) 11/30/94#
Operating performance:
Net asset value, beginning of period $ 11.20 $ 10.78
Net investment income/(loss) (0.03) (0.14)
Net realized and unrealized gain on investments 0.93 0.70
Net increase in net assets resulting from investment operations 0.90 0.56
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of period $ 11.70 $ 11.20
Total return++ 8.54% 5.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 649 $ 542
Ratio of operating expenses to average net assets 1.97%+ 2.01%
Ratio of net investment income/(loss) to average net assets (0.90)%+ (1.29)%
Portfolio turnover rate 69% 129%
Ratio of operating expenses to average net assets before fee waivers 1.98%+ 2.01%
Net investment income/(loss) per share before fee waivers $ (0.03) $ (0.14)
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES: 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.89
Net investment income/(loss) (0.09)
Net realized and unrealized gain on investments 0.98
Net increase in net assets resulting from investment operations 0.89
Distributions:
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.78
Total return++ 9.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 469
Ratio of operating expenses to average net assets 1.80%+
Ratio of net investment income/(loss) to average net assets (1.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets before fee waivers 2.01%+
Net investment income/(loss) per share before fee waivers $ (0.11)
</TABLE>
* The Nations Emerging Growth Fund Investor C Shares commenced operations on
December 18, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
INVESTOR A SHARES: (UNAUDITED)# 11/30/94*
Operating performance:
Net asset value, beginning of period $ 13.06 $ 13.30
Net investment income/(loss) 0.08 0.00(a)
Net realized and unrealized gain/(loss) on investments 1.35 (0.23)##
Net increase/(decrease) in net assets resulting from investment operations 1.43 (0.23)
Distributions:
Dividends from net investment income (0.01) (0.01)
Distributions from net realized gains -- --
Return of capital -- (0.00)(a)
Total distributions: (0.01) (0.01)
Net asset value, end of period $ 14.48 $ 13.06
Total return++ 10.95% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 502 $ 252
Ratio of operating expenses to average net assets 1.04%+ 1.23%+
Ratio of net investment income/(loss) to average net assets 1.27%+ 0.02%+
Portfolio turnover rate 98% 177%
Ratio of operating expenses to average net assets before fee waivers 1.75%+ 1.66%+
Net investment income/(loss) per share before fee waivers $ 0.04 $ (0.07)
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES: 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net assets resulting from investment operations 1.31
Distributions:
Dividends from net investment income --
Distributions from net realized gains (2.95)
Return of capital --
Total distributions: (2.95)
Net asset value, end of period $ 13.30
Total return++ 8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 165
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets (0.62)%+
Portfolio turnover rate 475%
Ratio of operating expenses to average net assets before fee waivers 1.74%+
Net investment income/(loss) per share before fee waivers $ (0.07)
</TABLE>
* The period for the Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
05/31/95
(UNAUDITED)*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 14.08
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net assets resulting from investment operations 0.36
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Return of capital --
Total distributions --
Net asset value, end of period $ 14.44
Total return++ 2.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7
Ratio of operating expenses to average net assets 0.94%+
Ratio of net investment income/(loss) to average net assets 1.37%+
Portfolio turnover rate 98%
Ratio of operating expenses to average net assets before fee waivers 1.65%+
Net investment income/(loss) per share before fee waivers $ 0.01
</TABLE>
* The Nations Disciplined Equity Fund Investor C Shares commenced operations on
May 10, 1995.
+ Annualized.
++ Total Return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
12
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
INVESTOR A SHARES: 05/31/95# 05/31/94#
Operating performance:
Net asset value, beginning of period $ 12.00 $ 10.56
Net investment income/(loss) 0.11 0.06
Net realized and unrealized gain/(loss) on investments (0.20) 1.44
Net increase/(decrease) in net assets resulting from investment operations (0.09) 1.50
Distributions:
Dividends from net investment income (0.02) (0.04)
Distributions from net realized capital gains (0.12) (0.02)
Distributions in excess of net realized capital gains (0.10) --
Total distributions (0.24) (0.06)
Net asset value, end of period $ 11.67 $ 12.00
Total return++ (0.69)% 14.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,877 $ 3,219
Ratio of operating expenses to average net assets 1.28% 1.42%
Ratio of net investment income/(loss) to average net assets 0.92% 0.50%
Portfolio turnover rate 92% 39%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.29% 1.43%
Net investment income/(loss) per share without waivers and reimbursements $ 0.11 $ 0.05
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES: 05/31/93*#
Operating performance:
Net asset value, beginning of period $ 10.38
Net investment income/(loss) 0.07
Net realized and unrealized gain/(loss) on investments 0.21
Net increase/(decrease) in net assets resulting from investment operations 0.28
Distributions:
Dividends from net investment income (0.08)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 10.56
Total return++ 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839
Ratio of operating expenses to average net assets 1.55%+
Ratio of net investment income/(loss) to average net assets 0.78%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.62%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.07
</TABLE>
* The Nations International Equity Fund Investor A Shares commenced operations
on June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES: 05/31/95# 05/31/94#
Operating performance:
Net asset value, beginning of period $ 11.86 $ 10.49
Net investment income/(loss) 0.02 (0.03)
Net realized and unrealized gain/(loss) on investments (0.21) 1.43
Net increase/(decrease) in net assets resulting from investment operations (0.19) 1.40
Distributions:
Dividends from net investment income -- (0.01)
Distributions from net realized capital gains (0.12) (0.02)
Distributions in excess of net realized capital gains (0.10) --
Total distributions (0.22) (0.03)
Net asset value, end of period $ 11.45 $ 11.86
Total return++ (1.56)% 13.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 495 $ 339
Ratio of operating expenses to average net assets 2.03% 2.17%
Ratio of net investment income/(loss) to average net assets 0.17% (0.25)%
Portfolio turnover rate 92% 39%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.04% 2.18%
Net investment income/(loss) per share without waivers and reimbursements $ 0.02 $ (0.03)
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES: 05/31/93*#
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income/(loss) 0.00**
Net realized and unrealized gain/(loss) on investments 0.48
Net increase/(decrease) in net assets resulting from investment operations 0.48
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total distributions (0.09)
Net asset value, end of period $ 10.49
Total return++ 4.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 200
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average net assets 0.03%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.32%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.00**
</TABLE>
* The Nations International Equity Fund Investor C Shares commenced operations
on June 17, 1992.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
13
<PAGE>
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which NationsBank believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among three major asset groups: common stocks, fixed income securities
and cash equivalents.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of NationsBank, have
above average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by NationsBank to have the potential for
significant increases in earnings per share.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by NationsBank. NationsBank closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by NationsBank to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. NationsBank also analyzes key financial ratios that measure the growth,
profitability and leverage of such issuers that it believes will help maintain a
portfolio of above-average quality.
Stocks are selected from this universe based on NationsBank's judgment of their
total return potential. NationsBank buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by
NationsBank in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same
14
<PAGE>
industry or economic sector. NationsBank believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. NationsBank will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock, and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade bonds
and other debt securities of domestic companies. Obligations with the lowest
investment grade rating (e.g. rated "BBB" by Standard & Poor's Corporation
("S&P") or "Baa" by Moody's Investors Service, Inc. ("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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments and the
Fund's investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, NationsBank believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the S&P 500 Index, a broad-based
and widely used index of common stock prices. Second, dividends are normally a
more stable and predictable source of return than capital appreciation. While
the price of a company's stock generally increases or decreases in response to
short-term earnings and market fluctuations, its dividends are generally less
volatile. Finally, NationsBank believes that stocks which distribute a high
level of current income tend to have less price volatility than those which pay
below average dividends.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by NationsBank. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government, and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by NationsBank). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) 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. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by NationsBank.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
NationsBank believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B."
15
<PAGE>
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. The Fund will treat foreign securities as
illiquid unless there is an active and substantial secondary market for such
securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, NationsBank will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, NationsBank will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. In general,
NationsBank believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with above
average earnings growth and return on equity offer the best growth prospects
among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet NationsBank's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (e.g. rated "BBB" by 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. See "Appendix B" for a description of these ratings designations.
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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired. Under normal circumstances, at least 25% of the total value of the
Fund's assets will be invested in fixed income securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the Standard & Poor's 500
Stock Index ("S&P 500 Index");
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
16
<PAGE>
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above average market performance. Through intensive
research, visits to many companies each year, and efficient response to changing
market conditions, NationsBank seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by NationsBank. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and NationsBank will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, NationsBank will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that NationsBank, as
investment adviser, believes are likely to experience significant increases in
earnings. By pursuing this investment philosophy, the Fund seeks to provide
investors with long-term capital appreciation which exceeds that of the S&P 500
Index.
In selecting stocks for purchase by the Fund, NationsBank utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. NationsBank believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. NationsBank also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
17
<PAGE>
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, 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 will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
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 a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
NationsBank). Obligations rated in the lowest of the top four investment grade
rating categories 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.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that
NationsBank and the Fund's sub-investment adviser believe have potential for
growth of capital. The Fund also may invest up to 35% of its assets in any other
type of security including: convertible securities; preferred stocks; bonds,
notes and other debt securities (including Eurodollar securities); and
obligations of domestic or foreign governments and their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's, S&P or, if unrated, determined by
NationsBank and/or the Fund's sub-investment adviser to be comparable in quality
to instruments so rated. Obligations with the lowest investment grade rating
(e.g., rated "Baa" by Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of
those ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest
18
<PAGE>
all of its assets in a single country. If the Fund invests all or a significant
portion of its assets at any time in a single country, events occurring in such
country are more likely to affect the Fund's instruments. For additional
information concerning risk, see "Special Risk Considerations Relevant to an
Investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund," below. When allocating investments among
individual countries, NationsBank and/or the Fund's sub-investment adviser will
consider various criteria, such as the relative economic growth potential of the
various economies and securities markets, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. NationsBank and the Fund's sub-investment adviser
seek to identify and invest in those emerging markets that have a relatively low
gross national product per capita, compared to the world's major economies, and
which exhibit potential for rapid economic growth. NationsBank and the Fund's
sub-investment adviser believe that investment in equity securities of emerging
market issuers offers significant potential for long-term capital appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and the Far East include Australia, Hong Kong, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by NationsBank and/or
The Fund's sub-investment adviser to be comparable in quality to instruments so
rated. Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these ratings
designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in issuers that conduct their
principal business activities in a single country, events occurring in such
country are more likely to affect the Fund's investments. For additional
information concerning risk, see "Special Risk Considerations Relevant to an
Investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund," below. When allocating investments among
individual countries, NationsBank and/or the Fund's sub-investment adviser will
consider various criteria, such as the relative economic growth potential of the
various economies and securities markets, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships. The Fund may invest in ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
GENERAL: Each Fund 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 ( the "CFTC") and options thereon for
market exposure risk management. The Nations Balanced Assets Fund also may
engage in dollar roll transactions. Each Fund may lend its portfolio securities
to qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid
19
<PAGE>
securities and securities issued by other investment companies, consistent with
the Fund's investment objective and policies. Each Fund (except the Nations
Balanced Assets Fund) may invest in real estate investment trust securities.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND AND NATIONS PACIFIC
GROWTH FUND: Investors should understand and consider carefully the special
risks involved in foreign investing. In addition, certain Funds present unique
risks that investors should be aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and the
Far East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the
long-term, they also entail significant risks. Many investments in emerging
markets can be considered speculative, and their prices can be much more
volatile than in the more developed nations of the world. This difference
reflects the greater uncertainties of investing in less established markets and
economies.
The financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 75% for Nations Emerging Markets Fund
and Nations Pacific Growth Fund. For other Funds' portfolio turnover rate, see
"Financial Highlights." If a Fund's annual portfolio turnover rate exceeds 100%,
it may result in higher costs to the Fund, including brokerage commissions or
dealer markups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although NationsBank and Nations Gartmore Investment
Management ("Nations Gartmore"), the sub-investment adviser for Nations
20
<PAGE>
International Equity Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund, will seek to achieve the investment objective of each Fund, there
is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market. Investments in a Fund
are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities 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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund 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. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
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 securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of the Funds may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return refers to
the average annual compounded rates of return on a class of shares over one-,
five-, and ten-year periods or the life of the Fund (as stated in the
advertisement) that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment (reflecting the
deduction of any applicable contingent deferred sales charge ("CDSC")),
21
<PAGE>
assuming the reinvestment of all dividend and capital gains distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period, again assuming the reinvestment of all
dividends and capital gain distributions. Total return may also be presented for
other periods or may not reflect a deduction of any applicable CDSC.
Set forth below is certain performance data for the Pacific Ex-Japan Composite
and the Emerging Markets Composite, reflecting the performance of private
accounts, including U.K. authorized unit trusts, managed by the Gartmore Group,
as defined below. The performance data for these accounts is deemed relevant
because the Pacific Ex-Japan Composite and the Emerging Markets Composite have
investment objectives, policies and restrictions that are substantially similar
to those of the Nations Pacific Growth Fund and Nations Emerging Markets Fund,
respectively. There is substantial continuity between the portfolio managers of
the Gartmore Group who were responsible for managing those accounts and the
portfolio managers of Nations Gartmore who are responsible for managing the
Nations Pacific Growth Fund and Nations Emerging Markets Fund, respectively.
THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF NATIONSBANK, NATIONS GARTMORE INVESTMENT
MANAGEMENT OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
PACIFIC EX-JAPAN Indicated through
COMPOSITE March 31, 1995*
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1, 1988 22.20%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994
10.70% 56.10% (1.50)% 20.30% 21.10% 106.90% (15.10)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
EMERGING MARKETS Indicated through
COMPOSITE March 31, 1995*
One Year (24.40)%
Since Inception on January 1, 1993 9.60%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1993 1994
73.90% (20.20)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
NATIONS INTERNATIONAL EQUITY Indicated through
FUND -- INVESTOR A SHARES March 31, 1995
One Year (1.46%)
Since Inception on June 3, 1992 4.39%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1993 1994
26.90% 2.21%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
Nations International Equity Indicated through
Fund -- Investor C Shares March 31, 1995
One Year (2.34%)
Since Inception on June 17, 1992 4.62%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1993 1994
25.78% 1.36%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
22
<PAGE>
In addition to Investor A and Investor C Shares, the Funds offer Trust A, Trust
B and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Although Nations Portfolios, as a new registrant, does not have an operating
history, NationsBank has significant experience managing mutual funds.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund pursuant to a sub-advisory agreement. Nations
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK based
international fund management group of companies (the "Gartmore Group"). Banque
Indosuez S.A., a leading French bank, owns 75% of the equity of Gartmore plc.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and advisory
services to pension funds, unit trusts, offshore funds and investment funds. As
of December 31, 1994, the Gartmore Group had over $30 billion in assets under
management.
Although Nations Gartmore is newly formed with no experience managing mutual
funds, many of its professionals have, in their capacity as employees of the
Gartmore Group, managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, NationsBank (and/or Nations
Gartmore) formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. NationsBank (and/or Nations Gartmore) is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank (and/or Nations Gartmore) or
which have sold shares in the Funds, if NationsBank (and/or Nations Gartmore)
believes that the quality of the transaction and the commission are comparable
to what they would be with other qualified brokerage firms. From time to time,
to the extent consistent with its investment objective, policies and
restrictions, each Fund may invest in securities of companies with which
NationsBank or Banque Indosuez S.A. has a lending relationship. For the services
provided and expenses assumed pursuant to various Advisory Agreements,
NationsBank is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of
23
<PAGE>
each of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of the Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily
assets in excess of $250 million; and 0.90% of each of Nations International
Equity Fund's and Nations Pacific Growth Fund's average daily net assets; and
1.10% of Nations Emerging Markets Fund's average daily assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NationsBank sub-advisory fees,
computed daily and paid monthly, at the annual rate of 0.70% of Nations
International Equity Fund's average daily net assets; 0.85% of Nations Emerging
Markets Fund's daily net assets and 0.70% of Pacific Growth Fund's daily net
assets. Although the advisory fees for the Funds are higher than the advisory
fees paid by most other mutual funds, Nations Fund believes that the fees are
comparable to the advisory fees paid by many other funds with similar investment
objectives and policies.
From time to time, NationsBank (and/or Nations Gartmore) may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank advisory fees at the indicated rate of the following
Funds' average daily net assets: Nations Capital Growth Fund -- 0.75%; Nations
Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.05%; Nations
Value Fund -- 0.74%; and Nations Balanced Assets Fund -- 0.75%. For the fiscal
year ended November 30, 1994, after waivers, Nations Disciplined Equity Fund
paid its prior sub-adviser fees at the rate of 0.21% of the Fund's average daily
net assets. For the fiscal year ended May 31, 1995, after waivers, Nations Fund,
Inc. paid NationsBank advisory fees at the rate of 0.40% the Nations
International Equity Fund's average daily net assets and 0.68% of the Nations
Equity Income Fund's average daily net assets. For the fiscal year ended May 31,
1995, after waivers, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.38% of the Fund's average daily net assets.
Andrew Fleming is the principal portfolio manager of the Nations Emerging
Markets Fund. Mr. Fleming is Chief Investment Officer for Nations Gartmore and
head of the emerging markets team. Mr. Fleming joined Gartmore in 1984 as an
analyst and fund manager on the European desk. In 1986, he joined the Far East
team and, in 1993, became head of the Far East desk. Mr. Fleming was then
promoted to head of overseas equities. He graduated from the University of York,
England.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is a Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A. in Economics from the University of Michigan and an M.B.A. from the
University of North Carolina in Charlotte. He is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style for NationsBank. Mr. Smiley also serves as one of
the officer members on the Growth Equity Style Group. Mr. Smiley is a member of
the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
Steve Smith, a Senior Vice President at NationsBank, has been portfolio manager
for Nations Disciplined Equity Fund since April, 1995. Mr. Smith has
approximately twenty years of investment management
experi-
24
<PAGE>
ence, the last twelve years with NationsBank and its affiliates. Mr. Smith is a
Chartered Financial Analyst and a member of the Association of Investment
Management and Research. Mr. Smith earned a B.S. in engineering and an M.B.A.
from the University of Alabama.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank,
has advised NationsBank, Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios that NationsBank may perform the services contemplated by the various
Investment Advisory Agreements, without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Such counsel has pointed out,
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in federal or state statutes, including the Glass-Steagall Act, and
regulations and judicial or administrative decisions or interpretations thereof,
could prevent NationsBank from continuing to perform, in whole or in part, such
services. If NationsBank were prohibited from performing any of such services,
it is expected that the Board of Trustees of Nations Fund Trust and the Boards
of Directors of Nations Fund, Inc. and Nations Portfolios would recommend to
each Fund's shareholders that they approve a new advisory agreement with another
entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Value Fund and Nations Balanced Assets Fund. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations International Equity
Fund and the Nations Equity Income Fund's average daily net assets.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising,
25
<PAGE>
coordinating and monitoring various aspects of the Funds' administrative
operations. For providing such services, NationsBank shall be entitled to
receive a monthly fee from Stephens based on an annual rate of .01% of the
Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing and
Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund.
NationsBank of Texas, N.A. ("NationsBank of Texas" and collectively with Morgan
Guaranty, the "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor A or Investor C Shares, are deducted from accrued
income before dividends are declared. The Funds' expenses include, but are not
limited to: fees paid to NationsBank, Stephens and TSSG; interest; trustees' and
directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; cost of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodians and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by
NationsBank, Stephens or TSSG under their respective agreements with Nations
Fund; and any extraordinary expenses. Investor A and Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Fund Trust, Nations Fund, Inc. and/or Nations
Portfolios or in such other manner as the relevant Board of Trustees or Board of
Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of shares -- Trust
A Shares, Trust B Shares, Investor A Shares, Investor C Shares and Investor N
Shares. This Prospectus relates only to the Investor A and Investor C Shares of
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Value Fund and Nations Balanced Assets Fund of Nations Fund
Trust. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust 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 Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
26
<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 Nations Fund Trust 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 Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. In addition, as of August
31, 1995, Richard B. Boyle owned of record 25% or more of Investor C Shares of
the Nations Disciplined Equity Fund and therefore could be considered a
controlling person of such class for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Investor A and Investor C Shares of
Nations International Equity Fund and Nations Equity Income Fund of Nations
Fund, Inc. To obtain additional information regarding the Fund's other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Investor A and C Shares of Nations Emerging Markets Fund and Nations Pacific
Growth Fund of Nations Portfolios. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
27
<PAGE>
Shareholders of Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. In addition, as of
August 31, 1995, Carolyn Branan owned of record 25% or more of the Investor C
Shares of the Nations Pacific Growth Fund and therefore could be considered a
controlling person of such class for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor A and
Investor C Shares in order to accommodate different investors. Purchase orders
for Investor A Shares may be placed through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens (also "Selling Agents").
Customers may invest in Investor A Shares through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NationsBanc Advisors, Inc. (an "Account"). Investments through
an Account are governed by the terms and conditions of the Account, which are
set forth in the Client Agreement and Disclosure Statement provided by
NationsBanc Advisors, Inc. to each investor who establishes an Account. Because
of the nature of the Account, certain of the features described in this
prospectus are not available to investors purchasing Investor A Shares through
an Account. Potential investors through an Account should refer to the Client
Agreement and Disclosure Statement for more information regarding the Account,
including information regarding the fees and expenses charged in connection with
an Account.
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor Shares are purchased at net asset value per share plus any applicable
sales charge described below. Purchases may be effected on days on which the New
28
<PAGE>
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
With respect to Investor A Shares, the Servicing Agents have entered into
Servicing Agreements with Nations Fund under which they will provide various
shareholder services to their customers ("Customers") who own Investor A Shares.
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their Customers who own Investor C Shares. In addition, banks,
broker/dealers or other financial institutions (including certain affiliates of
NationsBank) that have entered into Servicing Agreements with Nations Fund (also
"Servicing Agents") will provide various shareholder services for their
Customers who own Investor C Shares. Servicing Agents and Selling Agents are
sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor Shares in the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR C SHARES:
Before purchasing Investor A Shares or Investor C Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing fee
and potential CDSC (if applicable) on Investor A Shares would be less than the
accumulated shareholder servicing and distribution fees and potential CDSC on
Investor C Shares. Over time, the cumulative expense of the annual shareholder
servicing and distribution fees on the Investor C Shares may equal or exceed the
initial sales charge and combined distribution and servicing fee applicable to
Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for distribution
and shareholder services, they can be expected to earn correspondingly higher
dividends per share. However, because initial sales charges are deducted at the
time of purchase, purchasers of Investor A Shares that do not qualify for
waivers of or reductions in the initial sales charge would have less of their
purchase price initially invested in the Funds than purchasers of Investor C
Shares. Any positive investment return on the additional invested amount for
Investor C Shares, however, would be partially or wholly offset by the expected
higher annual expenses borne by Investor C Shares.
29
<PAGE>
Sales Charges
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
INVESTOR A SHARES: The following schedule of sales charges will be assessed on
<TABLE>
<CAPTION>
purchases of Investor A Shares of the Funds.
<S> <C> <C> <C>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Price Value Price
Amount of Transaction Per Share Per Share Per Share
Less than $50,000 5.75 6.10 5.00
$50,000 but less than
$100,000 4.50 4.71 3.75
$100,000 but less
than $250,000 3.50 3.63 2.75
$250,000 but less
than $500,000 2.50 2.56 2.00
$500,000 but less
than $1,000,000 2.00 2.04 1.75
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more and certain other Investor A
Shares that are purchased at net asset value will be subject to a CDSC of
1.00% if redeemed within one year of purchase, declining to 0.50% in the
second year after purchase and eliminated thereafter.
** 1.00% on first $2,500,000, plus 0.50% on the next $2,500,000, plus 0.25% on
amounts over $5,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents. If substantially all sales charges are paid or reallowed to a
broker/dealer or financial institution, it may be deemed an "underwriter" under
the Securities Act of 1933, as amended.
INVESTOR C SHARES: The Funds do not impose a sales charge on Investor C Shares.
However, investors may be subject to a CDSC of 1.00% if Investor C Shares of the
Funds are redeemed within one year of purchase.
In addition to amounts paid to Agents as a dealer concession out of the sales
charge paid by investors, if any, Stephens may, from time to time, at its
expense or as an expense for which it may be reimbursed under the plans adopted
pursuant to Rule 12b-1 under the 1940 Act, pay a bonus or other consideration or
incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 0.75% of the offering price per
share on all sales of Investor C Shares as an expense of Stephens or for which
Stephens may be reimbursed under the plan adopted pursuant to Rule 12b-1 or upon
receipt of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
REDUCED SALES CHARGE: AN INVESTOR MAY BE ENTITLED TO REDUCED SALES CHARGES ON
INVESTOR A SHARES THROUGH RIGHTS OF ACCUMULATION, A LETTER OF INTENT, OR
QUANTITY DISCOUNTS.
To qualify for a reduced sales charge, an investor must notify the Agent through
which the Investor A Shares are purchased, which in turn must notify Stephens or
the Transfer Agent at the time of purchase. Reduced sales charges may be
modified or terminated at any time. Investors are responsible for providing
evidence sufficient to establish that they are eligible for any reduction in
sales charges.
RIGHTS OF ACCUMULATION: An investor who has previously purchased Investor A,
Investor C or Investor N Shares in Nations Fund Family's non-money market funds
may aggregate investments in such shares with current purchases to determine the
applicable sales charge for current purchases. An investor's aggregate
investment in Investor A, Investor C and Investor N Shares in Nations Fund
Family's non-money market funds is the total value (based on the higher of
current net asset value or the public offering price originally paid) of: (a)
current purchases, and (b) Investor A, Investor C and Investor N Shares that are
already beneficially owned by the investor.
LETTER OF INTENT: If an investor intends to purchase over a period of 13 months
at least $50,000 of Investor A Shares of any one or more non-money market funds
of the Nations Fund Family, the sales charge may be reduced by completing the
Letter of Intent portion of the Account Application. The Letter of Intent allows
a sales charge adjustment depending on the amount actually purchased within the
13-month period. In addition, pursuant to a Letter of Intent, the Custodian will
hold in escrow (as determined by the Transfer Agent) the difference between the
sales charge applicable to the amount initially purchased and the sales charge
paid at the time
30
<PAGE>
of the investment which is based on the amount covered by the Letter of Intent.
The amount held in escrow will be applied to the investor's account at the end
of the 13-month period unless the amount specified in the Letter of Intent is
not purchased. In order to qualify for a Letter of Intent, the investor will be
required to make a minimum purchase of at least $50,000.
A Letter of Intent will not obligate the investor to purchase Investor A Shares
of any non-money market fund of the Nations Fund Family, but if he or she does,
each purchase of shares of a non-money market fund of the Nations Fund Family
made during the period will be at the sales charge applicable to the total
amount intended to be purchased. This letter may be dated as of a prior date to
include any purchase made within the past 90 days.
QUANTITY DISCOUNTS: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Fund Family that
are made on the same day by the investor, his/her spouse, and his/her children
under age 21 will be combined when calculating the sales charge. For the purpose
of calculating the Amount of Transaction, certain distributions or payments from
certain qualified plans are permitted to aggregate plan participant's
investments.
PURCHASES OF SHARES AT NET ASSET VALUE: Full-time employees and retired
employees of NationsBank Corporation (and its predecessors), its affiliates and
subsidiaries and the immediate families of such persons may purchase Investor A
Shares in the Funds at net asset value. Individuals receiving a distribution
from a NationsBank trust account may use the proceeds of such distribution to
purchase Investor A Shares of the Funds at net asset value, provided that the
proceeds are transferred directly to an account established for the investor at
the Transfer Agent and invested in the Funds within 90 days (or following
investment in a money market fund of the Nations Fund Family for a period not
exceeding one year). Nations Fund's Trustees and Directors also may purchase
Investor A Shares at net asset value. Registered broker/dealers that have
entered into a Nations Fund dealer agreement with Stephens may purchase Investor
A Shares at net asset value for their investment account only. Registered
personnel and employees of such broker/dealers also may purchase Investor A
Shares at net asset value in accordance with the internal policies and
procedures of the employing broker/dealer provided such purchases are made for
their own investment purposes and such shares must not be resold except through
redemption or repurchase by or on behalf of Nations Fund. Employees of the
Transfer Agent may purchase Investor A Shares of the Funds at net asset value.
In addition, former shareholders of Class B Shares of the Special Equity
Portfolio of The Capitol Mutual Funds who held such shares as of January 31,
1994 or received Investor A Shares of Nations Disciplined Equity Fund in
connection with the reorganization of the Special Equity Portfolio into Nations
Disciplined Equity Fund may purchase Investor A Shares of Nations Disciplined
Equity Fund at net asset value. Similarly, former shareholders of Class B Shares
of the Equity Portfolio of The Capitol Mutual Funds who held such shares on
January 31, 1994 or received Investor A Shares of Nations Value Fund in
connection with the reorganization of the Equity Portfolio into the Nations
Value Fund may purchase Investor A Shares of Nations Value Fund at net asset
value.
In addition, individuals purchasing Investor A Shares through the Nations Fund
Personal Investment Planner may purchase such shares at net asset value. The
Nations Fund Personal Investment Planner is a managed agency/asset allocation
account offered by NationsBanc Advisors, Inc. designed for exclusive investment
in shares of Nations Fund. Any Investor A Shares purchased at net asset value
through the Personal Investment Planner will be subject to a CDSC of 1.00% if
redeemed within one year of purchase, declining to 0.50% if redeemed in the
second year after purchase and eliminated thereafter (except for retirement
plans). See "How to Redeem Shares."
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $250,000 invested
in Investor A Shares of the Nations Fund non-money market funds, (b) has signed
a letter of intent indicating that the plan intends to purchase at least
$250,000 of Investor A Shares of the Nations Fund non-money market funds, or (c)
is an employer-sponsored plan with at least 25 eligible participants (a
"Qualified Plan"). Stephens may pay Agents or other financial service firms up
to 1.00% of the net asset value of Investor A Shares purchased without a sales
charge through the Personal Investment Planner or a Qualified Plan, for which it
may be reimbursed out of any CDSC.
Investor A Shares in a Fund may be purchased at net asset value, without any
sales charge, by persons who have redeemed Investor A Shares of the same Fund
within the previous 120 days. In addition, within 120 after a redemption of
Investor C Shares of a Fund, a shareholder may reinvest any portion of the
proceeds of such redemption in Investor C Shares of the same Fund. The amount
which may be so reinvested is limited to an amount up to, but not exceeding, the
redemption proceeds (or to the nearest full share if fractional shares are
31
<PAGE>
not purchased). A shareholder exercising this privilege would receive a pro rata
credit for any CDSC paid in connection with the prior redemption. A shareholder
may not exercise this privilege with the proceeds of a redemption of shares
previously purchased through the reinstatement privilege. In order to exercise
this privilege, a written order for the purchase of Investor Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Fund must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Fund may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charges, contact an Agent or Stephens.
Shareholder Servicing And Distribution Plans
INVESTOR A SHARES: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
the Funds to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A 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 Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
INVESTOR C SHARES: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor C Shares of
the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor C Shares. Payments under the Investor C
Distribution Plan will be calculated daily and paid monthly at a rate or rates
set from time to time by the Trustees and Directors provided that the annual
rate may not exceed 0.75% of the average daily net asset value of the Funds'
Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing
32
<PAGE>
costs (except to the extent permitted by the SEC) and will not be used to pay
any general and administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Servicing Plan") for the Funds which permits the Funds to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by the Funds, provided that the annual rate
may not exceed 0.25% of the average daily net asset value of the Funds' Investor
C Shares.
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 may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal office.
All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that are purchased in amounts of $1 million or
more and certain other Investor A Shares that are purchased at net asset value
will be subject to a CDSC equal
33
<PAGE>
to 1.00% of the lesser of the net asset value or the purchase price of the
shares being redeemed if such shares are redeemed within one year of purchase,
declining to 0.50% in the second year after purchase and eliminated thereafter.
See "Sales Charges -- Purchases of Shares at Net Asset Value." In addition,
subject to certain waivers, Investor C Shares of the Funds that are redeemed
within one year of the date of purchase will be subject to a CDSC equal to 1.00%
of the lesser of the net asset value or the purchase price of the shares being
redeemed. No CDSC is imposed on increases in net asset value above the initial
purchase price, including shares acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases during a month will be aggregated
and deemed to have been made on the last day of the month. In determining
whether a CDSC is applicable to a redemption, the calculation will be made in
the manner that results in the lowest possible charge being assessed. In this
regard, it will be assumed that the redemption is first of shares held for the
longest period of time or shares acquired pursuant to reinvestment of dividends
or distributions. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase.
The CDSC will be waived on redemptions of Investor A and Investor C Shares (i)
following the death or disability (as defined in the Code) of a shareholder
(including a registered joint owner), (ii) in connection with the following
retirement plan distributions: (a) by qualified plans, (except in cases of plan
level terminations); (b) distributions from an IRA following attainment of age
59 1/2; (c) a tax-free return of an excess contribution to an IRA, and (d)
distributions from a qualified retirement plan that are not subject to the 10%
additional Federal withdrawal tax pursuant to Section 72(t)(2) of the Code,
(iii) effected pursuant to Nations Fund's right to liquidate a shareholder's
account if the aggregate net asset value of the Investor Shares held in the
account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A and Investor C Shares in the account. Furthermore, any CDSC that
otherwise would apply to Investor A Shares will be waived upon the redemption of
shares purchased by persons described in the section "Sales Charges -- Purchases
of Shares at Net Asset Value" in this Prospectus, except for Nations Fund
Personal Investment Planner purchasers in non-retirement accounts. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC. Nations Fund may terminate any waiver of
the CDSC by providing notice in the Funds' Prospectus, but any such termination
would affect only shares purchased after such termination.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A and Investor C Shares redeemed under the AWP will not be
subject to a CDSC, provided that the shares so redeemed do not exceed, on an
annual basis, 12% of the net asset value of the Investor A and Investor C Shares
in the account. Otherwise, any applicable CDSC will be imposed on shares
redeemed under the AWP. Shareholders who elect to establish an AWP may receive a
monthly, quarterly or annual check or automatic transfer to a checking or
savings account in a stated amount of not less than $25 on or about the 10th or
25th day of the applicable month of withdrawal. Investor Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Agent or by Nations Fund at
any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor A Shares of a Nations
Fund non-money market fund (including the Funds) to acquire shares of the same
class that are offered by any other fund of Nations Fund when the shareholder
believes that a shift between funds is an appropriate investment decision. In
addition, except as described below, the exchange feature enables a shareholder
of Investor C Shares of a Nations Fund non-money market fund (including the
Funds) to acquire shares of the same class that are offered by another non-money
market fund of Nations Fund or Investor D Shares of any money market fund
offered by Nations Fund when he or she believes that a shift between funds is an
appropriate investment decision. However, Investor C Shares of the Funds may not
be exchanged for Investor C Shares of Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund until one year after purchase. For purposes of
determining whether one year has elapsed since the date of purchase, all
purchases made during a month will be aggregated
34
<PAGE>
and deemed to have been made on the last day of the month. A qualifying exchange
is based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor Shares that
meets the requirements discussed in this section. If Investor A Shares of a Fund
are exchanged for shares of the same class of another fund, any CDSC applicable
to the shares exchanged will be applied upon the redemption of the acquired
shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
If a shareholder acquires Investor C Shares of a non-money market fund through
an exchange, the CDSC applicable to that current fund will be applied to any
redemption of the acquired shares. However, if a shareholder acquires Investor D
Shares of a money market fund through an exchange of Investor C Shares, the CDSC
schedule applicable to the exchanged Investor C Shares will be applied on any
redemption of the acquired Investor D Shares. Notwithstanding the foregoing, if
a shareholder redeems shares acquired through an exchange, the shareholder will
be subject to the highest CDSC schedule applicable to any shares that were
exchanged within 30 days prior to the redemption. Additionally, when an investor
exchanges Investor C Shares of a Fund for shares of another fund, the remaining
period of time (if any) that the CDSC is in effect will be computed from the
time of the initial purchase of the previously held Investor C Shares.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor Shares available under the exchange feature described
above, provided that the maximum sales charge applicable to the acquired
Investor A Shares is equal to or less than the "maximum sales charge applicable"
to the Investor A Shares being exchanged. For purposes of determining the
"maximum sales charge applicable" to the Investor A Shares being exchanged, a
shareholder may include any sales charge paid on shares of the same class
offered by one of Nations Fund's other funds that were previously exchanged to
acquire the subject Investor A Shares then being exchanged, provided that
notification of such prior exchange is made to the Transfer Agent or Stephens.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differential," which is the difference
between the maximum front-end sales charge applicable to those Investor A Shares
being exchanged and those being acquired. However, a shareholder would not have
to pay a sales charge differential to the extent such shareholder is eligible
for a reduced or waived sales charge on the Investor A Shares being acquired. In
addition, a shareholder of Investor A Shares of a non-money market fund would
not have to pay a sales charge differential upon an exchange if the shareholder
has owned such shares for at least 90 days.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature (AEF) a
shareholder may automatically exchange at least $25 on a bi-monthly, monthly or
quarterly basis. Shareholder may direct proceeds to be exchanged from one
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th and/or 30th day of the
applicable. The shareholder must have an existing position in both Funds in
order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, please contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by
call-
35
<PAGE>
ing his/her Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income taxes on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds (except Nations International Equity Fund,
Nations Emerging Markets Fund and Nations Pacific Growth Fund) may be entitled
to the dividends received deduction on all or a portion of such Funds'
dividends. Corporate shareholders of the Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the
36
<PAGE>
shareholders have held the Funds' shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each of Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund's investment income may be subject to
foreign income taxes withheld at their source. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Generally,
more than 50% of the value of the total assets of each of those Funds will
consist of securities of foreign issuers, and therefore each of those Funds may
elect to "pass through" to its shareholders these foreign taxes, if any. In such
event each shareholder will be required to include his or her pro rata portion
thereof in his or her gross income, but will be able to deduct or (subject to
various limitations) claim a foreign tax credit against U.S. income taxes for
such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage backed securities, see the related SAI.
Non-mortgage asset backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
37
<PAGE>
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by NationsBank and/or
Nations Gartmore at the time of purchase to be of comparable quality to rated
instruments that may be acquired by a Fund. Commercial instruments include
variable rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate, and variable and floating rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks
38
<PAGE>
are securities that represent an ownership interest in a corporation providing
the owner with claims on a company's earnings and assets before common stock
owners, but after bond or other debt security owners. Warrants are options to
buy a stated number of shares of common stock at a specified price any time
during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objections Are
Pursued" the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
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. 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 Nations International Equity Fund, the Nations Emerging Markets Fund and/or
the Nations Pacific Growth Fund will generally enter into forward currency
exchange contracts only under two circumstances: (i) when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, to "lock" in the U.S. dollar price of the security; and (ii) when
NationsBank and the Fund's sub-adviser believe that the currency of a particular
foreign country may experience a substantial movement against another currency.
Under certain circumstances, the Fund may commit a substantial portion of its
portfolio to the execution of these contracts. NationsBank and the Fund's sub-
adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted. The Nations
International Equity Fund will generally not enter into a forward contract with
a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
39
<PAGE>
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
NationsBank or Nations Gartmore, acting under guidelines approved and monitored
by the Fund's Board, after considering trading activity, availability of
reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the level of illiquidity of a Fund holding such
securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expect to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to
40
<PAGE>
value its portfolio securities, and a Fund's ability to dispose of these
lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with respect to a particular instrument
purchased by a Fund, a Fund may demand payment of the principal and accrued
interest on the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, NationsBank will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
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.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and
41
<PAGE>
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, a Fund
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 NationsBank. 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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and
instrumen-
42
<PAGE>
talities are issued by government-sponsored agencies and enterprises acting
under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, in some
cases payment of interest and principal on such obligations is guaranteed by the
U.S. Government, E.G., Government National Mortgage Association certificates; in
other cases interest and principal are not guaranteed, E.G., obligations of the
Federal Home Loan Bank System and the Federal Farm Credit Bank. No assurance can
be given that the U.S. Government would provide financial support to
government-sponsored instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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.
43
<PAGE>
Ba -- Bonds which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be 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 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.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
44
<PAGE>
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of likelihood
that principal and interest will be paid on a timely basis.
45
<PAGE>
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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
46
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor A Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.01) (0.00)** 0.12
Net realized and unrealized gain/(loss) on
investments...................................... (0.12) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.13) (0.30) 0.16
Distributions:
Dividends from net investment income............. N/A N/A (0.12)
Total Distributions.............................. N/A N/A (0.12)
Net asset value, end of period..................... $ 9.87 $ 9.70 $ 10.04
Total return++..................................... (1.30)% (3.00)% 1.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 57 $ 161 $ 23
Ratio of operating expenses to average net
assets........................................ 2.15%+ 1.95%+ 1.55%+
Ratio of net investment income/(loss) to average
net assets.................................... (0.28)%+ (0.10)%+ 5.36%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor C Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.02) (0.02) 0.10
Net realized and unrealized gain/(loss) on
investments...................................... (0.13) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.15) (0.32) 0.14
Distributions:
Dividends from net investment income............. N/A N/A (0.10)
Total Distributions.............................. N/A N/A (0.10)
Net asset value, end of period..................... $ 9.85 $ 9.68 $ 10.04
Total return++..................................... (1.50)% (3.20)% 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 10 $ 46 $ 9
Ratio of operating expenses to average net
assets........................................ 2.90%+ 2.70%+ 2.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (1.03)%+ (0.85)%+ 4.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor C Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
INVESTOR A AND
INVESTOR C SHARES
SEPTEMBER 30, 1995
This Prospectus describes the NATIONS SHORT-TERM
INCOME FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT
FUND, NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED
INCOME FUND AND NATIONS GLOBAL GOVERNMENT INCOME
FUND (the "Funds") of the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes two classes of shares of the
Funds -- Investor A Shares and Investor C Shares.
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor A and Investor C Shares ("Investor Shares")
should consider before investing. Investors should
read this Prospectus and retain it for future
reference. Additional information about Nations Fund
Trust, Nation Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios") is contained
in separate Statements of Additional Information
(the "SAIs"), which have been filed with the
Securities and Exchange Commission (the "SEC") and
are available upon request without charge by writing
or calling Nations Fund at its address or telephone
number shown below. The SAIs for Nations Fund Trust,
Nations Fund, Inc. and Nations Portfolios, dated
September 30, 1995, September 30, 1995 and July 1,
1995, respectively, are incorporated by reference in
their entirety into this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
Nations Global Government
Income Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUND
BONDPAC
<PAGE>
About The Funds
Table Of Contents
Expenses Summary 3
Financial Highlights 5
Objectives 10
How Objectives Are Pursued 11
How Performance is Shown 16
How the Funds are Managed 17
Organization and History 19
How to Buy Shares 21
About Your Investment
Sales Charges 23
Shareholder Servicing and Distribution Plans 26
How to Redeem Shares 27
How to Exchange Shares 29
How the Funds Value Their Shares 30
How Dividends and Distributions are Made; Tax
Information 31
Appendix A -- Portfolio Securities 32
Appendix B -- Description of Ratings 39
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A and Investor C Shares of the Funds. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in Investor A or
Investor C Shares of the indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Income Fund Government Fund Securities Fund Fixed Income Fund
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 1.50% 3.25% 4.75% 3.25%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00% 1.00% 1.00%
<CAPTION>
Nations Global
Nations Diversified Government Income
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.75% 4.75%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees2 .30% .40% .50% .50%
Rule 12b-1 Fees (including shareholder
servicing fees)2 .20%3 .20% .25% .20%
Other Expenses .22% .18% .39% .16%
Total Operating Expenses2 .72% .78% 1.05% .86%
Management Fees2 .50% .70%
Rule 12b-1 Fees (including shareholder
servicing fees)2 .25% .25%
Other Expenses .32% .60%
Total Operating Expenses2 1.07% 1.55%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject to
a Deferred Sales Charge if redeemed within two years of purchase. See "Sales
Charges."
2 After any waivers and reimbursements.
3 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
and Distribution Plans."
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Income Fund Government Fund Securities Fund Fixed Income Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None 1.00% 1.00% 1.00%
<CAPTION>
Nations Global
Nations Diversified Government Income
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund
Sales Load Imposed on Purchases None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 1.00% 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees2 .30% .40% .50% .50%
Rule 12b-1 Fees2 .35% .50% .75% .50%
Shareholder Servicing Fees2 .00% .00% .00% .00%
Other Expenses .22% .18% .30% .16%
Total Operating Expenses2 .87% 1.08% 1.55% 1.16%
<CAPTION>
Management Fees2 .50% .70%
<S> <C> <C>
Rule 12b-1 Fees2 .75% .75%
Shareholder Servicing Fees2 .00% .25%
Other Expenses .32% .60%
Total Operating Expenses2 1.57% 2.30%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase.
2 After any waivers and reimbursements.
3
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
1 Year $ 22 $ 40 $ 58 $ 41
3 Years $ 38 $ 57 $ 79 $ 59
5 Years $ 54 $ 74 $ 103 $ 79
10 Years $ 103 $ 126 $ 170 $ 135
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
1 Year $ 58 $ 63
3 Years $ 80 $ 94
5 Years $ 104 N/A
10 Years $ 172 N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
1 Year $ 9 $ 21 $ 26 $ 22
3 Years $ 28 $ 34 $ 49 $ 37
5 Years $ 48 $ 60 $ 84 $ 64
10 Years $ 107 $ 132 $ 185 $ 141
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
1 Year $ 26 $ 33
3 Years $ 50 $ 72
5 Years $ 86 N/A
10 Years $ 187 N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short-
Intermediate Nations Government Nations Strategic Nations Diversified
Government Fund Securities Fund Fixed Income Fund Income Fund
1 Year $ 11 $ 16 $ 12 $ 16
3 Years $ 34 $ 49 $ 37 $ 50
5 Years $ 60 $ 84 $ 64 $ 86
10 Years $ 132 $ 185 $ 141 $ 187
<CAPTION>
Nations Global
Government Income
Fund
1 Year $ 23
3 Years $ 72
5 Years N/A
10 Years N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A and Investor C Shares of the Funds will bear either directly or
indirectly. Except for the Nations Global Government Income Fund which fees and
expenses are based on estimates, certain figures contained in the above tables
are based on amounts incurred during each Fund's most recent fiscal year and
have been adjusted as necessary to reflect current service provider fees. There
is no assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fees waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. Long-term shareholders
in the Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How the Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing and Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for Investor A Shares of the indicated Fund would
have been as follows: Nations Short-Term Income Fund -- .60%, .50% and 1.32%,
respectively; Nations Short-Intermediate Government Fund -- .60%, .25% and
1.03%, respectively; Nations Government Securities Fund -- .64%, .25% and 1.19%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .25% and 1.01%,
respectively; Nations Diversified Income Fund -- .60%, .25% and 1.17%,
respectively; and Nations Global Government Income Fund -- .70%, .25% and 1.55%,
respectively. Absent fee waivers and reimbursements, "Management Fees," "Rule
12b-1 Fees," "Shareholder Servicing Fees" and "Total Operating Expenses" for
Investor C Shares of the indicated Fund would have been as follows: Nations
Short-Term Income Fund -- .60%, .75%, .25% and 1.82%, respectively; Nations
Short-Intermediate Government Fund -- .60%, .75%, .25% and 1.78%, respectively;
Nations Government Securities Fund -- .64%, .75%, .25% and 1.94%, respectively;
Nations Strategic Fixed Income Fund -- .60%, .75%, .25% and 1.76%, respectively;
Nations Diversified Income Fund -- .60%, .75%, .25% and 1.92%, respectively; and
Nations Global Government Income Fund -- .70%, .75%, .25% and 2.30%,
respectively.
4
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of a Fund will receive
unaudited semi-annual reports describing the Fund's investment operations and
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED)# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period 9.48 $ 10.01 $ 9.75
Net investment income 0.30 0.48 0.51
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment
operations 0.58 (0.03) 0.77
Distributions:
Dividends from net investment income (0.30) (0.46) (0.51)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.30) (0.50) (0.51)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01
Total return++ 6.17% (0.33)% 8.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,510 $ 2,490 $ 11,205
Ratio of operating expenses to average net assets 0.71%+ 0.71% 0.57%
Ratio of net investment income to average net assets 6.15%+ 5.02% 5.07%
Portfolio turnover rate 145% 293% 121%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.06%+ 1.03% 0.99%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.28 $ 0.45 $ 0.48
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.26)
Net increase/(decrease) in net assets resulting from investment
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.81)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 254
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net assets 5.39%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.05%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.48 $ 10.01 $ 9.75
Net investment income 0.28 0.46 0.48
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment
operations 0.56 (0.05) 0.74
Distributions:
Dividends from net investment income 0.28% (0.44) (0.48)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.28) (0.48) (0.48)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01
Total return++ 6.05% (0.51)% 7.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,964 $ 8,102 $ 19,851
Ratio of operating expenses to average net assets 0.86%+ 0.89% 0.87%
Ratio of net investment income to average net assets 6.00%+ 4.84% 4.77%
Portfolio turnover rate 145% 293% 121%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.21%+ 1.21% 1.29%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.43 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.26)
Net increase/(decrease) in net assets resulting from investment
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.82)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,747
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income to average net assets 5.04%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.40%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Short-Term Income Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.12 0.22 0.22 0.27
Net realized and unrealized gain/(loss) on
investments 0.16 (0.33) 0.14 (0.01)
Net increase/(decrease) in net assets
resulting from investment operations 0.28 (0.11) 0.36 0.26
Distributions:
Dividends from net investment income (0.12) (0.22) (0.22) (0.27)
Distributions in excess of net investment
income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.02) (0.02) --
Total distributions (0.12) (0.24) (0.24) (0.27)
Net asset value, end of period $ 4.09 $ 3.93 $ 4.28 $ 4.16
Total return++ 7.14% (2.41)% 8.85% 6.61%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 64,634 $ 77,128 $ 173,449 $ 188,624
Ratio of operating expenses to average net
assets 0.78%+ 0.77% 0.70% 0.48%
Ratio of net investment income to average net
assets 5.87%+ 5.58% 5.25% 6.34%
Portfolio turnover rate 130% 133% 92% 25%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.99%+
0.98% 0.94% 0.88%
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.11 $ 0.21 $ 0.21 $ 0.25
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net assets
resulting from investment operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 55,874
Ratio of operating expenses to average net
assets 0.08%+
Ratio of net investment income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.82%+
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.00
</TABLE>
* The Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28 $ 4.16
Net investment income 0.11 0.20 0.20
Net realized and unrealized gain/(loss) on investments 0.16 (0.33) 0.14
Net increase/(decrease) in net assets resulting from investment
operations 0.27 (0.13) 0.34
Distributions:
Dividends from net investment income (0.11) (0.20) (0.20)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.02) (0.02)
Total distributions (0.11) (0.22) (0.22)
Net asset value, end of period $ 4.09 $ 3.93 $ 4.28
Total return++ 6.98% (2.80)% 8.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,742 $ 16,725 $ 31,440
Ratio of operating expenses to average net assets 1.08%+ 1.17% 1.30%
Ratio of net investment income to average net assets 5.57%+ 5.18% 4.65%
Portfolio turnover rate 130% 133% 92%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 1.29%+ 1.38% 1.54%
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.10 $ 0.19 $ 0.19
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 4.19
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment
operations 0.07
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 4.16
Total return++ 1.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,352
Ratio of operating expenses to average net assets 1.18%+
Ratio of net investment income to average net assets 4.80%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 1.44%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.09
</TABLE>
* The Nations Short-Intermediate Government Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR
YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 05/31/95# 05/31/94 05/31/93# 05/31/92
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.61 0.62 0.66 0.71
Net realized and unrealized gain/(loss) on
investments 0.06 (0.61) 0.16 0.38
Net increase/(decrease) in net assets
resulting from investment operations 0.67 0.01 0.82 1.09
Distributions:
Dividends from net investment income (0.57) (0.56) (0.68) (0.75)
Dividends in excess of net investment income -- (0.02) -- --
Distributions in excess of net realized
capital gains -- (0.05) (0.04) (0.03)
Distributions from capital (0.04) (0.04) -- --
Total distributions (0.61) (0.67) (0.72) (0.78)
Net asset value, end of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 7.29% (0.11)% 8.18% 11.18%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating expenses to average net
assets 1.01% 0.90% 1.00% 1.31%
Ratio of net investment income to average net
assets 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 413% 56% 103% 130%
Ratio of operating expenses to average net
assets without waivers and reimbursements 1.19% 1.11% 1.15% 1.97%
Net investment income per share without
waivers and reimbursements $ 0.59 $ 0.59 $ 0.55 $ 0.07
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.09
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net assets
resulting from investment operations 0.11
Distributions:
Dividends from net investment income (0.07)
Dividends in excess of net investment income --
Distributions in excess of net realized
capital gains --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 10.05
Total return++ 1.07%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 661
Ratio of operating expenses to average net
assets 1.35%+
Ratio of net investment income to average net
assets 7.22%+
Portfolio turnover rate 5%
Ratio of operating expenses to average net
assets without waivers and reimbursements 1.94%+++
Net investment income per share without
waivers and reimbursements $ 0.08+++
</TABLE>
* The Nations Government Securities Fund Investor A Shares commenced
operations on April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share amounts have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not acccord with the results
of operations.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES 05/31/95# 05/31/94
<CAPTION>
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46
Net investment income 0.57 0.55
Net realized and unrealized gain/(loss) on investments 0.06 (0.61)
Net increase/(decrease) in net assets resulting from investment operations 0.63 (0.06)
Distributions:
Dividends from net investment income (0.53) (0.50)
Dividends in excess of net investment income -- (0.01)
Distributions in excess of net realized capital gains -- (0.05)
Distributions from capital (0.04) (0.04)
Total distributions (0.57) (0.60)
Net asset value, end of period $ 9.86 $ 9.80
Total return++ 6.76% (0.69)%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2,945 $ 5,265
Ratio of operating expenses to average net assets 1.51% 1.48%
Ratio of net investment income to average net assets 5.94% 5.33%
Portfolio turnover rate 413% 56%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.69% 1.69%
Net investment income per share without waivers and reimbursements $ 0.55 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.52
Net investment income 0.59
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from investment operations 0.61
Distributions:
Dividends from net investment income (0.63)
Dividends in excess of net investment income --
Distributions in excess of net realized capital gains (0.04)
Distributions from capital --
Total distributions (0.67)
Net asset value, end of period $ 10.46
Total return++ 5.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 5,998
Ratio of operating expenses to average net assets 1.60%+
Ratio of net investment income to average net assets 5.92%+
Portfolio turnover rate 103%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.75%+
Net investment income per share without waivers and reimbursements $ 0.42
</TABLE>
* The Nations Government Securities Fund Investor C Shares commenced
operations on July 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94
Net investment income 0.29 0.51 0.54
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 0.99 (0.38) 1.16
Distributions:
Dividends from net investment income (0.29) (0.49) (0.54)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.29) (0.85) (0.55)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55
Total return++ 10.74% (3.76)% 11.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,472 $ 967 $ 1,138
Ratio of operating expenses to average net assets 0.88%+ 0.86% 0.76%
Ratio of net investment income to average net assets 5.98%+ 5.25% 5.25%
Portfolio turnover rate 155% 307% 161%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.99%+ 0.94% 0.92%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.28 $ 0.50 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment
operations (0.05)
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions --
Net asset value, end of period $ 9.94
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 113
Ratio of operating expenses to average net assets 0.40%+
Ratio of net investment income to average net assets 6.00%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.00%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.01
</TABLE>
* The Nations Strategic Fixed Income Fund Investor A Shares commenced
operations on November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94
Net investment income 0.27 0.47 0.48
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 0.97 (0.42) 1.10
Distributions:
Dividends from net investment income (0.27) (0.45) (0.48)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.27) (0.81) (0.49)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55
Total return++ 10.57% (4.14)% 11.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39 $ 41 $ 65
Ratio of operating expenses to average net assets 1.18%+ 1.43% 1.36%
Ratio of net investment income to average net assets 5.68%+ 4.68% 4.65%
Portfolio turnover rate 155% 307% 161%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.29%+ 1.51% 1.52%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.46 $ 0.47
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.02
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net assets resulting from investment
operations (0.02)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.01)
Net asset value, end of period $ 9.94
Total return++ (0.22)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84
Ratio of operating expenses to average net assets 1.03%+
Ratio of net investment income to average net assets 5.40%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.63%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.02
</TABLE>
* The Nations Strategic Fixed Income Fund Investor C Shares commenced
operations on November 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.96
Net investment income 0.36 0.72 0.76
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.92
Net increase/(decrease) in net assets resulting from investment
operations 1.22 (0.34) 1.68
Distributions:
Dividends from net investment income (0.36) (0.72) (0.76)
Distributions in excess of net investment income -- (0.00)## --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.36) (0.87) (0.76)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88
Total return++ 12.92% (3.26)% 17.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,633 $ 10,819 $ 13,291
Ratio of operating expenses to average net assets 1.02%+ 0.96% 0.70%
Ratio of net investment income to average net assets 7.28%+ 7.09% 6.87%
Portfolio turnover rate 67% 144% 86%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.18%+ 1.17% 1.10%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.35 $ 0.70 $ 0.70
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment
operations (0.05)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.01)
Net asset value, end of period $ 9.96
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18
Ratio of operating expenses to average net assets 0.40%+
Ratio of net investment income to average net assets 7.61%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.00%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.01
</TABLE>
* The Nations Diversified Income Fund Investor A Shares commenced operations
on November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.96
Net investment income 0.34 0.67 0.70
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.92
Net increase/(decrease) in net assets resulting from investment
operations 1.20 (0.39) 1.62
Distributions:
Dividends from net investment income (0.34) (0.67) (0.70)
Distributions in excess of net investment income -- (0.00)## --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.34) (0.82) (0.70)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88
Total return++ 12.64% (3.77)% 16.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,153 $ 2,636 $ 3,633
Ratio of operating expenses to average net assets 1.52%+ 1.49% 1.30%
Ratio of net investment income to average net assets 6.78%+ 6.56% 6.27%
Portfolio turnover rate 67% 144% 86%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.68%+ 1.70% 1.70%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.33 $ 0.65 $ 0.64
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from investment
operations 0.05
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.02)
Net asset value, end of period $ 9.96
Total return++ (0.54)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 149
Ratio of operating expenses to average net assets 1.00%+
Ratio of net investment income to average net assets 7.01%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.60%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.03
</TABLE>
* The Nations Diversified Income Fund Investor C Shares commenced operations
on November 9, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
Objectives
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
10
<PAGE>
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the
Nations Short-Term Income Fund may invest in a broad range of debt obligations
such as U.S. Government obligations; corporate debt obligations, including
bonds, notes and debentures rated investment grade by one of the following six
nationally recognized statistical rating organizations, Duff & Phelps Credit
Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA Limited
or its affiliate, IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") (collectively, "NRSROs"), or, if not so rated, determined by
NationsBank to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments (see "Appendix A -- Foreign Securities");
and mortgage-related securities of governmental issuers, including the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
or of private issuers, including mortgage pass-through certificates,
collateralized mortgage obligations or "CMOs", real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or, if not so rated, determined by NationsBank to be of
comparable quality to instruments so rated. (For more information concerning
Asset Backed Securities, including Mortgage-Backed Securities, see "Appendix
A -- Asset Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by 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.
NationsBank will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, prevailing
market or economic conditions warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its assets in securities of foreign issuers. See "Appendix
A" below for additional information concerning the investment practices of this
Fund.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Obligations") and repurchase agreements relating to such obligations.
U.S. Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance. U.S.
11
<PAGE>
Government Obligations also include obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities, some of which are backed
by the full faith and credit of the U.S. Treasury, such as direct pass-through
certificates of the Government National Mortgage Association ("GNMA"); some of
which are supported by the right of the issuer to borrow from the U.S.
Government, such as obligations of Federal Home Loan Banks; and some of which
are backed only by the credit of the issuer itself, such as obligations of the
Federal National Mortgage Association ("FNMA"). For a more detailed description
of the investment practices of this Fund, see "Appendix A -- U.S. Government
Obligations" and "Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in NationsBank's opinion, existing
circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income 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 six NRSROs, or if not so
rated, determined by NationsBank to be of comparable quality to instruments so
rated; U.S. Government obligations; dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments (see
"Appendix A -- Foreign Securities"); mortgage-backed securities of governmental
issuers, including GNMA, FNMA and FHLMC, or of private issuers, including
mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by NationsBank to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") Pursuant to its investment objective, the Fund also may invest in
dividend-paying preferred and common stock.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (e.g. rated "BBB" by 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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed
12
<PAGE>
securities rated by one of the six NRSROs, or if not so rated, determined by
NationsBank to be of comparable quality. (For more information concerning Asset
Backed Securities, including Mortgage-Backed Securities, see "Appendix
A -- Asset Backed Securities.") In pursuing its investment objective, the Fund
also may invest in dividend-paying convertible and non-convertible preferred and
common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by NationsBank to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by 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.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by NationsBank to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by NationsBank to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in NationsBank's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates. See "Appendix A" below for additional information
concerning the investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations Global Government Income Fund" below.
Because the Fund intends to invest a large portion of its assets in foreign
Government Securities, the Fund is a "non-diversified" investment company for
purposes of the Investment Company Act of 1940 (the "1940 Act"). The Fund may
invest in securities of issuers located in any region or country and that are
denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with NationsBank's and/or the Fund's
sub-investment adviser's assessment of the relative yield and appreciation of
such securities. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by NationsBank and/or the Fund's
sub-investment adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated A or better at the time of purchase by Moody's or S&P and
unrated
securi-
13
<PAGE>
ties that, at the time of purchase will be determined to be of comparable
quality by NationsBank and/or the Fund's sub-investment adviser. The Fund also
may invest in securities rated "Baa" by Moody's or "BBB" by S & P, but does not
as a general matter, intend to invest more than 10% of its total assets in such
securities. 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. NationsBank and/or the Fund's sub-investment adviser
will consider such event in determining whether the Fund should continue to hold
the obligation. In no event will the Fund hold more than 5% of its total net
assets in securities rated below investment grade. See "Appendix B" below for a
description of these rating designations. NationsBank and the Fund's
sub-investment adviser expect that the Fund's dollar-weighted average maturity
will not be greater than fifteen years under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS GLOBAL
GOVERNMENT INCOME FUND: Investors should understand and consider carefully the
special risks involved in foreign investing. In addition, the Nations Global
Government Income Fund presents unique risks that investors should be aware of.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect a Fund's share price. General economic and political
factors in the various world markets also can impact a Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations Global Government Income Fund.
GENERAL: The Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income 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 U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of those Funds may lend its portfolio securities
to qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of those Funds may engage in
reverse repurchase agreements and dollar roll transactions. The National Global
Government Income Fund may invest in money market instruments, forward foreign
currency exchange contracts, futures and options and other instruments.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly
14
<PAGE>
annual portfolio turnover rates, it is expected that under normal market
conditions, annual portfolio turnover rates will not exceed 175% for Nations
Global Government Income Fund. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the other Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although NationsBank and Nations Gartmore Investment
Management ("Nations Gartmore"), the Nations Global Government Income Fund's
sub-investment adviser, will seek to achieve the investment objective of each
Fund, there is no assurance that they will be able to do so. No single Fund
should be considered, by itself, to provide a complete investment program for
any investor. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities 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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund 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 (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
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. Each Fund (other than Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
15
<PAGE>
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares may be calculated on an average annual total return basis or an
aggregate total return basis. The "total return" of a class of shares refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods or the life of the Fund (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
Set forth below is certain performance data for the Global Government Bond
Ex-U.K. Composite, reflecting the performance of private accounts, including
U.K. authorized unit trusts, managed by the Gartmore Group, as defined below.
The performance data for these accounts is deemed relevant because the Global
Government Bond Ex-U.K. Composite has investment objectives, policies and
restrictions that are substantially similar to those of the Nations Global
Government Income Fund. There is substantial continuity between the portfolio
managers of the Gartmore Group who were responsible for managing those accounts
and the portfolio managers of Nations Gartmore who are responsible for managing
the Nations Global Government Income Fund. THIS PERFORMANCE DATA REPRESENTS PAST
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF
NATIONSBANK, NATIONS GARTMORE INVESTMENT MANAGEMENT OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
GLOBAL GOVERNMENT BOND Indicated through
EX-U.K. COMPOSITE* March 31, 1995
One Year 7.90%
Three Year 9.40%
Since Inception on September 1, 1990 11.40%
</TABLE>
Annual Total Returns**
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A and Investor C Shares, the Funds generally offer Trust
A, Trust B and Investor N Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, loads and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your selling agent.
16
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc., and Nations
Portfolios are managed under the direction of its Board of Trustees and Boards
of Directors, respectively. The SAI for Nations Fund Trust contains the names of
and general background information concerning the Trustees of Nations Fund
Trust. The SAIs for Nations Fund, Inc. and Nations Portfolios contain the names
of and general background information concerning the respective Directors of
Nations Fund, Inc. and Nations Portfolios.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Although Nations Portfolios, as a new registrant, does not have an operating
history, NationsBank has significant experience managing mutual funds.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Nations Global Government Income Fund pursuant to a sub-advisory
agreement. Nations Gartmore is a joint venture structured as a general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, a wholly owned subsidiary of Gartmore plc, a UK
company listed on the London Stock Exchange which is the holding company for a
leading UK based international fund management group of companies (the "Gartmore
Group"). Banque Indosuez S.A., a leading French bank owns 75% of the equity of
Gartmore plc. The initial asset management company in the Gartmore Group was
founded in 1969 and the Gartmore Group currently provides investment management
and advisory services to pension funds, unit trusts, offshore funds and
investment funds. As of December 31, 1994 the Gartmore Group had over $30
billion in assets under management. Although Nations Gartmore is newly formed
with no experience managing mutual funds, many of its professionals have, in
their capacity as employees of the Gartmore Group, managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Funds, Inc. and Nations Portfolio's Boards of Directors, and in
accordance with the Funds' investment policies, NationsBank and/or Nations
Gartmore formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. NationsBank and Nations Gartmore is authorized to allocate purchase
and sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with NationsBank and/or Nations Gartmore or which have sold shares in
a Fund, if NationsBank or Nations Gartmore believes that the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
an Investment Advisory Agreement, NationsBank is entitled to receive advisory
fees, computed daily and paid monthly, at the annual rate of 0.60% of the
average daily net assets of each of Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, and Nations
Short-Intermediate Government Fund; and 0.65% of the first $100 million of the
Nations Government Securities Fund's average daily net assets, plus 0.55% of the
Fund's average daily net assets in excess of $100 million and up to $250
million, plus 0.50% of the Fund's average daily net assets in excess of $250
million; and 0.70% of the average daily net assets of Nations Global Government
Income Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NationsBank will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.54% of Nations Global Government Income Fund's
daily net assets.
Although the advisory fees for the Nations Global Government Income Fund is
higher than the advisory fees paid by most other mutual funds, Nations
Portfolios believes that the fees are comparable to the advisory fees paid by
many other funds with similar investment objectives and policies. From time to
time, NationsBank
17
<PAGE>
and/or Nations Gartmore may waive (either voluntarily or pursuant to applicable
state limitations) advisory fees payable by a Fund. For the fiscal year ended
November 30, 1994, after waivers, Nations Fund Trust paid NationsBank advisory
fees at the indicated rate of the Funds' average daily net assets: Nations
Short-Term Income Fund -- 0.29%; Nations Diversified Income Fund -- 0.40%;
Nations Strategic Fixed Income Fund -- 0.52%; Nations Short-Intermediate
Government Fund -- 0.40%. For the fiscal year ended May 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank fees at the rate of 0.46% of Nations
Government Securities Fund's average daily net assets.
Mark S. Ahnrud is a vice president and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for Nations Strategic
Fixed Income Fund since 1993 and for Nations Diversified Income Fund since 1992.
Mr. Ahnrud is a member of the Fixed Income Team and has eight years of
investment experience. Mr. Ahnrud received a B.S. from Babson College and an
M.B.A. from Duke University. Mr. Ahnrud holds the Chartered Financial Analyst
designation.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Short-Term
Income Fund since 1993. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has over 7 years of portfolio management experience.
Mr. Cobb received a B.A. from the University of North Carolina-Chapel Hill.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund since 1995. Mr. Swaim is
a member of the Fixed Income Team and has over eight years of investment
experience. Mr. Swaim previously served as derivative products manager for the
NationsBank Texas Corporate Investment division portfolio. Mr. Swaim received
his B.S. from the University of North Texas and holds an M.B.A. from the
University of Texas, Arlington.
Kathy E. Bowman joined NationsBank in March, 1995 as a Vice President and Fixed
Income Portfolio Manager. She has been the principal portfolio manager for
Nations Government Securities Fund since April, 1995. Ms. Bowman is a member of
the Fixed Income Team and has over fourteen years of investment experience.
Prior to joining NationsBank, she was a Director of Fixed Income Securities at
Providian Capital Management and managed public bond portfolios for insurance
products. Ms. Bowman received a BBA from Memphis State University, and holds the
Chartered Financial Analyst designation.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank,
has advised Nations Fund and NationsBank that NationsBank may perform the
services contemplated by the Investment Advisory Agreement without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent NationsBank from
continuing to perform, in whole or in part, such services. If NationsBank were
prohibited from performing any such services, it is expected that the Trustees
of Nations Fund Trust and the Boards of Directors of Nations Fund, Inc. and
Nations Portfolios would recommend to the Funds' shareholders that they approve
a new advisory agreement with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the terms of the Co-Administration Agreement,
TSSG provides various administrative and accounting services to the Funds,
including performing the calculations necessary to determine net asset values
and dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
18
<PAGE>
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund. For
the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations Government Securities
Fund's average daily net assets.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor Shares. See "Shareholder Servicing and Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations Global
Government Income Fund.
NationsBank of Texas, N.A., ("NationsBank of Texas", and, collectively with
Morgan Guaranty, the "Custodians"), serves as the Funds (other than Nations
Global Government Income Fund's) custodian. NationsBank of Texas is located at
1401 Elm Street, Dallas, Texas 75202 and is a wholly owned subsidiary of
NationsBank Corporation. In return for providing custodial services, NationsBank
of Texas is entitled to receive, in addition to out-of-pocket expenses, fees
payable monthly (i) at the rate of 1.25% of 1% of the average daily net assets
of each Fund, (ii) $10.00 per repurchase collateral transaction by the Funds,
and (iii) $15.00 per purchase, sale and maturity transaction involving the
Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A and Investor C Shares are deducted from accrued
income before dividends are declared. The Funds expenses include, but are not
limited to: fees paid to NationsBank, Stephens and TSSG; interest; trustees' and
directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by
NationsBank, Stephens or TSSG under their respective agreements with Nations
Fund; and any extraordinary expenses. Investor Shares may bear certain class
specific retail transfer agency expenses and also bear certain additional
shareholder service and sales support costs. Any general expenses of Nations
Fund Trust, Nations Fund, Inc., and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bear to
the assets of Nations Fund Trust, Nations Fund, Inc., and/or Nations Portfolios
or in such other manner as the Board of Trustees or Boards of Directors deems
appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of
shares -- Investor A, Investor B, Investor C, Trust A and Trust B Shares. This
Prospectus relates only to the Investor A and Investor C Shares of Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund and Nations Short-Intermediate
19
<PAGE>
Government Fund of Nations Fund Trust. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share 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 Nations Fund Trust's Board of
Trustees. Nations Fund Trust'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 Nations Fund Trust 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 related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. In addition, as of August
31, 1995, the Mary Jane Bakery Salesman Association and Walter St. George
Gladding owned of record 25% or more of Investor C shares of the Nations
Strategic Fixed Income Fund and therefore could be considered a controlling
person of such class for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nation Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Investor A and Investor C Shares of
Nations Government Securities Fund of Nations Fund, Inc. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Investor A and C Shares of Nations Portfolios. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your
20
<PAGE>
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, would be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor A and
Investor C Shares in order to accommodate different investors. Purchase orders
for Investor A Shares may be placed through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of Nations Bank) that have entered
into a Sales Support Agreement with Stephens (also "Selling Agents").
Customers may invest in Investor A Shares through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NationsBanc Advisors, Inc. (an "Account"). Investments through
an Account are governed by the terms and conditions of the Account, which are
set forth in the Client Agreement and Disclosure Statement provided by
NationsBanc Advisors, Inc. to each investor who establishes an Account. Because
of the nature of the Account, certain of the features described in this
prospectus are not available to investors purchasing Investor A Shares through
an Account. Potential investors through an Account should refer to the Client
Agreement and Disclosure Statement for more information regarding the Account,
including information regarding the fees and expenses charged in connection with
an Account.
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary
reduction-Individ-
21
<PAGE>
ual Retirement Accounts ("SAR-IRAs"). However, the assets of such plans must
reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one
year of the account open date. If the assets of such plans do not reach the
minimum asset size within one year, Nations Fund reserves the right to redeem
the shares held by such plans on 60 days' written notice. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic Investment
Plan described below.
Investor Shares are purchased at net asset value per share plus any applicable
sales charge described below. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
With respect to Investor A Shares, the Servicing Agents have entered into
Servicing Agreements with Nations Fund under which they will provide various
shareholder services to their customers ("Customers") who own Investor A Shares.
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their Customers who own Investor C Shares. In addition, banks,
broker/dealers or other financial institutions (including certain affiliates of
NationsBank) that have entered into Servicing Agreements with Nations Fund (also
"Servicing Agents") will provide various shareholder services for their
Customers who own Investor C Shares. Servicing Agents and Selling Agents are
sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor Shares in the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR C SHARES:
Before purchasing Investor A Shares or Investor C Shares of a Fund, investors
should consider whether, during the anticipated life of their investment in the
Fund, the initial sales charge, accumulated distribution and shareholder
servicing fee and potential CDSC (if applicable) on Investor A Shares would be
less than the accumulated shareholder servicing and distribution fees and
potential CDSC (if applicable) on Investor C Shares. Over time, the cumulative
expense of the annual shareholder servicing and distribution fees on the
Investor C Shares may equal or exceed the initial sales charge and combined
distribution and servicing fee applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for distribution
and shareholder services, they can be expected to earn correspondingly higher
dividends per share. However, because initial sales charges are deducted at the
time of purchase, purchasers of
22
<PAGE>
Investor A Shares that do not qualify for waivers of or reductions in the
initial sales charge would have less of their purchase price initially invested
in a Fund than purchasers of Investor C Shares. Any positive investment return
on the additional invested amount for Investor C Shares, however, would be
partially or wholly offset by the expected higher annual expenses borne by
Investor C Shares.
Sales Charges
The public offering price of Investor Shares in the Funds is the sum of the net
asset value per share of the shares being purchased plus any applicable sales
charge. No sales charge will be assessed on the reinvestment of dividends or
other distributions.
INVESTOR A SHARES: The following schedule of sales charges will be assessed on
purchases of Investor A Shares of Nations Short-Term Income Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Price Value Price
Amount of Transaction Per Share Per Share Per Share
Less than $100,000 1.50 1.52 1.25
$100,000 but less
than $250,000 1.25 1.27 1.00
$250,000 but less
than $500,000 1.00 1.01 0.80
$500,000 but less
than $1,000,000 0.75 0.76 0.60
$1,000,000 and over 0.00* 0.00* 0.50**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more and certain other Investor A
Shares that are purchased at net asset value will be subject to a CDSC of
1.00% if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter.
** 0.50% on first $2,500,000, plus 0.35% on the next $2,500,000, plus 0.10% on
amounts over $5,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
The following schedule of sales charges will be imposed on purchases of Investor
A Shares of Nations Strategic Fixed Income Fund and Nations Short-Intermediate
Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Sales Charge Dealers'
As a % of Reallowance
Amount of As a % of offering net asset As a % of offering
Transaction price per share value per share price per share
Less than $100,000 3.25 3.36 3.00
$100,000 but less
than $250,000 2.50 2.56 2.25
$250,000 but less
than $500,000 2.00 2.04 1.75
$500,000 but less
than $1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more and certain other Investor A
Shares that are purchased at net asset value will be subject to a CDSC of
1.00% if redeemed within one year of purchase, declining to 0.50% in the
second year after purchase and eliminated thereafter.
** 1.00% on first $2,500,000, plus 0.50% on the next $2,500,000, plus 0.25% on
amounts over $5,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million of more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
23
<PAGE>
The following schedule of sales charges will be assessed on purchases of
Investor A Shares of Nations Diversified Income Fund, Nations Government
Securities Fund and Nations Global Government Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Sales Charge Dealers'
As a % of Reallowance
Amount of As a % of offering net asset As a % of offering
Transaction price per share value per share price per share
Less than $50,000 4.75 4.97 4.25
$50,000 but less
than $100,000 4.50 4.71 4.00
$100,000 but less
than $250,000 3.50 3.63 3.00
$250,000 but less
than $500,000 2.50 2.56 2.25
$500,000 but less
than $1,000,000 2.00 2.04 1.75
$1,000,000 and over 0.00* 0.00* 1.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more and certain other Investor A
Shares that are purchased at net asset value will be subject to a CDSC of
1.00% if redeemed within one year of purchase, declining to 0.50% in the
second year after purchase and eliminated thereafter.
** 1.00% on first $2,500,000, plus 0.50% on the next $2,500,000, plus 0.25% on
amounts over $5,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million of more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents. If substantially all sales charges are paid or reallowed to a
broker/dealer or financial institution, it may be deemed an "underwriter" under
the Securities Act of 1933, as amended.
INVESTOR C SHARES: As of the date of this Prospectus, the Funds do not impose a
sales charge on Investor C Shares. Investors in Nations Diversified Income Fund,
Nations Strategic Fixed Income Fund, Nations Short-Intermediate Government Fund,
Nations Government Securities Fund and Nations Global Government Income Fund,
however, may be subject to a CDSC of 1.00% when Investor C Shares of such Funds
are redeemed within one year after purchase.
In addition to amounts paid to Agents as a dealer concession out of the sales
charge paid by investors, if any, Stephens may, from time to time, at its
expense or as an expense for which it may be reimbursed under the plans adopted
pursuant to Rule 12b-1 under the 1940 Act, pay a bonus or other consideration or
incentive to Agents who sell a minimum dollar amount of shares of a Fund during
a specified period of time. Stephens also may, from time to time, pay additional
consideration to Agents not to exceed 0.75% of the offering price per share on
all sales of Investor C Shares as an expense of Stephens or for which Stephens
may be reimbursed under the plan adopted pursuant to Rule 12b-1 or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
REDUCED SALES CHARGE: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent through
which the Investor A Shares are purchased, which in turn must notify Stephens or
the Transfer Agent at the time of purchase. Reduced sales charges may be
modified or terminated at any time. Investors are responsible for providing
evidence sufficient to establish that they are eligible for any reduction in
sales charges.
RIGHTS OF ACCUMULATION: An investor who has previously purchased Investor A,
Investor C or Investor N Shares in Nations Fund Family's non-money market funds
may aggregate investments in such shares with current purchases to determine the
applicable sales charge for current purchases. An investor's aggregate
investment in Investor A, Investor C and Investor N Shares in Nations Fund
Family's non-money market funds is the total value (based on the higher of
current net asset value or the public offering price originally paid) of: (a)
current purchases, and (b) Investor A, Investor C and Investor N Shares that are
already beneficially owned by the investor.
LETTER OF INTENT: If an investor intends to purchase over a period of 13 months
at least $50,000 of Investor A Shares of any one or more non-money market funds
of the Nations Fund Family the sales charge may be reduced by completing the
Letter of Intent portion of the Account Application. The Letter of Intent allows
a sales charge adjustment depending on the amount actually purchased within the
13-month period. In addition, pursuant to a Letter of Intent, the Custodian will
hold in escrow (as determined by the Transfer Agent) the
differ-
24
<PAGE>
ence between the sales charge applicable to the amount initially purchased and
the sales charge paid at the time of the investment which is based on the amount
covered by the Letter of Intent. The amount held in escrow will be applied to
the investor's account at the end of the 13-month period unless the amount
specified in the Letter of Intent is not purchased. In order to qualify for a
Letter of Intent, the investor will be required to make a minimum purchase of at
least $50,000.
A Letter of Intent will not obligate the investor to purchase Investor A Shares
of any non-money market fund of the Nations Fund Family, but if he or she does,
each purchase of shares of a non-money market fund of the Nations Fund Family
made during the period will be at the sales charge applicable to the total
amount intended to be purchased. This letter may be dated as of a prior date to
include any purchase made within the past 90 days.
QUANTITY DISCOUNTS: As shown in the table under "Sales Charge," larger purchases
may reduce the sales charge paid on Investor A Shares. Purchases of Investor A
Shares in the non-money market funds of the Nations Fund Family that are made on
the same day by the investor, his/her spouse, and his/her children under age 21
will be combined when calculating the sales charge. For the purpose of
calculating the Amount of Transaction, certain distributions or payments from
distribution from certain qualified plans are permitted to aggregate plan
participants' investments.
PURCHASES OF SHARES AT NET ASSET VALUE: Full-time employees and retired
employees of NationsBank Corporation (and its predecessors), its affiliates and
subsidiaries and the immediate families of such persons may purchase Investor A
Shares in the Funds at net asset value. Individuals receiving a distribution
from a NationsBank trust account may use the proceeds of such distribution to
purchase Investor A Shares of the Funds at net asset value, provided that the
proceeds are transferred directly to an account established for the investor at
the Transfer Agent and invested in the Fund within 90 days (or following
investment in a money market fund of the Nations Fund Family for a period not
exceeding one year). Nations Fund's Trustees and Directors also may purchase
Investor A Shares at net asset value. Registered broker/dealers that have
entered into a Nations Fund dealer agreement with Stephens may purchase Investor
A Shares at net asset value for their investment account only. Registered
personnel and employees of such broker/dealers also may purchase Investor A
Shares at net asset value in accordance with the internal policies and
procedures of the employing broker/dealer provided such purchases are made for
their own investment purposes and such shares must not be resold except through
redemption or repurchase by or on behalf of Nations Fund. Employees of the
Transfer Agent may purchase Investor A Shares of the Funds at net asset value.
In addition, former shareholders of Class B Shares of the Fixed Income Portfolio
of The Capitol Mutual Funds who held such shares as of January 31, 1994 or
received Investor A Shares of Nations Strategic Fixed Income Fund in connection
with the reorganization of the Fixed Income Portfolio into such Fund may
purchase Investor A Shares of Nations Strategic Fixed Income Fund at net asset
value.
In addition, individuals purchasing Investor A Shares through the Nations Fund
Personal Investment Planner may purchase such shares at net asset value. The
Nations Fund Personal Investment Planner is a managed agency/asset allocation
account offered by NationsBanc Advisors, Inc. designed for exclusive investment
in shares of Nations Fund. Any Investor A Shares purchased at net asset value
through the Personal Investment Planner will be subject to a CDSC of 1.00% if
redeemed within one year of purchase, declining to 0.50% if redeemed in the
second year after purchase and eliminated thereafter. See "How to Redeem
Shares."
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $250,000 invested
in Investor A Shares of the Nations Fund non-money market funds, (b) has signed
a letter of intent indicating that the plan intends to purchase at least
$250,000 of Investor A Shares of the Nations Fund non-money market funds, or (c)
is an employer-sponsored plan with at least 25 eligible participants (a
"Qualified Plan"). Stephens may pay Agents or other financial service firms up
to 1.00% of the net asset value of Investor A Shares purchased without a sales
charge through the Personal Investment Planner or a Qualified Plan, for which it
may be reimbursed out of any CDSC.
Investor A Shares in a Fund may be purchased at net asset value, without any
sales charge, by persons who have redeemed Investor A Shares of the same Fund
within the previous 120 days. In addition, within 120 days after a redemption of
Investor C Shares of a Fund, a shareholder may reinvest any portion of the
proceeds of such redemption in Investor C Shares of the same Fund. The amount
which may be so reinvested is limited to an amount up to, but not exceeding, the
redemption proceeds (or to the nearest full share if fractional shares are not
purchased). A shareholder exercising this privilege would receive a pro rata
credit for any CDSC paid in connection with the prior redemption. A shareholder
may not exercise this privilege with the proceeds of a redemption of shares
previously purchased through the reinstatement privilege. In order to exercise
this privi-
25
<PAGE>
lege, a written order for the purchase of Investor Shares must be received by
the Transfer Agent or by Stephens within 120 days after the redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Fund must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Fund may terminate any waiver of or reduction in the sales charge by
providing notice in the Funds' Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charges, contact an Agent or Stephens.
Shareholder Servicing And Distribution Plans
INVESTOR A SHARES: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
each Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Income Fund, however, may not pay for shareholder servicing
activities under the Investor A Plan. Aggregate payments under the Funds'
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by each Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A 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 Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate Selling Agents for providing sales
support assistance in connection with the sale of Investor A Shares to
Customers, which may include forwarding sales literature and advertising
provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") for the Investor A Shares of Nations Short-Term Income Fund. The
Servicing Plan permits Nations Short-Term Income Fund to compensate Servicing
Agents for services provided to their Customers that own Investor A Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by Nations Short-Term Income Fund, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Fund's Investor A Shares. The fees payable to Servicing Agents 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 may
include, but are not limited to, those discussed above with respect to the
Investor A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
INVESTOR C SHARES: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan with respect to the Investor C Shares of each Fund.
Pursuant to the Distribution Plan, each Fund may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Fund's Investor C Shares. Payments under the Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees provided that the annual rate may not exceed 0.75% of the
26
<PAGE>
average daily net asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Investor C Servicing Plan") for each Fund which permits the Funds to
compensate Servicing Agents for services provided to their Customers that own
Investor C Shares. Payments under the Investor C Servicing Plan are calculated
daily and paid monthly at a rate or rates set from time to time by the Funds,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Investor C Shares.
The fees payable under the Investor C 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 Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements
27
<PAGE>
between the Agent and its Customers. Nations Fund also may redeem shares of a
Fund involuntarily or make payment for redemption in readily marketable
securities or other property under certain circumstances in accordance with the
1940 Act.
Prior to effecting a redemption of Investor Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal office.
All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that are purchased in amounts of $1 million or
more and certain other Investor A Shares that are purchased at net asset value
will be subject to a CDSC equal to 1.00% of the lesser of the net asset value or
the purchase price of the shares being redeemed if such shares are redeemed
within one year of purchase, declining to 0.50% in the second year after
purchase and eliminated thereafter. See "Sales Charges -- Purchases of Shares at
Net Asset Value." In addition, subject to certain waivers, Investor C Shares of
Nations Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations
Short-Intermediate Government Fund, Nations Government Securities Fund and
Nations Global Government Income Fund that are redeemed within one year of the
date of purchase will be subject to a CDSC equal to 1.00% of the lesser of the
net asset value or the purchase price of the shares being redeemed. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases during a month will be aggregated
and deemed to have been made on the last day of the month. In determining
whether a CDSC is applicable to a redemption, the calculation will be made in
the manner that results in the lowest possible charge being assessed. In this
regard, it will be assumed that the redemption is first of shares held for the
longest period of time or shares acquired pursuant to reinvestment of dividends
or distributions. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase.
The CDSC will be waived on redemptions of Investor A and Investor C Shares (i)
following the death or disability (as defined in the Code) of a shareholder
(including a registered joint owner), (ii) in connection with the following
retirement plan distributions: (a) by qualified retirement plans, (except in
cases of plan level terminations); (b) distributions from an IRA following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA, and (d) distributions from a qualified retirement plan that are not subject
to the 10% additional Federal withdrawal tax pursuant to Section 72(t)(2) of the
Code, (iii) effected pursuant to Nations Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the Investor Shares
held in the account is less than the minimum account size, (iv) in connection
with the combination of Nations Fund with any other registered investment
company by merger, acquisition of assets or by any other transaction, and (v)
effected pursuant to the Automatic Withdrawal Plan discussed below, provided
that such redemptions do not exceed, on an annual basis, 12% of the net asset
value of the Investor A and Investor C Shares in the account. Furthermore, any
CDSC that otherwise would apply to Investor A Shares will be waived upon the
redemption of shares purchased by persons described in the section "Sales
Charges -- Purchases of Shares at Net Asset Value" in this Prospectus, except
for Nations Fund Personal Investment Planner purchasers in non-retirement
accounts. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC. Nations Fund may
terminate any waiver of the CDSC by providing notice in the Prospectus, but any
such termination would affect only shares purchased after such termination.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A and Investor C Shares redeemed under the AWP will not be
subject to a CDSC, provided that the shares so redeemed do not exceed, on an
annual basis, 12% of the net asset value of the Investor A and Investor C Shares
in the account. Otherwise, any applicable CDSC will be imposed on shares
redeemed under the AWP. Shareholders who elect to establish an AWP may receive a
monthly, quarterly or annual check or automatic transfer or to a checking or
savings account in a stated amount of not less than $25 on or about the 10th or
25th day of the applicable month of withdrawal. Investor Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Selling or Servicing Agent or
by Nations Fund at any time.
28
<PAGE>
How To Exchange Shares
SHARES ACQUIRED DIRECTLY: Except as described below, the exchange feature
enables a shareholder of Investor A Shares of a Nations Fund non-money market
fund (including the Funds) to acquire shares of the same class that are offered
by any other fund of Nations Fund when the shareholder believes that a shift
between funds is an appropriate investment decision. In addition, except as
described below, the exchange feature enables a shareholder of Investor C Shares
of a Nations Fund non-money market fund (including the Funds) to acquire shares
of the same class that are offered by another non-money market fund of Nations
Fund or Investor D Shares of any money market fund of Nations Fund when he or
she believes that a shift between funds is an appropriate investment decision.
However, Investor C Shares of Nations Short-Term Income Fund may not be
exchanged for Investor D Shares of a Nations Fund money market fund. In
addition, Nations Diversified Income Fund, Nations Strategic Fixed Income Fund,
Investor C Shares of Nations Short-Intermediate Government Fund, Nations
Government Securities Fund and Nations Global Government Income Fund may not be
exchanged for Investor C Shares of Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund until one year after purchase. For purposes of
determining whether one year has elasped since the date of purchase, all
purchases made during a month will be aggregated and deemed to have been made on
the last day of the month. A qualifying exchange is based on the next calculated
net asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor Shares that
meets the requirements discussed in this section. If Investor A Shares of the
Funds are exchanged for shares of the same class of another fund, any CDSC
applicable to the shares exchanged will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Funds.
If a shareholder acquires Investor C Shares of a non-money market fund through
an exchange, the CDSC applicable to that current fund will be applied to any
redemption of the acquired shares. However, if a shareholder acquires Investor D
Shares of a money market fund through an exchange of Investor C Shares, the CDSC
schedule applicable to the exchanged Investor C Shares will be applied on any
redemption of the acquired Investor D Shares. Notwithstanding the foregoing, if
a shareholder redeems shares acquired through an exchange, the shareholder will
be subject to the highest CDSC schedule applicable to any shares that were
exchanged within the 30 days prior to the redemption. Additionally, when an
investor exchanges Investor C Shares of Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Short-Intermediate Government Fund, Nations
Government Securities Fund and Nations Global Government Income Fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares. If an investor exchanges Investor C
Shares of Nations Short-Term Income Fund for shares of the same class of another
non-money market fund, the remaining period of time that the CDSC applicable to
the acquired shares is in effect will be computed from the time of the exchange.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor Shares available under the exchange feature described
above, provided that the maximum sales charge applicable to the acquired
Investor A Shares is equal to or less than the "maximum sales charge applicable"
to the Investor A Shares being exchanged. For purposes of determining the
"maximum sales charge applicable" to the Investor A Shares being exchanged, a
shareholder may include any sales charge paid on shares of the same class
offered by one of Nations Fund's other funds that were previously exchanged to
acquire the subject Investor A Shares then being exchanged, provided that
notification of such prior exchange is made to the Transfer Agent or Stephens.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differential," which is the difference
between the maximum front-end sales charge applicable to those Investor A Shares
being exchanged and those being acquired. However, a shareholder would not have
to pay a sales charge differential to the extent such shareholder is eligible
for a reduced or waived sales charge on the Investor A Shares being acquired. In
addition, a shareholder of Investor A Shares of a non-money market fund would
not have to pay a sales charge differential upon an exchange if the shareholder
has owned such shares for at least 90 days.
INVESTOR A SHARES OF NATIONS SHORT-TERM INCOME FUND ACQUIRED IN EXCHANGE FOR
INVESTOR N SHARES: Investor A Shares of the Nations Short-Term
29
<PAGE>
Income Fund acquired directly or indirectly in exchange for Investor N Shares of
another non-money market fund may be re-exchanged only for Investor N Shares of
another fund, Investor C Shares of a money market fund of Nations Fund or
Investor A Shares of Nations Short-Term Municipal Income Fund. The sales charge
applicable to Investor A Shares of Nations Short-Term Income Fund will be waived
in connection with the acquisition of such shares in exchange for Investor N
Shares of another fund.
If a shareholder acquires Investor A Shares of Nations Short-Term Income Fund in
exchange for Investor N Shares of another non-money market fund, Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term
Municipal Income Fund, the acquired shares (and any Investor A or Investor C
Shares acquired through the exchange of such shares) will remain subject to the
CDSC schedule applicable to the Investor N Shares of the non-money market fund
last exchanged. A redemption of shares acquired through an exchange of Investor
N Shares will, in all events, be subject to the highest CDSC schedule applicable
to any shares that were exchanged within 30 days prior to the redemption.
Additionally, the holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund or
Investor C Shares of a money market fund. As a result, the CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature (AEF) a
shareholder may automatically exchange at least $25 on a bi-monthly, monthly or
quarterly basis. Shareholder may direct proceeds to be exchanged from one
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th and/or 30th day of the
applicable. The shareholder must have an existing position in both Funds in
order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, please contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature
30
<PAGE>
in 60 days or less are valued at amortized cost, which approximates market
value. All other securities and assets are valued at their fair value following
procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income taxes on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of the Nations Global Government Income Fund's investment income may be
subject to foreign income taxes withheld at their source. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Generally, more than 50% of the value of the total assets of the Nations
Global Government Income Fund will consist of securities of foreign issuers, and
therefore the Fund may elect to "pass through" to its shareholders these foreign
taxes, if any. In such event each shareholder will be required to include his or
her pro rata portion thereof in his or her gross income, but will be able to
deduct or (subject to various limitations) claim a foreign tax credit against
U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this
Prospec-
31
<PAGE>
tus and summarizes only some of the important Federal tax considerations
generally affecting the Funds and their shareholders. It is not intended as a
substitute for careful tax planning; investors should consult their tax advisers
with respect to their specific tax situations as well as with respect to state
and local taxes. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. 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 are not 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 represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and 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. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
dis-
32
<PAGE>
count, 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.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. 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 NationsBank and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage backed securities, see the related
SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
33
<PAGE>
The purchase of non-mortgage backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue Asset Backed Securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset Backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset Backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset Backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset Backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other Asset Backed Securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risk, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
The Funds may borrow money from banks for temporary purposes in amounts of up to
one-third of their respective total assets, provided that borrowings in excess
of 5% of the value of the Funds' total assets must be repaid prior to the
purchase of portfolio securities.
34
<PAGE>
The Funds are parties to a Line of Credit Agreement with Mellon Bank, N.A.
Advances under the agreement are taken primarily for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. 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). 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 Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when
NationsBank 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by NationsBank at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable and floating rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
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
35
<PAGE>
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. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and/or the Sub-Adviser
believe that the currency of a particular foreign country may experience a
substantial movement against another currency. Under certain circumstances, a
Fund may commit a substantial portion of its portfolio to the execution of these
contracts. NationsBank and/or the Sub-Adviser will consider the effects such a
commitment would have on the investment program of such Fund and the flexibility
of such Fund to purchase additional securities. Although forward contracts will
be used primarily to protect a Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted. The Funds will generally not enter into a forward contract with a
term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
36
<PAGE>
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
NationsBank or Nations Gartmore, acting under guidelines approved and monitored
by such Fund's Board, after considering trading activity, availability of
reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the level of illiquidity of a Fund holding such
securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expects to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securi-
37
<PAGE>
ties 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.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, NationsBank will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
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.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and 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 NationsBank. 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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly
38
<PAGE>
with other investment portfolios of Nations Fund and Nations Institutional
Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by 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.
39
<PAGE>
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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be modified by the addi-
40
<PAGE>
tion of a plus or minus sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by 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.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
41
<PAGE>
supporting institutions) are considered to have a strong capacity for repayment
of senior short-term promissory obligations. This will normally be evidenced by
many of the characteristics of issuers rated Prime-1, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
42
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor N Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.02) (0.01) 0.10
Net realized and unrealized gain/(loss) on
investments...................................... (0.13) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.15) (0.31) 0.14
Distributions:
Dividends from net investment income............. N/A N/A (0.10)
Total Distributions.............................. N/A N/A (0.10)
Net asset value, end of period..................... $ 9.85 $ 9.69 $ 10.04
Total return++..................................... (1.50)% (3.10)% 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 386 $ 385 $ 110
Ratio of operating expenses to average net
assets........................................ 2.90%+ 2.70%+ 2.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (1.03)%+ (0.85)%+ 4.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor N Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
INVESTOR N SHARES
SEPTEMBER 30, 1995
This Prospectus describes the NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS DISCIPLINED EQUITY FUND,
NATIONS INTERNATIONAL EQUITY FUND, NATIONS EMERGING
MARKETS FUND AND NATIONS PACIFIC GROWTH FUND. (the
"Funds") of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
one class of shares of the Funds -- Investor N
Shares. The Nations Disciplined Equity Fund was
formerly called "Nations Special Equity Fund."
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Investor N Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income
Fund
Nations Balanced
Assets Fund
GROWTH FUNDS:
Nations Capital Growth
Fund
Nations Emerging
Growth Fund
Nations Disciplined
Equity Fund
INTERNATIONAL FUNDS:
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUND
GRPN A
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 5
Objectives 9
How Objectives Are Pursued 9
How Performance is Shown 16
How the Funds Are Managed 18
Organization and History 21
About Your Investment
How to Buy Shares 23
Shareholder Servicing and Distribution Plans 24
How to Redeem Shares 25
How to Exchange Shares 26
How the Funds Value Their Shares 27
How Dividends and Distributions are Made; Tax
Information 28
Appendix A -- Portfolio Securities 29
Appendix B -- Description of Ratings 34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations Nations Balanced Nations Nations Disciplined
Value Equity Income Assets Capital Growth Emerging Growth Equity
Fund Fund Fund Fund Fund Fund
SHAREHOLDER
TRANSACTION
EXPENSES
Sales Load Imposed
on Purchases None None None None None None
Maximum Deferred
Sales Charge (as a
percentage of the
lower of the
original purchase
price or
redemption
proceeds) 5.00%1 5.00%1 5.00%1 5.00%1 5.00%1 5.00%1
ANNUAL FUND
OPERATING EXPENSES
(as a percentage
of average net
assets)
Management Fees .75% .70% .75% .75% .75% .75%
Rule 12b-1 Fees .50%2 .50%2 .50%2 .75% .75% .75%
Shareholder
Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses .17% .25% .20% .17% .20% .25%
Total Operating
Expenses 1.67%2 1.70%2 1.70%2 1.92% 1.95% 2.00%
<CAPTION>
Nations
International Nations Nations
Equity Emerging Pacific Growth
Fund Markets Fund Fund
SHAREHOLDER
TRANSACTION
EXPENSES
Sales Load Imposed
on Purchases None None None
Maximum Deferred
Sales Charge (as a
percentage of the
lower of the
original purchase
price or
redemption
proceeds) 5.00%1 5.00%1 5.00%1
ANNUAL FUND
OPERATING EXPENSES
(as a percentage
of average net
assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees .75% .75% .75%
Shareholder
Servicing Fees .25% .25% .25%
Other Expenses .20% .80% .80%
Total Operating
Expenses 2.10% 2.90% 2.70%
</TABLE>
1 5.00% in the first year after purchase, declining to 1.00% in the sixth year
after purchase and eliminated thereafter.
2 After any waivers and reimbursements.
3
<PAGE>
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Nations Nations
Nations Equity Balanced Nations Nations Disciplined
Value Income Assets Capital Growth Emerging Growth Equity
Fund Fund Fund Fund Fund Fund
1 Year $ 67 $ 67 $ 67 $ 69 $ 70 $ 70
3 Years $ 83 $ 84 $ 84 $ 90 $ 91 $ 93
5 Years $ 111 $ 112 $ 112 $ 124 $ 125 N/A
10 Years $ 198 $ 201 $ 201 $ 224 $ 227 N/A
<CAPTION>
Nations Nations Nations
International Emerging Pacific
Equity Markets Growth
Fund Fund Fund
1 Year $ 71 $ 79 $ 77
3 Years $ 96 $ 120 $ 114
5 Years $ 133 N/A N/A
10 Years $ 243 N/A N/A
</TABLE>
An investment of $1,000 would incur the following expenses, assuming a 5% annual
return but no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Nations Nations Nations Nations
Nations Equity Balanced Capital Emerging Disciplined
Value Income Assets Growth Growth Equity
Fund Fund Fund Fund Fund Fund
1 Year $ 17 $ 17 $ 17 $ 19 $ 20 $ 20
3 Years $ 53 $ 54 $ 54 $ 60 $ 61 $ 63
5 Years $ 91 $ 92 $ 92 $ 104 $ 105 N/A
10 Years $ 198 $ 201 $ 201 $ 224 $ 227 N/A
<CAPTION>
Nations Nations Nations
International Emerging Pacific
Equity Markets Growth
Fund Fund Fund
1 Year $ 21 $ 29 $ 27
3 Years $ 66 $ 90 $ 84
5 Years $ 113 N/A N/A
10 Years $ 243 N/A N/A
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. Except for the Nations Emerging
Markets Fund and Nations Pacific Growth Fund, which fees and expenses are based
on estimates, the figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. The "Other Expenses" figures
in the above table are based on estimates for the current fiscal year. There is
no assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. Long-term shareholders
in the Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How the Funds Are Managed."
Absent fee waivers and reimbursements, "Rule 12b-1 Fees" and "Total Operating
Expenses" would have been as follows: Nations Value Fund -- .75% and 1.92%,
respectively; Nations Equity Income Fund -- .75% and 1.95%, respectively; and
Nations Balanced Assets Fund -- .75% and 1.95%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of the Funds will
receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94
Operating performance:
Net asset value, beginning of period $ 12.94 $ 13.71
Net investment income 0.10 0.15
Net realized and unrealized gain/(loss) on investments 2.10 (0.22)
Net increase/(decrease) in net assets resulting from investment operations 2.20 (0.07)
Distributions:
Dividends from net investment income (0.09) (0.16)
Distributions from net realized capital gains (0.67) (0.54)
Total distributions (0.76) (0.70)
Net asset value, end of period $ 14.38 $ 12.94
Total return++ 18.20% (0.69)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 59,231 $ 42,530
Ratio of operating expenses to average net assets 1.66%+ 1.68%
Ratio of net investment income to average net assets 1.42%+ 1.10%
Portfolio turnover rate 36% 75%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 1.66%+ 1.68%
Net investment income per share before fee waivers and/or expense reimbursements $ 0.10 $ 0.15
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 13.08
Net investment income 0.11
Net realized and unrealized gain/(loss) on investments 0.63
Net increase/(decrease) in net assets resulting from investment operations 0.74
Distributions:
Dividends from net investment income (0.11)
Distributions from net realized capital gains --
Total distributions (0.11)
Net asset value, end of period $ 13.71
Total return++ 5.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10,449
Ratio of operating expenses to average net assets 1.71%+
Ratio of net investment income to average net assets 1.23%+
Portfolio turnover rate 64%
Ratio of operating expenses to average net assets before fee waivers and/or expense
reimbursements 1.72%+
Net investment income per share before fee waivers and/or expense reimbursements $ 0.11
</TABLE>
* The Nations Value Fund Investor N Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
5
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
<S> <C>
YEAR
ENDED
INVESTOR N SHARES 05/31/95
Operating performance:
Net asset value, beginning of period $ 11.40
Net investment income 0.34
Net realized and unrealized gain on investments 1.11
Net increase in net assets resulting from investment operations 1.45
Distributions:
Dividends from net investment income (0.35)
Distributions from net realized capital gains (0.73)
Total distributions (1.08)
Net asset value, end of period $ 11.77
Total return++ 14.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 75,371
Ratio of operating expenses to average net assets 1.67%
Ratio of net investment income to average net assets 3.00%
Portfolio turnover rate 158%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.68%
Net investment income per share without waivers and reimbursements $ 0.34
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 05/31/94*
Operating performance:
Net asset value, beginning of period $ 11.98
Net investment income 0.37
Net realized and unrealized gain on investments 0.22
Net increase in net assets resulting from investment operations 0.59
Distributions:
Dividends from net investment income (0.36)
Distributions from net realized capital gains (0.81)
Total distributions (1.17)
Net asset value, end of period $ 11.40
Total return++ 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 46,043
Ratio of operating expenses to average net assets 1.69%+
Ratio of net investment income to average net assets 2.66%+
Portfolio turnover rate 116%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.70%+
Net investment income per share without waivers and reimbursements $ 0.37
</TABLE>
* The Nations Equity Income Investor N Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
<TABLE>
<CAPTION>
NATIONS BALANCED ASSETS FUND
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.40 $ 10.85
Net investment income 0.12 0.17
Net realized and unrealized gain/(loss) on investments 1.14 (0.44)
Net increase/(decrease) in net assets resulting from investment operations 1.26 (0.27)
Distributions:
Dividends from net investment income (0.10) (0.18)
Distributions from net realized gains (0.02) --
Total distributions (0.12) (0.18)
Net asset value, end of period $ 11.54 $ 10.40
Total return++ 12.21% (2.51)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 57,085 $ 52,905
Ratio of operating expenses to average net assets 1.74%+ 1.73%
Ratio of net investment income to average net assets 2.36%+ 1.56%
Portfolio turnover rate 101% 156%
Ratio of operating expenses to average net assets before fee waivers 1.74%+ 1.74%
Net investment income per share before fee waivers $ 0.12 $ 0.17
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.61
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 0.23
Net increase/(decrease) in net assets resulting from investment operations 0.37
Distributions:
Dividends from net investment income (0.13)
Distributions from net realized gains --
Total distributions (0.13)
Net asset value, end of period $ 10.85
Total return++ 3.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,982
Ratio of operating expenses to average net assets 1.65%+
Ratio of net investment income to average net assets 2.07%+
Portfolio turnover rate 50%
Ratio of operating expenses to average net assets before fee waivers 1.72%+
Net investment income per share before fee waivers $ 0.14
</TABLE>
* The Nations Balanced Assets Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94
Operating performance:
Net asset value, beginning of period $ 11.17 $ 11.05
Net investment income/(loss) 0.00(a) (0.01)
Net realized and unrealized gain on investments 1.37 0.13
Net increase in net assets resulting from investment operations 1.37 0.12
Distributions:
Dividends from net investment income -- --
Distributions from net realized gains (0.26) (0.00)(a)
Total distributions (0.26) (0.00)(a)
Net asset value, end of period $ 12.28 $ 11.17
Total return++ 12.64% 1.12%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 30,855 $ 23,591
Ratio of operating expenses to average net assets 1.91%+ 1.90%
Ratio of net investment income/(loss) to average net assets 0.03%+ (0.15)%
Portfolio turnover rate 43% 56%
Ratio of operating expenses to average net assets before fee waivers 1.97%+ 1.91%
Net investment income/(loss) per share before fee waivers $ (0.03) $ (0.01)
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.55
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.53
Net increase in net assets resulting from investment operations 0.52
Distributions:
Dividends from net investment income (0.02)
Distributions from net realized gains --
Total distributions (0.02)
Net asset value, end of period $ 11.05
Total return++ 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,511
Ratio of operating expenses to average net assets 1.80%+
Ratio of net investment income/(loss) to average net assets (0.16)%+
Portfolio turnover rate 81%
Ratio of operating expenses to average net assets before fee waivers 1.89%+
Net investment income/(loss) per share before fee waivers $ (0.02)
</TABLE>
* The Nations Capital Growth Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
(a) Value represents less than $0.01 per share.
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94#
Operating performance:
Net asset value, beginning of period $ 11.24 $ 10.82
Net investment income/(loss) (0.03) (0.14)
Net realized and unrealized gain on investments 0.94 0.70
Net increase in net assets resulting from investment operations 0.91 0.56
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of period $ 11.75 $ 11.24
Total return++ 8.60% 5.17%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 22,326 $ 15,909
Ratio of operating expenses to average net assets 1.97%+ 2.01%
Ratio of net investment income/(loss) to average net assets (0.90)%+ (1.29)%
Portfolio turnover rate 69% 129%
Ratio of operating expenses to average net assets before fee waivers 1.98%+ 2.01%
Net investment income/(loss) per share before fee waivers $ (0.03) $ (0.09)
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.88
Net investment income/(loss) (0.02)
Net realized and unrealized gain on investments 0.96
Net increase in net assets resulting from investment operations 0.94
Distributions:
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.82
Total return++ 9.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,594
Ratio of operating expenses to average net assets 1.80%+
Ratio of net investment income/(loss) to average net assets (1.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets before fee waivers 2.01%+
Net investment income/(loss) per share before fee waivers $ (0.03)
</TABLE>
* The Nations Emerging Growth Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
SIX MONTHS
ENDED
05/31/95
INVESTOR N SHARES (UNAUDITED)#
Operating performance:
Net asset value, beginning of period $ 13.02
Net investment income/(loss) 0.02
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net assets resulting from investment operations 1.37
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Return of capital --
Total distributions --
Net asset value, end of period $ 14.39
Total return++ 10.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 918
Ratio of operating expenses to average net assets 1.94%+
Ratio of net investment income/(loss) to average net assets 0.37%+
Portfolio turnover rate 98%
Ratio of operating expenses to average net assets before fee waivers 2.65%+
Net investment income/(loss) per share before fee waivers $ (0.02)
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 12.77
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.28
Net increase/(decrease) in net assets resulting from investment operations 0.26
Distributions:
Dividends from net investment income (0.01)
Distributions from net realized gains --
Return of capital (0.00)(a)
Total distributions (0.01)
Net asset value, end of period $ 13.02
Total return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 177
Ratio of operating expenses to average net assets 2.09%+
Ratio of net investment income/(loss) to average net assets (0.84)%+
Portfolio turnover rate 177%
Ratio of operating expenses to average net assets before fee waivers 2.52%+
Net investment income/(loss) per share before fee waivers $ (0.03)
</TABLE>
* The Nations Disciplined Equity Fund Investor N Shares commenced operations on
May 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
(a) Value represents less than $0.01 per share.
# Per share numbers have been calculated using the monthly average shares
method.
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
INVESTOR N SHARES 05/31/95#
Operating performance:
Net asset value, beginning of period $ 11.96
Net investment income/(loss) 0.05
Net realized and unrealized gain/(loss) on investments (0.22)
Net increase/(decrease) in net assets resulting from investment operations (0.17)
Distributions:
Dividends from net investment income (0.01)
Distributions from net realized capital gains (0.12)
Distributions in excess of net realized capital gains (0.10)
Total distributions (0.23)
Net asset value, end of period $ 11.56
Total return++ (1.30)%
Ratios to average net assets/supplemental data:
Net assets, end of period in (000's): $ 31,372
Ratio of operating expenses to average net assets 1.78%
Ratio of net investment income/(loss) to average net assets 0.42%
Portfolio turnover rate 92%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.79%
Net investment income/(loss) per share without waivers and reimbursements $ 0.05
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 05/31/94*#
Operating performance:
Net asset value, beginning of period $ 10.51
Net investment income/(loss) (0.00)**
Net realized and unrealized gain/(loss) on investments 1.51
Net increase/(decrease) in net assets resulting from investment operations 1.51
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total distributions (0.06)
Net asset value, end of period $ 11.96
Total return++ 14.32%
Ratios to average net assets/supplemental data:
Net assets, end of period in (000's): $ 17,349
Ratio of operating expenses to average net assets 1.92%+
Ratio of net investment income/(loss) to average net assets (0.00)%+
Portfolio turnover rate 39%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.93%+
Net investment income/(loss) per share without waivers and reimbursements $ (0.00)**
</TABLE>
* The Nations International Equity Fund Investor N Shares commenced operations
on June 7, 1993.
** Amount represents less than $0.01.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
8
<PAGE>
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which NationsBank believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among three major asset groups: common stocks, fixed income
securities, and cash equivalents.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of NationsBank, have
above average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by NationsBank to have the potential for
significant increases in earnings per share.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by NationsBank. NationsBank closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by NationsBank to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. NationsBank also analyzes key financial ratios that measure the growth,
profitability, and leverage of such issuers that it believes will help maintain
a portfolio of above-average quality.
Stocks are selected from this universe based on NationsBank's judgment of their
total return potential. NationsBank buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by
NationsBank in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same
9
<PAGE>
industry or economic sector. NationsBank believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. NationsBank will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock, and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade bonds
and other debt securities of domestic companies. Obligations with the lowest
investment grade rating (e.g. rated "BBB" by 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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments and the
Fund's investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, NationsBank believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the S&P 500 Index, a broad-based
and widely used index of common stock prices. Second, dividends are normally a
more stable and predictable source of return than capital appreciation. While
the price of a company's stock generally increases or decreases in response to
short-term earnings and market fluctuations, its dividends are generally less
volatile. Finally, NationsBank believes that stocks which distribute a high
level of current income tend to have less price volatility than those which pay
below average dividends.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by NationsBank. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government, and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by NationsBank). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) 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. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by NationsBank.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
NationsBank believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S.
10
<PAGE>
issuers, the Fund may invest 10% or more of its total assets in debt obligations
of foreign issuers and stocks of foreign corporations. The Fund will treat
foreign securities as illiquid unless there is an active and substantial
secondary market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, NationsBank will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, NationsBank will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. In general,
NationsBank believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with above
average earnings growth and return on equity offer the best growth prospects
among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet NationsBank's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (e.g. rated "BBB" by 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. See "Appendix B" for a description of these ratings designations.
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. NationsBank 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired. Under normal circumstances, at least 25% of the total value of the
Fund's assets will be invested in fixed income securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the Standard & Poor's 500
Stock Index ("S&P 500 Index");
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
11
<PAGE>
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above average market performance. Through intensive
research, visits to many companies each year, and efficient response to changing
market conditions, NationsBank seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by NationsBank. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and NationsBank will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, NationsBank will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that NationsBank, as
investment adviser, believes are likely to experience significant increases in
earnings. By pursuing this investment philosophy, the Fund seeks to provide
investors with long-term capital appreciation which exceeds that of the S&P 500
Index.
In selecting stocks for purchase by the Fund, NationsBank utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. NationsBank believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. NationsBank also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
12
<PAGE>
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, 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 will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
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 a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
NationsBank). Obligations rated in the lowest of the top four investment grade
rating categories 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.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that
NationsBank and the Fund's sub-investment adviser believe have potential for
growth of capital. The Fund also may invest up to 35% of its assets in any other
type of security including: convertible securities; preferred stocks; bonds,
notes and other debt securities (including Eurodollar securities); and
obligations of domestic or foreign governments and their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by NationsBank
and/or the Fund's sub-investment adviser to be comparable in quality to
instruments so rated. Obligations with the lowest investment grade rating (e.g.,
rated "Baa" by Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these
ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a
sin-
13
<PAGE>
gle country, events occurring in such country are more likely to affect the
Fund's investments. For additional information concerning risk, see "Special
Risk Considerations Relevant to an Investment in the Nations International
Equity Fund, Nations Emerging Markets Fund and Nations Pacific Growth Fund,"
below. When allocating investments among individual countries, NationsBank
and/or the Fund's sub-investment adviser will consider various criteria, such as
the relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. NationsBank and the sub-investment adviser seek to
identify and invest in those emerging markets that have a relatively low gross
national product per capita, compared to the world's major economies, and which
exhibit potential for rapid economic growth. NationsBank and the sub-investment
adviser believe that investment in equity securities of emerging market issuers
offers significant potential for long-term capital appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and Far East include Australia, Hong Kong, India, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Phillippines, Singapore, Sri Lanka, Taiwan and Thailand and may include
other markets that develop in the region. The Fund will not invest in securities
of issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by NationsBank and/or
the Fund's sub-investment adviser to be comparable in quality to instruments so
rated. Obligations with the lowest investment grade rating (e.g., rated "Baa" by
Moody's or "BBB" by S&P) 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. See "Appendix B" for a description of these ratings
designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities issued by non-Japanese companies that are
listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund," below. When allocating
investments among individual countries, NationsBank and the Fund's
sub-investment adviser will consider various criteria, such as the relative
economic growth potential of the various economies and securities markets,
expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships. The Fund may invest in
ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND AND NATIONS PACIFIC
GROWTH FUND: Investors should understand and consider carefully the special
risks involved in foreign investing. In addition, each Fund presents unique
risks that investors should be aware of.
Investors in The Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly
14
<PAGE>
speculative and could result in losses to the Fund and, thus, to its
shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and Far
East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Growth
Fund and Nations Pacific Growth Fund.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded op-
tions; 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. The
Nations Balanced Assets Fund also may engage in dollar roll transactions. Each
Fund may lend its portfolio securities to qualified institutional investors and
may invest in restricted, private placement and other illiquid securities and
securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Each Fund (except the Nations Balanced Assets
Fund) may invest in real estate investment trust securities.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 75% for Nations Emerging Markets Fund
and Nations Pacific Growth Fund. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although NationsBank will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in a common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader
15
<PAGE>
stock market, may decline over short or even extended periods. The value of a
Fund's investments in debt securities 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 short-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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund 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. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
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 securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of the Funds may be calculated on an average total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), and assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring period
again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
Set forth below is certain performance data for the Pacific Ex-Japan Composite
and the Emerging Markets Composite, reflecting the performance of private
accounts, including U.K. authorized unit trusts, managed by the Gartmore Group,
as defined below. The performance data for these accounts is deemed relevant
because the Pacific Ex-Japan Composite and the Emerging Markets Composite have
investment objectives, policies and restrictions that are substantially similar
to
16
<PAGE>
those of the Nations Pacific Growth Fund and Nations Emerging Markets Fund,
respectively. There is substantial continuity between the portfolio managers of
the Gartmore Group who were responsible for managing those accounts and the
portfolio managers of Nations Gartmore who are responsible for managing the
Nations Pacific Growth Fund and Nations Emerging Markets Fund, respectively.
THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF NATIONSBANK, NATIONS GARTMORE INVESTMENT
MANAGEMENT OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
PACIFIC EX-JAPAN Indicated through
COMPOSITE March 31, 1995*
<CAPTION>
<S> <C>
One Year 4.90%
<CAPTION>
<S> <C>
Three Year 24.50%
<CAPTION>
<S> <C>
Five Year 15.70%
<CAPTION>
<S> <C>
Since Inception on January 1, 1988 22.20%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
10.70% 56.10% (1.50)% 20.30% 21.10% 106.90% (15.10)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
EMERGING MARKETS Indicated through
COMPOSITE March 31, 1995*
<CAPTION>
<S> <C>
One Year (24.40)%
<CAPTION>
<S> <C>
Since Inception on January 1, 1993 9.60%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C>
1993 1994
<CAPTION>
<S> <C>
73.90% (20.20)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
NATIONS INTERNATIONAL EQUITY Indicated through
FUND -- INVESTOR N SHARES March 31, 1995
<CAPTION>
<S> <C>
One Year (2.08)%
<CAPTION>
<S> <C>
Since Inception on June 7, 1993 5.09%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
1994
<S> <C>
1.77%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Trust A, Trust B, Investor A
and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your selling agent.
17
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios, respectively.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. Although Nations Portfolios, as
a new registrant, does not have an operating history, NationsBank has
significant experience managing mutual funds.
Nations Gartmore Investment Management ("Nations Gartmore"), with principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255, serves as
sub-investment adviser to Nations International Equity Fund, Nations Emerging
Markets Fund and Nations Pacific Growth Fund pursuant to a sub-advisory
agreement. Nations Gartmore is a joint venture structured as a general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, a wholly owned subsidiary of Gartmore plc, a UK
company listed on the London Stock Exchange which is the holding company for a
leading UK based international fund management group of companies (the "Gartmore
Group"). Banque Indosuez S.A., a leading French bank, owns 75% of the equity of
Gartmore plc. The initial asset management company in the Gartmore Group was
founded in 1969 and the Gartmore Group currently provides investment management
and advisory services to pension funds, unit trusts, offshore funds and
investment funds. As of December 31, 1994, the Gartmore Group had over $30
billion in assets under management.
Although Nations Gartmore is newly formed with no experience managing mutual
funds, many of its professionals have, in their capacity as employees of the
Gartmore Group, managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc. and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, NationsBank (and/or Nations
Gartmore) formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. NationsBank (and/or Nations Gartmore) is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank (and/or Nations Gartmore) or
which have sold shares in such Funds, if NationsBank (and/or Nations Gartmore)
believes that the quality of the transaction and the commission are comparable
to what they would be with other qualified brokerage firms. From time to time,
to the extent consistent with its investment objective, policies and
restrictions, each Fund may invest in securities of companies with which
NationsBank or Banque Indosuez S.A. has a lending relationship. For the services
provided and expenses assumed pursuant to various Advisory Agreements,
NationsBank is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of the Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million; 0.90% of the average daily net assets of
Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund, and 0.90% of the average daily net assets of
Nations Pacific Growth Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NationsBank will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.70% of Nations International Equity Fund's
daily net assets; 0.85% of Nations Emerging Markets Fund's daily net assets; and
18
<PAGE>
0.70% of Nations Pacific Growth Fund's daily net assets. For the fiscal year
ended May 31, 1995, Nations International Equity Fund paid its prior sub-adviser
fees at the rate of 0.38% of the Fund's average daily net assets. Although the
advisory fees for the Funds are higher than the advisory fees paid by most other
mutual funds, Nations Fund believes that the fees are comparable to the advisory
fees paid by many other funds with similar investment objectives and policies.
From time to time, NationsBank (and/or Nations Gartmore) may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank advisory fees at the indicated rate of the following
Funds' average daily net assets: Nations Capital Growth Fund -- 0.75%; Nations
Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.05%; Nations
Value Fund -- 0.74%; and Nations Balanced Assets Fund -- 0.75%. For the fiscal
year ended November 30, 1994, after waivers, Nations Disciplined Equity Fund
paid its prior sub-adviser fees at the rate of 0.21% of the Fund's average daily
net assets. For the fiscal year ended May 31, 1995, after waivers, Nations Fund,
Inc. paid NationsBank advisory fees at the rate of 0.40% of the Nations
International Equity Fund's average daily net assets. For the fiscal year ended
May 31, 1995, after waivers, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.38% of the Fund's average daily net assets.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank advisory fees at the rate of 0.68% of the Nations Equity Income
Fund's average daily net assets.
Andrew Fleming is the principal portfolio manager of the Nations Emerging
Markets Fund. Mr. Fleming is Chief Investment Officer for Nations Gartmore and
head of the emerging markets team. Mr. Fleming joined Gartmore in 1984 as an
analyst and fund manager on the European desk. In 1986, he joined the Far East
team and, in 1993, became head of the Far East desk. Mr. Fleming was then
promoted to head of overseas equities. He graduated from University of York,
England.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is a Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A. in Economics from the University of Michigan and a M.B.A. from the
University of North Carolina in Charlotte. He is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style for NationsBank. Mr. Smiley also serves as one of
the officer members on the Growth Equity Style Group. Mr. Smiley is a member of
the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
Steve Smith, a Senior Vice President at NationsBank, has been portfolio manager
for Nations Disciplined Equity Fund since April, 1995. Mr. Smith has
approximately twenty years of investment management experience, the last twelve
years with NationsBank and its affiliates. Mr. Smith is a Chartered Financial
Analyst and a member of the Association of Investment Management and Research.
Mr. Smith earned a B.S. in engineering and an M.B.A. from the University of
Alabama.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in
19
<PAGE>
Tokyo, Ms. Teoh, who is a native of Singapore, is fluent in Mandarin and
Cantonese and received an Economics degree from the University of Durham in
1985.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank
has advised NationsBank, Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios that NationsBank may perform the services contemplated by the various
Investment Advisory Agreements, without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Such counsel has pointed out,
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in federal or state statutes, including the Glass-Steagall Act, and
regulations and judicial or administrative decisions or interpretations thereof,
could prevent NationsBank from continuing to perform, in whole or in part, such
services. If NationsBank were prohibited from performing any of such services,
it is expected that the Board of Trustees of Nations Fund Trust and the Boards
of Directors of Nations Fund, Inc. and Nations Portfolios would recommend to
each Fund's shareholders that they approve a new advisory agreement with another
entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Value Fund and Nations Balanced Assets Fund. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of Nations International Equity Fund's
and Nations Equity Income Fund's average daily net assets.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds.
20
<PAGE>
Stephens may pay, out of its own resources, service fees or commissions to
selling agents which assist customers in purchasing Investor N Shares of the
Funds. See "Shareholder Servicing and Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35, 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund.
NationsBank of Texas, N.A. ("NationsBank of Texas" and collectively with Morgan
Guaranty, called the "Custodians") serves as custodian for the assets of each
Fund except Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor N
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. These Fund expenses include, but are not limited to:
fees paid to NationsBank, Stephens and TSSG; interest; trustees' and directors'
fees; federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by NationsBank, Nations Gartmore,
Stephens or TSSG under their respective agreements with Nations Fund; and any
extraordinary expenses. Investor N Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and sales support costs. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of shares -- Trust
A Shares, Trust B Shares, Investor A Shares, Investor C Shares and Investor N
Shares. This Prospectus relates only to the Investor N Shares of the following
funds of Nations Fund Trust: Nations Capital Growth Fund, Nations Emerging
Growth Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations
Balanced Assets Fund. To obtain additional information regarding the Funds'
other classes of shares which may be available to you, contact your Selling
Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share in Nations Fund Trust 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 Nations
Fund Trust's Board of Trustees. Nations Fund Trust'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 Nations Fund Trust 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 related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a
21
<PAGE>
controlling person of Nations Fund Trust for purposes of the 1940 Act. For more
detailed information concerning the percentage of each class or series of shares
over which NationsBank and its affiliates possessed or shared power to dispose
or vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Investor N Shares of Nations
International Equity Fund and Nations Equity Income Fund of Nations Fund, Inc.
To obtain additional information regarding the Fund's other classes of shares
which may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI of Nations Fund, Inc. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
28, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Investor N Shares of Nations Emerging Markets Fund and Nations Pacific Growth
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not
22
<PAGE>
hold annual shareholder meetings on a regular basis unless required by the 1940
Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company, Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor N Shares in
order to accommodate different investors. Purchase orders may be placed through
banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below. Investor N Shares of each Fund may be purchased only in amounts
of less than $250,000.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
23
<PAGE>
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinstate any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinstatement request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinstatement privilege.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required. You
should be aware that by electing the telephone transaction feature, you may be
giving up a measure of security that you may have if you were to request such
transactions in writing. You may bear the risk of any resulting losses from a
telephone transaction. Nations Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, and if Nations Fund and
its service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
Shareholder Servicing And Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
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 may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor N Shares of
the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor N Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of the Funds' Investor N
Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the foregoing;
and any other costs and expenses relating to distribution or sales support
activities. The overhead
24
<PAGE>
and other office expenses referenced above may include, without limitation, (i)
the expenses of operating Stephens' or the Selling Agents' offices in connection
with the sale of Fund shares, including rent, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communications 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.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customer's account
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund. Except for any CDSC which may be applicable
upon redemption of Investor N Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Investor N Shares of the Funds are sold
without an initial sales charge, but a CDSC will be imposed if such shares are
redeemed within six years of the date of purchase. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions. Subject to the exclusions described
below, the amount of the CDSC is determined as a percentage of the lesser of the
net asset value or the purchase price of the shares being redeemed. The amount
of the CDSC will depend on the number of years since you invested, according to
the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
25
<PAGE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. For
information on how sales charges are calculated if you exchange and then redeem
your shares, see "How to Exchange Shares." Solely for purposes of determining
the number of years from the date of purchase of shares, all purchases during a
month will be aggregated and deemed to have been made on the last day of the
month.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the Investor N Shares held in the account is less
than the minimum account size, (iv) in connection with the combination of
Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC. Nations Fund may terminate any waiver of
the CDSC by providing notice in the Prospectus, but any such termination would
affect only shares purchased after such termination.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor N Shares of a non-money
market fund offered by Nations Fund (including the Funds) to acquire shares of
the same class that are offered by any other fund of Nations Fund (except
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund),
26
<PAGE>
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund, or Investor C Shares of any money market fund of Nations
Fund when he or she believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, the CDSC schedule
applicable to the acquired fund (except as discussed below) will be applied to
any redemption of the acquired shares. Additionally, if a shareholder acquires,
through an exchange of Investor N Shares of a Fund, Investor C Shares of a money
market fund or Investor A Shares of Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund, the acquired shares (and any other Investor A
or Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor N Shares last exchanged.
A redemption of shares acquired through an exchange of Investor N Shares will,
in all events, be subject to the highest CDSC schedule applicable to any shares
that were exchanged within the 30 days prior to the redemption.
Furthermore, the holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
money market fund or Investor A Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon redemption is based upon the total holding period of
Investor N Shares of a non-money market fund that charges a CDSC.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Any such limit will be made on a prospective basis only upon not
less than 10 days notice to shareholders. Also, the exchange feature may be
terminated or revised at any time by Nations Fund upon such notice as may be
required by applicable regulatory agencies (presently 60 days for termination or
material revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling his/her Selling Agent which is responsible for transmitting such request
to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
27
<PAGE>
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Funds with respect to one class of shares may be greater or less than those paid
with respect to another class of shares due to the different expenses of the
different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds (except Nations International Equity Fund,
Nations Emerging Markets Fund and Nations Pacific Growth Fund) may be entitled
to the dividends received deduction on all or a portion of such Funds'
dividends. Corporate shareholders of the Nations International Equity Fund,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that a Fund's income is
derived from dividends (which, if received directly, would qualify for such
deduction) received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Portions of the Nations International Equity Fund, Nations Emerging Markets Fund
and Nations Pacific Growth Fund's investment income may be subject to foreign
income taxes withheld at their source. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. Generally more than
50% of the value of the total assets of each Fund will consist of securities of
foreign issuers, and therefore each Fund may elect to "pass through" to its
shareholders these foreign taxes if any. In such event each shareholder will be
required to include his or her pro rata portion thereof in his or her gross
income, but will be able to deduct or (subject to various limitations) claim a
foreign tax credit against U.S. income taxes for such amount.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also
28
<PAGE>
requires the Funds to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage backed securities, see the related SAI.
Non-mortgage asset backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or
emer-
29
<PAGE>
gency purposes. Generally, the effect of such a transaction is that the Funds
can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while they will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Funds of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by NationsBank at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable
and floating rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
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. 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.
30
<PAGE>
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and/or the Sub-Adviser
believe that the currency of a particular foreign country may experience a
substantial movement against another currency. Under certain circumstances, a
Fund may commit a substantial portion of its portfolio to the executive of these
contracts. NationsBank and/or the Sub-Adviser will consider the effects such a
commitment would have on the investment program of such Fund and the flexibility
of such Fund to purchase additional securities. Although forward contracts will
be used primarily to protect a Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted. The Funds will generally not enter into a forward contract with a
term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be
31
<PAGE>
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or NationsBank or
Nations Gartmore, acting under guidelines approved and monitored by the Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional buyers cease purchasing such restricted securities pursuant to
Rule 144A, the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expects to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private
activ-
32
<PAGE>
ity bonds is usually directly related to the credit standing of the corporate
user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with respect to a particular instrument
purchased by a Fund, a Fund may demand payment of the principal and accrued
interest on the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, NationsBank will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
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.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and 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, a Fund
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 NationsBank. 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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
bro-
33
<PAGE>
ker-dealer) to repurchase that security from the Fund at a specified price and
date or upon demand. This technique offers a method of earning income on idle
cash. A risk associated with repurchase agreements is the failure of the seller
to repurchase the securities as agreed, which may cause a Fund to suffer a loss
if the market value of such securities declines before they can be liquidated on
the open market. Repurchase agreements with a duration of more than seven days
are considered illiquid securities and are subject to the limit stated above. A
Fund may enter into joint repurchase agreements jointly with other investment
portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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
34
<PAGE>
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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be 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 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
35
<PAGE>
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
36
<PAGE>
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
37
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Supplement dated December 20, 1995
to Prospectus dated September 30, 1995
FINANCIAL HIGHLIGHTS
(Unaudited)
The Prospectus for the Investor N Shares of the Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund is
hereby supplemented as follows:
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Markets Pacific Growth Global Govt.
Fund Fund Income Fund
Period Ended Period Ended Period Ended
9/30/95*# 9/30/95*# 9/30/95*
<S> <C> <C> <C>
For a Share Outstanding Throughout the Period
Net asset value, beginning of period............... $ 10.00 $ 10.00 $ 10.00
Net investment income/(loss)##..................... (0.02) (0.01) 0.10
Net realized and unrealized gain/(loss) on
investments...................................... (0.13) (0.30) 0.04
Net increase/(decrease) in net assets resulting
from investment operations....................... (0.15) (0.31) 0.14
Distributions:
Dividends from net investment income............. N/A N/A (0.10)
Total Distributions.............................. N/A N/A (0.10)
Net asset value, end of period..................... $ 9.85 $ 9.69 $ 10.04
Total return++..................................... (1.50)% (3.10)% 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. $ 386 $ 385 $ 110
Ratio of operating expenses to average net
assets........................................ 2.90%+ 2.70%+ 2.30%+
Ratio of net investment income/(loss) to average
net assets.................................... (1.03)%+ (0.85)%+ 4.61%+
Portfolio turnover rate.......................... 10% 3% 104%
</TABLE>
* The Fund's Investor N Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
<PAGE>
Prospectus
INVESTOR N SHARES
SEPTEMBER 30, 1995
This Prospectus describes the NATIONS SHORT-TERM
INCOME FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT
FUND, NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED
INCOME FUND AND NATIONS GLOBAL GOVERNMENT INCOME
FUND (the "Funds") of the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Investor N Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below.The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios dated April 3, 1995, September 30, 1995
and September 30, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. (CAROLINAS) ("NATIONSBANK") OR
ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NATIONSBANK IS THE INVESTMENT ADVISER AND, TOGETHER
WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES
TO NATIONS FUND, FOR WHICH THEY ARE COMPENSATED.
STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND
SERVES AS THE DISTRIBUTOR FOR NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Short-Term
Income Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified
Income Fund
Nations Global
Government Income Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
Nations Fund
BONDPN
<PAGE>
About The Funds
Table Of Contents
Expenses Summary 3
Financial Highlights 4
Objectives 7
How Objectives Are Pursued 7
How Performance is Shown 12
How the Funds Are Managed 13
Organization and History 16
About Your Investment
How to Buy Shares 17
Shareholder Servicing and Distribution Plans 18
How to Redeem Shares 19
How to Exchange Shares 21
How the Funds Value Their Shares 22
How Dividends and Distributions are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description of Ratings 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Short- Nations Nations
Short-Term Intermediate Government Strategic Fixed
SHAREHOLDER TRANSACTION EXPENSES Income Fund Government Fund Securities Fund Income Fund
Sales Load Imposed on Purchases None None None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds) None 4.00%2 5.00%1 5.00%1
<CAPTION>
Nations Nations Global
Diversified Government
SHAREHOLDER TRANSACTION EXPENSES Income Fund Income Fund
Sales Load Imposed on Purchases None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds) 5.00%1 5.00%1
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees3 .30% .40% .50% .50%
Rule 12b-1 Fees3 .10% .35% .40% .40%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .22% .18% .30% .16%
Total Operating Expenses3 .87% 1.18% 1.45% 1.31%
<CAPTION>
Management Fees3 .50% .70%
<S> <C> <C>
Rule 12b-1 Fees3 .50% .75%
Shareholder Servicing Fees .25% .25%
Other Expenses .32% .60%
Total Operating Expenses3 1.57% 2.30%
</TABLE>
1 5.00% in the first year after purchase, declining to 1.00% in the sixth year
after purchase and eliminated thereafter.
2 4.00% in the first year after purchase, declining to 1.00% in the sixth year
after purchase and eliminated thereafter.
3 After any waivers and reimbursements.
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Short-
Nations Intermediate Nations Nations Strategic
Short-Term Government Government Fixed
Income Fund Fund Securities Fund Income Fund
1 Year $ 9 $ 52 $ 65 $ 63
3 Years $ 28 $ 67 $ 76 $ 72
5 Years $ 48 $ 85 $ 99 $ 92
10 Years $ 107 $ 143 $ 174 $ 158
<CAPTION>
Nations Nations Global
Diversified Government
Income Fund Income Fund
1 Year $ 66 $ 73
3 Years $ 80 $ 102
5 Years $ 106 N/A
10 Years $ 187 N/A
</TABLE>
An investment of $1,000 would incur the following expenses, assuming a 5% annual
return but no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Short- Nations
Intermediate Nations Strategic
Government Government Fixed
Fund Securities Fund Income Fund
1 Year $ 12 $ 15 $ 13
3 Years $ 37 $ 46 $ 42
5 Years $ 65 $ 79 $ 72
10 Years $ 143 $ 174 $ 158
<CAPTION>
Nations Nations Global
Diversified Government
Income Fund Income Fund
1 Year $ 16 $ 23
3 Years $ 50 $ 72
5 Years $ 86 N/A
10 Years $ 187 N/A
</TABLE>
3
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. Except for the Nations Global
Government Income Fund which fees and expenses are based on estimates, certain
figures contained in the above table are based on amounts incurred during the
Funds' most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders in the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How the Funds Are Managed." Absent fee waivers and
reimbursements, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" would have been as follows: Nations Short-Term Income Fund -- .60%,
.75% and 1.82%, respectively; Nations Short-Intermediate Government
Fund -- .60%, .75%, and 1.78%, respectively; Nations Government Securities
Fund -- .64%, .75%, and 1.94%, respectively; Nations Strategic Fixed Income
Fund -- .60%, .75% and 1.76%, respectively; Nations Diversified Income
Fund -- .60%, .75% and 1.92%, respectively; and Nations Global Government Income
Fund -- .70%, .75% and 2.30%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal year of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. Financial information is not
available for Nations Portfolios because it is a new Registrant. For more
information see "Organization and History." Shareholders of the Funds will
receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED)# 11/30/94#
Operating performance:
Net asset value, beginning of period $ 9.48 $ 10.01
Net investment income 0.29 0.47
Net realized and unrealized gain/(loss) on investments 0.28 (0.51)
Net increase/(decrease) in net assets resulting from investment operations 0.57 (0.04)
Distributions:
Dividends from net investment income (0.29) (0.45)
Distributions in excess of net investment income -- (0.02)
Distributions from capital -- (0.02)
Total distributions (0.29) (0.49)
Net asset value, end of period $ 9.76 $ 9.48
Total return++ 6.07% (0.46)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10,553 $ 16,550
Ratio of operating expenses to average net assets 0.86%+ 0.85%
Ratio of net investment income to average net assets 6.00%+ 4.88%
Portfolio turnover rate 145% 293%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.21%+ 1.17%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.44
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.94
Net investment income 0.22
Net realized and unrealized gain/(loss) on investments 0.07
Net increase/(decrease) in net assets resulting from investment operations 0.29
Distributions:
Dividends from net investment income (0.22)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.22)
Net asset value, end of period $ 10.01
Total return++ 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,861
Ratio of operating expenses to average net assets 0.72%+
Ratio of net investment income to average net assets 4.92%+
Portfolio turnover rate 121%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.14%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.21
</TABLE>
* The Nations Short-Term Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average share method, which
more appropriately represents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
4
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28
Net investment income 0.11 0.20
Net realized and unrealized gain/(loss) on investments 0.16 (0.33)
Net increase/(decrease) in net assets resulting from investment operations 0.27 (0.13)
Distributions:
Dividends from net investment income (0.11) (0.20)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized capital gains -- (0.02)
Total distributions (0.11) (0.22)
Net asset value, end of period $ 4.09 $ 3.93
Total return++ 6.93% (2.81)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10,771 $ 10,974
Ratio of operating expenses to average net assets 1.18%+ 1.19%
Ratio of net investment income to average net assets 5.47%+ 5.16%
Portfolio turnover rate 130% 133%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.39%+ 1.40%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.10 $ 0.19
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 4.26
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from investment operations 0.11
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.09)
Net asset value, end of period $ 4.28
Total return++ 2.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,847
Ratio of operating expenses to average net assets 1.15%+
Ratio of net investment income to average net assets 4.80%+
Portfolio turnover rate 92%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.39%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.09
</TABLE>
* The Nations Short-Intermediate Government Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Value represents less than $0.01 per share.
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
INVESTOR N SHARES 05/31/95#
Operating performance:
Net asset value, beginning of period $ 9.80
Net investment income 0.58
Net realized and unrealized gain/(loss) on investments 0.06
Net increase/(decrease) in net assets resulting from investment operations 0.64
Distributions:
Dividends from net investment income (0.54)
Dividends in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital (0.04)
Total distributions (0.58)
Net asset value, end of period $ 9.86
Total return++ 6.86%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 56,155
Ratio of operating expenses to average net assets 1.41%
Ratio of net investment income to average net assets 6.04%
Portfolio turnover rate 413%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.59%
Net investment income per share without waivers and reimbursements $ 0.56
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 05/31/94*
Operating performance:
Net asset value, beginning of period $ 10.49
Net investment income 0.54
Net realized and unrealized gain/(loss) on investments (0.64)
Net increase/(decrease) in net assets resulting from investment operations (0.10)
Distributions:
Dividends from net investment income (0.49)
Dividends in excess of net investment income (0.01)
Distributions in excess of net realized capital gains (0.05)
Distributions from capital (0.04)
Total distributions (0.59)
Net asset value, end of period $ 9.80
Total return++ (1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 56,313
Ratio of operating expenses to average net assets 1.38%+
Ratio of net investment income to average net assets 5.43%+
Portfolio turnover rate 56%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.59%+
Net investment income per share without waivers and reimbursements $ 0.52
</TABLE>
* The Nations Government Securities Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per Share amounts have been calculated using the average shares method, which
more appropriately represents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
5
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55
Net investment income 0.26 0.47
Net realized and unrealized gain/(loss) on investments 0.70 (0.89)
Net increase/(decrease) in net assets resulting from investment operations 0.96 (0.42)
Distributions:
Dividends from net investment income (0.26) (0.45)
Distributions in excess of net investment income -- (0.02)
Distributions from net realized capital gains -- (0.34)
Total distributions (0.26) (0.81)
Net asset value, end of period $ 10.02 $ 9.32
Total return++ 10.49% (4.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,247 $ 2,145
Ratio of operating expenses to average net assets 1.33%+ 1.33%
Ratio of net investment income to average net assets 5.53%+ 4.78%
Portfolio turnover rate 155% 307%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.44%+ 1.41%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.46
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.39
Net investment income 0.21
Net realized and unrealized gain/(loss) on investments 0.17
Net increase/(decrease) in net assets resulting from investment operations 0.38
Distributions:
Dividends from net investment income (0.21)
Distributions in excess of net investment income --
Distributions from net realized capital gains (0.01)
Total distributions (0.22)
Net asset value, end of period $ 10.55
Total return++ 3.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,620
Ratio of operating expenses to average net assets 1.26%+
Ratio of net investment income to average net assets 4.75%+
Portfolio turnover rate 161%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.42%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.21
</TABLE>
* The Nations Strategic Fixed Income Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR N SHARES (UNAUDITED) 11/30/94#
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88
Net investment income 0.34 0.67
Net realized and unrealized gain/(loss) on investments 0.86 (1.06)
Net increase/(decrease) in net assets resulting from investment operations 1.20 (0.39)
Distributions:
Dividends from net investment income (0.34) (0.67)
Distributions in excess of net investment income -- (0.00)##
Distributions from net realized capital gains -- (0.15)
Total distributions (0.34) (0.82)
Net asset value, end of period $ 10.53 $ 9.67
Total return++ 12.64% (3.77)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 73,972 $ 55,058
Ratio of operating expenses to average net assets 1.52%+ 1.49%
Ratio of net investment income to average net assets 6.78%+ 6.56%
Portfolio turnover rate 67% 144%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.68%+ 1.70%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.33 $ 0.65
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 11/30/93#*
Operating performance:
Net asset value, beginning of period $ 10.59
Net investment income 0.30
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net assets resulting from investment operations 0.59
Distributions:
Dividends from net investment income (0.30)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.30)
Net asset value, end of period $ 10.88
Total return++ 5.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,630
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income to average net assets 6.27%+
Portfolio turnover rate 86%
Ratio of operating expenses to average net assets before fee waivers and/or
expense reimbursements 1.70%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.27
</TABLE>
* The Nations Diversified Income Fund Investor N Shares commenced operations
on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately represents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
6
<PAGE>
Objectives
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the
Nations Short-Term Income Fund may invest in a broad range of debt obligations
such as U.S. Government obligations; corporate debt obligations, including
bonds, notes and debentures rated investment grade by one of the following six
nationally recognized statistical rating organizations, Duff & Phelps Credit
Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA Limited
or its affiliate, IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") (collectively, "NRSROs"), or, if not so rated, determined by
NationsBank to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments (see "Appendix A -- Foreign Securities");
and mortgage-related securities of governmental issuers, including the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
or of private issuers, including mortgage pass-through certificates,
collateralized mortgage obligations or "CMOs", real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or, if not so rated, determined by NationsBank to be of
comparable quality to instruments so rated. (For more information concerning
Asset Backed Securities, including Mortgage-Backed Securities, see "Appendix
A -- Asset Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by NationsBank to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by 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
7
<PAGE>
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, prevailing
market or economic conditions warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Obligations") and repurchase agreements relating to such obligations.
U.S. Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance. U.S. Government Obligations also include obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, such as
direct pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, such as obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as obligations of
the Federal National Mortgage Association ("FNMA"). For a more detailed
description of the investment practices of this Fund, see "Appendix A -- U.S.
Government Obligations" and "Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments deemed by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in NationsBank's opinion, existing
circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income 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 six NRSROs, or if not so
rated, determined by NationsBank to be of comparable quality to instruments so
rated; debt obligations issued by the U.S. Government, its agencies, authorities
and instrumentalities; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments (see "Appendix
A -- Foreign Securities"); mortgage-backed securities of governmental issuers,
including GNMA, FNMA and FHLMC, or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed securities rated by one of the six
NRSROs, or if not so rated, determined by NationsBank to be of comparable
quality. (For more information concerning Asset Backed Securities, including
Mortgage-Backed Securities, see "Appendix A -- Asset Backed Securities.")
Pursuant to its investment objective, the Fund also may invest in
dividend-paying preferred and common stock.
8
<PAGE>
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (e.g. rated "BBB" by 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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by NationsBank to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in NationsBank's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by NationsBank to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") In pursuing its investment objective, the Fund also may invest in
dividend-paying convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by NationsBank to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by 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.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by NationsBank to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
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. NationsBank will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by NationsBank to be of comparable
quality), repurchase aggreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in NationsBank's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the Fund's portfolio generally will vary inversely with
9
<PAGE>
changes in prevailing interest rates. See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations Global Government Income Fund," below.
Because the Fund intends to invest a large portion of its assets in foreign
Government Securities, the Fund is a "non-diversified" investment company for
purposes of the Investment Company Act of 1940 (the "1940 Act"). The Fund may
invest in securities of issuers located in any region or country and that are
denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with NationsBank's and/or the Fund's
sub-investment adviser's assessment of the relative yield and appreciation of
such securities. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by NationsBank and/or the Fund's
sub-investment adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated A or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by NationsBank and/or the Fund's sub-investment adviser. The
Fund also may invest in securities rated Baa by Moody's or "BBB" by
S & P, but does not, as a general matter, intend to invest more than 10% of its
total assets in such securities. 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. NationsBank and/or the Fund's
sub-investment adviser will consider such event in determining whether the Fund
should continue to hold the obligation. In no event will the Fund hold more than
5% of its total net assets in securities rated below investment grade. See
"Appendix B" below for a description of these rating designations. NationsBank
and the Fund's sub-investment adviser expect that the Fund's dollar-weighted
average maturity will not be greater than fifteen years under normal market
conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS GLOBAL
GOVERNMENT INCOME FUND: Investors should understand and consider carefully the
special risks involved in foreign investing. In addition, the Fund presents
unique risks that investors should be aware of.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect the Fund's share price. General economic and political
factors in the various world markets also can impact the Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, its expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
10
<PAGE>
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (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 United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition 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. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations Global Government Income Fund.
GENERAL: The Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations Strategic Fixed Income Fund, Nations Short-Intermediate Government Fund
and Nations Government Securities 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 U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of those Funds also may lend its portfolio
securities to qualified institutional investors and may invest in restricted,
private placement and other illiquid securities. Each of those Funds may engage
in reverse repurchase agreements and in dollar roll transactions. The Nations
Global Government Income Fund may invest in money market instruments, forward
foreign currency exchange contracts, futures and options and other instruments.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate will not exceed 175% for Nations Global Government
Income Fund. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the other Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although NationsBank and Nations Gartmore Investment
Management ("Nations Gartmore"), as the sub-investment adviser to the Nations
Global Government Income Fund, will seek to achieve the Funds' investment
objectives, there is no assurance that they will be able to do so. No single
Fund should be considered, by itself, to provide a complete investment program
for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities 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.
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 Funds' investment adviser (or sub-investment adviser, as
applied), however, only purchases derivative securities in circumstances where
it believes such purchases are consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund 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 (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
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.
11
<PAGE>
3. Each Fund (other than the Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) 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.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such 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.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring period
again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
Set forth below is certain performance data for the Global Government Bond
Ex-U.K. Composite, reflecting the performance of private accounts, including
U.K. authorized unit trusts, managed by the Gartmore Group, as defined below.
The performance data for these accounts is deemed relevant because the Global
Government Bond Ex-U.K. Composite has investment objectives, policies and
restrictions that are substantially similar to those of the Nations Global
Government Income Fund. There is substantial continuity between the portfolio
managers of the Gartmore Group who were responsible for managing those accounts
and the portfolio managers of Nations Gartmore who are responsible for managing
the Nations Global Government Income Fund. THIS PERFORMANCE DATA REPRESENTS PAST
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF
NATIONSBANK, NATIONS GARTMORE INVESTMENT MANAGEMENT OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
GLOBAL GOVERNMENT BOND Indicated through
EX-U.K. COMPOSITE* March 31, 1995**
One Year 7.90%
Three Year 9.40%
Since Inception on September 1, 1990 11.40%
</TABLE>
Annual Total Returns**
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
12
<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares by the maximum
public offering price per share on the last day of that period. The yield on a
class of shares does not reflect the deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Trust A, Trust B, Investor A
and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Funds
will not be included in calculations of total return or yield. The Funds' annual
report contains additional performance information and is available upon request
without charge from the Funds' distributor or your selling agent.
How the Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of its Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and NationsBank have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBank, through its investment management division,
serves as investment adviser to the Funds. NationsBank is an indirect wholly
owned subsidiary of NationsBank Corporation, a bank holding company organized as
a North Carolina corporation. NationsBank has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Although Nations Portfolios, as a new registrant, does not have an operating
history, NationsBank has significant experience managing mutual funds.
Nations Gartmore, with principal offices at One NationsBank Plaza, Charlotte,
North Carolina 28255, serves as sub-investment adviser to the Nations Global
Government Income Fund pursuant to a sub-advisory agreement. Nations Gartmore is
a joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, a wholly
owned subsidiary of Gartmore plc, a UK company listed on the London Stock
Exchange which is the holding company for a leading UK based international fund
management group of companies (the "Gartmore Group"). Banque Indosuez S.A., a
leading French bank, owns 75% of the equity of Gartmore plc. The initial asset
management company in the Gartmore Group was founded in 1969 and the Gartmore
Group currently provides investment management and advisory services to pension
funds, unit trusts, offshore funds and investment funds. As of December 31, 1994
the Gartmore Group had over $30 billion in assets under management. Although
Nations Gartmore is newly formed with no experience managing mutual funds, many
of its professionals have, in their capacity as employees of the Gartmore Group,
managed mutual funds.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, NationsBank and/or Nations
Gartmore formulates guidelines and lists of approved investments for each Fund,
makes decisions with respect to and places orders for each Fund's purchases and
sales of portfolio securities and maintains records relating to such purchases
and sales. NationsBank and Nations Gartmore are authorized to allocate purchase
and sale orders for portfolio securities to certain financial institutions,
includ-
13
<PAGE>
ing, in the case of agency transactions, financial institutions which are
affiliated with NationsBank and Nations Gartmore or which have sold shares in
such Funds, if NationsBank or Nations Gartmore believes that the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
various Advisory Agreements, NationsBank is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of: 0.60% of the average
daily net assets of each of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Stategic Fixed Income Fund and Nations Short-Intermediate
Government Fund; 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; and 0.70% of the
average daily net assets of Nations Global Government Income Fund.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
NationsBank will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.54% of Nations Global Government Income Fund's
daily net assets.
Although the advisory fee for the Nations Global Government Income Fund is
higher than the advisory fees paid by most other mutual funds, Nations
Portfolios believes that the fees are comparable to the advisory fees paid by
many other funds with similar investment objectives and policies.
From time to time, NationsBank and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank advisory fees at the indicated rate of the Funds'
average daily net assets: Nations Short-Term Income Fund -- 0.29%; Nations
Diversified Income Fund -- 0.40%; Nations Strategic Fixed Income Fund -- 0.52%;
and Nations Short-Intermediate Government Fund -- 0.40%. For the fiscal year
ended May 31, 1995, after waivers, Nations Fund, Inc. paid NationsBank advisory
fees at the rate of 0.46% of Nations Government Securities Fund's average daily
net assets.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Short-Term
Income Fund since 1993. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has over 7 years of portfolio management experience.
Mr. Cobb received a B.A. from the University of North Carolina -- Chapel Hill.
Mark S. Ahnrud is a Vice President and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for the Nations
Diversified Income Fund since 1992, and has been the principal portfolio manager
for Nations Strategic Fixed Income Fund since 1993. Mr. Ahnrud is a member of
the Fixed Income Team and has eight years of investment experience. Mr. Ahnrud
received a B.S. from Babson College and an M.B.A. from Duke University. Mr.
Ahnrud holds the Chartered Financial Analyst designation.
Kathy E. Bowman joined NationsBank in March 1995 as a Vice President and Fixed
Income Portfolio Manager. She has been the principal portfolio manager for
Nations Government Securities Fund since April, 1995. Ms. Bowman is a member of
the Fixed Income Team and has over fourteen years of investment experience.
Prior to joining NationsBank, she was a Director of Fixed Income Securities at
Providian Capital Management and managed public bond portfolios for insurance
products. Ms. Bowman received a BBA from Memphis State University, and holds the
Chartered Financial Analyst designation.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund since 1995. Mr. Swaim is
a member of the Fixed Income Team and has over eight years of investment
experience. Mr. Swaim previously served as derivative products manager for the
NationsBank Texas Corporate Investment division portfolio. Mr. Swaim received
his B.S. from the University of North Texas and holds an M.B.A. from the
University of Texas, Arlington.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of Institute of Investment Management and
Research.
Morrison & Foerster, counsel to Nations Fund and special counsel to NationsBank
has advised NationsBank and Nations Fund that NationsBank may perform the
services contemplated by the various Investment Advisory Agreements, without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative
14
<PAGE>
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in federal or state statutes, including the Glass-Steagall Act, and
regulations and judicial or administrative decisions or interpretations thereof,
could prevent NationsBank from continuing to perform, in whole or in part, such
services. If NationsBank were prohibited from performing any of such services,
it is expected that the Board of Trustees of Nations Fund Trust and the Boards
of Directors of Nations Fund, Inc. and Nations Portfolios would recommend to
each Fund's shareholders that they approve a new advisory agreement with another
entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund. For
the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations Government Securities
Fund's average daily net assets.
It is anticipated that beginning in November of 1995, NationsBank will serve as
sub-administrator for Nations Fund pursuant to a Sub-Administration Agreement.
Pursuant to the terms of the Sub-Administration Agreement, NationsBank will
assist Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NationsBank
shall be entitled to receive a monthly fee from Stephens based on an annual rate
of .01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing and
Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35, 1040
Brussels, Belgium, serves as custodian for the assets of the Nations Global
Government Income Fund.
NationsBank of Texas, N.A., ("NationsBank of Texas" and, collectively with
Morgan Guaranty, the "Custodian") serves as the Funds' (other than Nations
Global Government Income Fund's) custodian. NationsBank of Texas is located at
1401 Elm Street, Dallas, Texas 75202 and is a wholly owned subsidiary of
NationsBank Corporation. In return for providing custodial services, NationsBank
of Texas is entitled to receive, in addition to out-of-pocket expenses, fees
payable monthly (i) at the rate of 1.25% of 1% of the average daily net assets
of the Funds, (ii) $10.00 per repurchase collateral transaction by the Funds,
and (iii) $15.00 per purchase, sale and maturity transaction involving the
Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor N
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to NationsBank, Stephens and TSSG interest; trustees' and directors'
fees; federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by NationsBank, Stephens or
15
<PAGE>
TSSG under their respective agreements with Nations Fund; and any extraordinary
expenses. Investor N Shares may bear certain class specific retail transfer
agency expenses and also bear certain additional shareholder service and sales
support costs. Any general expenses of Nations Fund Trust, Nations Fund, Inc.
and/or Nations Portfolios that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust, Nations Fund, Inc. and/or Nations Portfolios or in such other manner as
the Board of Trustees or the Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of shares -- Trust
A Shares, Trust B Shares, Investor A Shares, Investor C Shares and Investor N
Shares. This Prospectus relates only to the Investor N Shares of Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund and Nations Short-Intermediate Government Fund of Nations Fund
Trust. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust 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 Nations
Fund Trust's Board of Trustees. Nations Fund Trust'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 Nations Fund Trust 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 related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust'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 Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 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. This Prospectus relates only to the Investor N Shares of Nations
Government Securities Fund of Nations Fund, Inc. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
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 Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. 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 Nations Fund, Inc. 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 Nations Fund, Inc.
16
<PAGE>
Meetings of shareholders may be called upon the request of 10% or more of the
outstanding shares of Nations Fund, Inc. There are no preemptive rights
applicable to any of Nations Fund, Inc.'s shares. Nations Fund, Inc.'s shares,
when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the Nations Fund, Inc. SAI. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 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. This Prospectus relates only to the
Investor N Shares of Nations Portfolios. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a 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
Nations Portfolios, less (b) the liabilities of Nations Portfolios 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 Nations Portfolios 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 Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, would be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios 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 Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor N Shares in
order to accommodate different investors. Purchase orders may be placed through
banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary
reduction-Individ-
17
<PAGE>
ual Retirement Accounts ("SAR-IRAs"). However, the assets of such plans must
reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs, within one
year of the account open date. If the assets of such plans do not reach the
minimum asset size within one year, Nations Fund reserves the right to redeem
the shares held by such plans on 60 days' written notice. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic Investment
Plan described below. Investor N Shares of each Fund may be purchased only in
amounts of less than $250,000.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
shareholders may automatically purchase Investor N Shares. On a bi-monthly or
quarterly basis, shareholders may direct cash to be transferred automatically
from their checking or savings account at any bank to their Fund account.
Transfers will occur on or about the 15th and/or 30th day of the applicable
month. The systematic investment amount may be in any amount from $25 to
$100,000. For more information concerning the SIP, contact your Selling Agent.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinstate any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinstatement request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares previously purchased through the reinstatement privilege.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not
18
<PAGE>
exceed 0.25% of the average daily net asset value of the Investor N Shares.
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 may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. and Nations
Portfolios have approved a Distribution Plan with respect to Investor N Shares
of the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor N Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees or Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of the Funds' Investor N
Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications 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.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
of Investor N Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting a Customer's account with the redemption
proceeds on a timely basis. Except for any CDSC which may be applicable upon the
redemption of Investor N Shares, as described below, there is no redemption
charge. No charge for wiring redemption payments is imposed by Nations Fund.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
19
<PAGE>
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Investor N Shares of each Fund are sold
without an initial sales charge, but a CDSC will be imposed if such shares of
each such Fund (other than Nations Short-Term Income Fund) are redeemed within
six years of the date of purchase. No CDSC is imposed on increases in net asset
value above the initial purchase price, including shares acquired by
reinvestment of distributions. Subject to the exclusions described below, the
amount of the CDSC is determined as a percentage of the lesser of the net asset
value or the purchase price of the shares being redeemed. The amount of the CDSC
on shares of Nations Diversified Income Fund, Nations Strategic Fixed Income
Fund, Nations Government Securities Fund and Nations Global Government Income
Fund will depend on the number of years since you invested, according to the
following table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
The amount of CDSC on shares of Nations Short-Intermediate Government Fund will
depend on the number of years since you invested, according to the following
table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held the longest during
the six year period. This will result in you paying the lowest possible CDSC.
For information on how sales charges are calculated if you exchange and then
redeem your shares, see "How to Exchange Shares." Solely for purposes of
determining the number of years from the date of purchase of shares, all
purchases during a month will be aggregated and deemed to have been made on the
last day of the month.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the Investor N Shares held in the account is less
than the minimum account size, (iv) in connection with the combination of
Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current
20
<PAGE>
or former Trustees or Directors of Nations Fund or other management companies
managed by NationsBank. Shareholders are responsible for providing evidence
sufficient to establish that they are eligible for any waiver of the CDSC.
Nations Fund may terminate any waiver of the CDSC by providing notice in the
Prospectus, but any such termination would affect only shares purchased after
such termination.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals may reduce principal and will
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor N Shares of a non-money
market fund offered by Nations Fund (including the Funds) to acquire shares of
the same class that are offered by any other fund of Nations Fund (except
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund),
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund, or Investor C Shares of any money market fund of Nations
Fund when he or she believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of Nations Short-Term Income Fund to exchange such shares for Investor N
Shares of Nations Short-Term Municipal Income Fund when he or she believes a
shift between funds is an appropriate investment decision. A qualifying exchange
is based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another non-money market fund through an exchange, the CDSC
schedule applicable to the acquired fund (except as discussed below) will be
applied to any redemption of the acquired shares. Additionally, if a shareholder
acquires, through an exchange of Investor N Shares of a non-money market fund,
Investor C Shares of a money market fund or Investor A Shares of Nations
Short-Term Income Fund or Nations Short-Term Municipal Income Fund, the acquired
shares (and any other Investor A or Investor C Shares acquired through the
exchange of such shares) will remain subject to the CDSC schedule applicable to
the Investor N Shares of the non-money market fund last exchanged. A redemption
of shares acquired through an exchange of Investor N Shares, will, in all
events, be subject to the highest CDSC schedule applicable to any shares that
were exchanged within the 30 days prior to the redemption.
Furthermore, the holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
money market fund or Investor A Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon redemption is based upon the total holding period of
Investor N Shares of a non-money market fund that charges a CDSC.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
21
<PAGE>
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling his/her Selling Agent which is responsible for transmitting such request
to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gain) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not exempt
from Federal income taxes, whether such income is received in cash or reinvested
in additional shares. (Federal income taxes for distributions to an IRA are
generally deferred under the Code.) Corporate investors may be entitled to the
dividends received deduction on a portion of the dividends paid by those Funds
investing in the stock of domestic corporation.
22
<PAGE>
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of the Nations Global Government Income Fund's investment income may be
subject to foreign income taxes withheld at their source. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Generally more than 50% of the value of the total assets of the Nations
Global Government Income Fund will consist of securities of foreign issuers, and
therefore the Nations Global Government Income Fund may elect to "pass through"
to its shareholders these foreign taxes if any. In such event each shareholder
will be required to include his or her pro rata portion thereof in his or her
gross income, but will be able to deduct or (subject to various limitations)
claim a foreign tax credit against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. 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 are not 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 represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage 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
23
<PAGE>
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and 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. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates 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.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage
instru-
24
<PAGE>
ments, which have maximum maturities of 40 years. 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 NationsBank and used for the purpose of determining the
average weighted maturity of the Funds. For additional information concerning
mortgage backed securities, see the related SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue Asset Backed Securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset Backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset Backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset Backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset Backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other Asset Backed Securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total
25
<PAGE>
assets, provided that borrowings in excess of 5% of the value of the Funds'
total assets must be repaid prior to the purchase of portfolio securities. The
Funds are parties to a Line of Credit Agreement with Mellon Bank, N.A. Advances
under the agreement are taken primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by NationsBank to be credit worthy. 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). 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 Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when
NationsBank 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by NationsBank at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable
and floating rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or
26
<PAGE>
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when NationsBank and/or the Sub-Adviser
believe that the currency of a particular foreign country may experience a
substantial movement against another currency. Under certain circumstances, a
Fund may commit a substantial portion of its portfolio to the execution of these
contracts. NationsBank and/or the Sub-Adviser will consider the effects such a
commitment would have on the investment program of such Fund and the flexibility
of such Fund to purchase additional securities. Although forward contracts will
be used primarily to protect a Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted. The Funds will generally not enter into a forward contract with a
term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If NationsBank or Nations
Gartmore incorrectly analyzes market conditions or does not employ the
appropriate strategy with respect to these instruments, a Fund could be left in
a less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more
27
<PAGE>
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements and time deposits that
do not provide for payment to a Fund within seven days after notice, guaranteed
investment contracts and some commercial paper issued in reliance upon the
exemption in Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act") (other than variable amount master demand notes with maturities of nine
months or less), are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
NationsBank, or Nations Gartmore, acting under guidelines approved and monitored
by such Fund's Board, after considering trading activity, availability of
reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the level of illiquidity of a Fund holding such
securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E., the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. NationsBank and/or Nations Gartmore expects to
enter into these transactions on behalf of a Fund primarily to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipated purchasing
at a later date rather than for speculative purposes. A Fund will not sell
interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
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, NationsBank 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.
NationsBank will attempt to identify those issuers of high-yielding securities
whose financial condition are 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 is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from
28
<PAGE>
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.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, NationsBank will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
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.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and 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 NationsBank. 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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral
29
<PAGE>
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 NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by 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.
30
<PAGE>
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. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings 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 which 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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which 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 Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by 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 be 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 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,
31
<PAGE>
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 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." Duff 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.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is the four investment grade ratings used by BankWatch
for long-term debt:
32
<PAGE>
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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 three highest long-term ratings used by 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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
33
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Statement of Additional Information
NATIONS EMERGING MARKETS FUND
NATIONS PACIFIC GROWTH FUND
NATIONS GLOBAL GOVERNMENT INCOME FUND
Investor Shares and Trust Shares
December 20, 1995
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed three investment portfolios of Nations Fund Portfolios, Inc.
(individually, a "Fund" and collectively, the "Funds"). 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 September 1, 1995 (each a "Prospectus"). All terms used
in this SAI that are defined in the Prospectuses will have the same meanings
assigned in the Prospectuses. A copy of these Prospectuses may be obtained by
writing Nations Funds c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at 1-800-321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION............................................................................ 1
FUND TRANSACTIONS AND BROKERAGE......................................................... 1
General Brokerage Policy....................................................... 1
Section 28(e) Standards........................................................ 3
ADDITIONAL INFORMATION ON FUND INVESTMENTS.............................................. 4
General........................................................................ 4
When-lssued Securities......................................................... 5
Delayed Delivery Transactions.................................................. 6
Foreign Currency Transactions ................................................. 6
Futures, Options and Other Derivative
Instruments ................................................................. 7
Risk Factors Associated with Futures and
Options Transactions......................................................... 15
Interest Rate Transactions .................................................... 17
Asset Backed Securities ....................................................... 18
Special Situations............................................................. 22
Equity Swap Contracts.......................................................... 22
Reverse Repurchase Agreements ................................................. 23
Securities Lending ............................................................ 24
Short Sales.................................................................... 24
Guaranteed Investment Contracts................................................ 24
Illiquid Securities............................................................ 25
Commercial Instruments......................................................... 25
Municipal Securities........................................................... 25
Real Estate Investment Trusts ................................................. 27
Additional Investment Limitations ............................................. 27
NET ASSET VALUE......................................................................... 29
Purchases and Redemptions...................................................... 29
Net Asset Value Determination.................................................. 30
Exchanges...................................................................... 31
DESCRIPTION OF SHARES................................................................... 31
Dividends and Distributions.................................................... 31
Emerging Markets Fund and Pacific
Growth Fund.................................................................. 34
Global Government Income Fund.................................................. 34
i
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES................................................. 34
Qualification as a Regulated Investment
Company........................................................................ 34
Excise Tax on Regulated Investment Companies................................... 37
Sale or Redemption of Shares................................................... 37
Foreign Shareholders........................................................... 38
Effect of Future Legislation; Local Tax
Considerations ............................................................. 39
DIRECTORS AND OFFICERS.................................................................. 39
Nations Funds Retirement Plan.................................................. 43
Nations Funds Deferred Compensation Plan....................................... 43
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS................................................................. 46
The Company and Its Common Stock............................................... 46
Investment Adviser............................................................. 46
Investment Styles.............................................................. 48
Administrator and Co-Administrator............................................. 49
Distributor.................................................................... 50
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares............................................. 51
Investor A Shares..................................................... 51
Investor C Shares..................................................... 52
Investor N Shares..................................................... 53
Information Applicable to Investor A,
Investor C and Investor N Shares............................................. 54
Shareholder Servicing Agreements
(Trust B Shares)............................................................. 55
Expenses....................................................................... 56
Transfer Agents and Custodians................................................. 57
INDEPENDENT ACCOUNTANTS AND REPORTS..................................................... 58
COUNSEL................................................................................. 58
ADDITIONAL INFORMATION ON PERFORMANCE................................................... 58
Yield Calculations............................................................. 58
Total Return Calculations...................................................... 59
MISCELLANEOUS........................................................................... 61
Certain Record Holders......................................................... 61
SCHEDULE A - Description of Ratings..................................................... A-1
SCHEDULE B - Additional Information Concerning
Options & Futures.............................................................. B-1
SCHEDULE C - Additional Information Concerning
Mortgage Backed Securities..................................................... C-1
</TABLE>
ii
<PAGE>
INTRODUCTION
Nations Fund Portfolios, Inc. (the "Company"), is a mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the mutual fund being considered for
investment. This information about the Company is included in various
prospectuses. The prospectuses relate to the Trust A, Trust B, Investor A,
Investor C and Investor N Shares of Nations Emerging Markets Fund (the "Emerging
Markets Fund"), Nations Pacific Growth Fund (the "Pacific Growth Fund") and
Nations Global Government Income Fund (the "Global Government Income Fund")
(each, a "Fund" and collectively, the "Funds"). The Trust A and Trust B Shares
are collectively referred to herein as "Trust Shares" and the Investor A,
Investor C and Investor N Shares are collecting referred to as "Investor
Shares." Prospectuses relating to these Funds may be obtained without charge by
written request to Nations Fund, c/o Stephens, Inc., One NationsBank Plaza, 33rd
Floor, Charlotte, NC 28255. Investors also may call toll-free at (800) 321-7854.
This SAI is intended to furnish prospective investors with additional
information concerning the Company 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 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.
FUND TRANSACTIONS AND BROKERAGE
General Brokerage Policy
Subject to policies established by the Board of Directors of the
Company, NationsBank is responsible for decisions to buy and sell securities for
each Fund, for the selection of broker-dealers, for the execution of each Fund's
securities transactions, and for the allocation of brokerage fees in connection
with such transactions. NationsBank's primary consideration in effecting a
security transaction is to obtain the best net price and the most favorable
execution of the order. While NationsBank generally seeks reasonably competitive
commission rates, a Fund does not necessarily pay the lowest commission or
spread available.
Subject to policies established by the Board of Directors of the
Company, NationsBank and the Sub-Adviser of the Funds are responsible for
decisions to buy and sell securities for the Funds, for the selection of
broker-dealers, for the execution of the Funds' securities transactions, and for
the allocation of brokerage fees in connection with such transactions. The
primary consideration in effecting a security transaction is to obtain the best
net price and the most favorable execution of the order. While NationsBank and
the Sub-Adviser generally seek reasonably competitive commission rates, a Fund
will not necessarily pay the lowest commission or spread available.
NationsBank and the Sub-Adviser anticipate that most brokerage services
will be provided by brokerage companies located in London. A portion of the
securities in which the Funds invest are traded in over-the-counter markets, and
in the transactions, a Fund deals directly
1
<PAGE>
with the dealers who make markets in the securities involved, except in those
circumstances where better prices and executions are available elsewhere.
Portfolio transactions placed through dealers serving as primary market makers
are effected at net prices, without commissions as such, but which include
compensation in the form of a mark up or mark down.
NationsBank and the Sub-Adviser may from time to time determine target
levels of commission business to transact with various brokers on behalf of its
clients (including the Company) over a certain time period. The target levels
will be determined based upon the following factors, among others: (1) the
execution services provided by the broker; (2) the research services provided by
the broker; and (3) the broker's attitude toward and interest in mutual funds in
general and in the Company and other mutual funds advised by NationsBank and
Sub-Adviser in particular. No specific formula will be used in connection with
any of the foregoing considerations in determining the target levels. However,
if a broker has indicated a certain level of desired commissions in return for
certain research services provided by the broker, this factor will be taken into
consideration by NationsBank and Sub-Adviser.
Subject to the overall objective of obtaining best price and execution
for the Funds, NationsBank and the Sub-Adviser may also consider sales of shares
of the Funds and of the other mutual funds managed or advised by NationsBank and
the Sub-Adviser as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
NationsBank and the Sub-Adviser will seek, whenever possible, to
recapture for the benefit of a Fund any commission, fees, brokerage or similar
payments paid by such Fund on portfolio transactions. Normally, the only fees
which may be recaptured are the soliciting dealer fees on the tender of an
account's portfolio securities in a tender or exchange offer.
The Funds are not under any obligation to deal with any broker or group
of brokers in the execution of transactions in portfolio securities. Brokers who
provide supplemental investment research to NationsBank and the Sub-Adviser may
receive orders for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by
NationsBank and the Sub-Adviser under their agreements with each Fund and the
expenses of NationsBank and the Sub-Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information. Certain research
services furnished by broker-dealers may be useful to NationsBank and the
Sub-Adviser in connection with their services to other advisory clients,
including the investment companies which they advise. Also, the Funds may pay a
higher price for securities or higher commissions in recognition of research
services furnished by broker-dealers.
NationsBank and the Sub-Adviser and their affiliates manage several
other investment accounts some of which may have investment objectives similar
to those of one or more of the Funds. It is possible that, at times, identical
securities will be appropriate for investment by one or more of the Funds and by
one or more of such investment accounts. The position of each account, however,
in the securities of the same issuer may vary and the length of time that each
account may choose to hold its investment in the securities of the same issuer
may likewise vary. The timing and amount of purchase by each account will also
be determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of a Fund and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
NationsBank and the Sub-Adviser. NationsBank and the Sub-Adviser may combine
such transactions, in accordance with applicable laws and regulations, in order
to obtain the best net price and most favorable
2
<PAGE>
execution. Simultaneous transactions could, however, adversely affect the
ability of a Fund to obtain or dispose of the full amount of a security which it
seeks to purchase or sell.
In some cases the procedure for allocating securities transactions
among the various investment accounts advised by NationsBank and the Sub-Adviser
and their affiliates could have an adverse effect on the price or amount of
securities available to a Fund. In making such allocations, the main factors
considered by NationsBank and the Sub-Adviser are the respective investment
objectives and policies of such advisory clients, the relative size of holdings
of the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held and the judgments of the
persons responsible for recommending the investment.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
persons affiliated with the Company are prohibited from dealing with the Company
as principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC. Pursuant to an exemption
granted by the SEC, each Fund may engage in transactions involving certain
instruments with Shearson Lehman Brothers, the indirect parent of the Company's
distributor, or particular affiliates of Shearson Lehman Brothers, acting as
principal. Each of the Funds may purchase securities from underwriting
syndicates of which NationsBank or the Sub-Adviser 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.
Section 28(e) Standards
Under Section 28(e) of the Securities Exchange Act of 1934, NationsBank
and the Sub-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), an Adviser and Sub-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 decisionmaking
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 NationsBank and the Sub-Adviser may furnish
statistical, research and other information or services which are deemed by
NationsBank and the Sub-Adviser to be beneficial to the Funds' investment
programs. Research services received from brokers supplement NationsBank's and
the Sub-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 NationsBank and
the Sub-Adviser and to the Company's directors with respect to the performance,
investment activities and fees and expenses of other mutual funds. Such
information may be communicated electronically, orally or in written form.
Research services
3
<PAGE>
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 NationsBank and the
Sub-Adviser since the brokers utilized by NationsBank and the Sub-Adviser as a
group tend to follow a broader universe of securities and other matters than
NationsBank's and the Sub-Adviser's staff can follow. In addition, this research
provides NationsBank and the Sub-Adviser with a diverse perspective on financial
markets. Research services which are provided to NationsBank and the Sub-Adviser
by brokers are available for the benefit of all accounts managed or advised by
NationsBank. 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. NationsBank and
the Sub-Adviser are of the opinion that because the broker research supplements
rather than replaces their research, the receipt of such research does not tend
to decrease their expenses, but tends to improve the quality of their investment
advice. However, to the extent that NationsBank and the Sub-Adviser would have
purchased any such research services had such services not been provided by
brokers, the expenses of such services to NationsBank and the Sub-Adviser could
be considered to have been reduced accordingly. Certain research services
furnished by broker-dealers may be useful to NationsBank and the Sub-Adviser
with clients other than the Funds. Similarly, any research services received by
NationsBank through the placement of fund transactions of other clients may be
of value to NationsBank and the Sub-Adviser in fulfilling their obligations to
the Funds. NationsBank and the Sub-Adviser are of the opinion that this material
is beneficial in supplementing their research and analysis; and, therefore, it
may benefit the Company by improving the quality of NationsBank's and the
Sub-Adviser's investment advice. The advisory fees paid by the Company are not
reduced because NationsBank and the Sub-Adviser receive 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 NationsBank's and the Sub-Adviser's
clients, including the Funds.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
General
Information concerning each Fund's investment objective is set forth in
each of the Prospectuses under the headings "Objectives," "How Objectives Are
Pursued," and "Appendix A." There can be no assurance that the Funds will
achieve their objectives. The principal features of the Funds' investment
programs and the primary risks associated with those investment programs are
discussed in the Prospectuses under the heading "How Objectives Are Pursued" and
"Appendix A." The values of the securities in which the Funds invest fluctuate
based upon interest rates, foreign currency rates, the financial stability of
the issuer and market factors.
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
4
<PAGE>
estimation of short-term interest rate differentials (which affect both the
direction of currency movements and also the cost of hedging).
Pursuant to one of the Company's fundamental investment restrictions
(see "How Objectives Are Pursued-Investment Limitations" in the Company's
Prospectuses), the Company does not have authority to purchase any securities
which would cause more than 25% of the value of any Fund's total assets at the
time of such purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that, there is no limitation with respect to investments in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
When-lssued Securities
Each Fund may purchase securities on a "when-issued" basis, that is,
the date for delivery of the payment for the securities is not fixed at the date
of purchase, but is set after the securities are issued (normally within 45 days
after the date of the transaction). Each Fund may also purchase or sell
securities on a delayed delivery basis. The payment obligation and the interest
rate that will be received on the when-issued securities are fixed at the time
the buyer enters into the commitment. Each Fund will only make commitments to
purchase when-issued or delayed delivery securities with the intention of
actually acquiring such securities, but each Fund may sell these securities
before the settlement date if it is deemed advisable.
If a Fund purchases a when-issued security, the Fund will direct its
custodian bank to place cash or high grade securities in a separate account of
the Fund in an amount equal to the when-issued commitment. If a separate account
must be maintained because a Fund enters into when-issued commitments, the
deposited securities will be valued at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's when-issued commitments. To the extent funds are in a separate
account, they will not be available for new investment or to meet redemptions.
Securities purchased on a when-issued basis and the securities held in
the Funds are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and changes in the level of
interest rates (which will generally result in all of those securities changing
in value in the same way, i.e., experiencing appreciation when interest rates
fall). Therefore, if in order to achieve higher interest income a Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there is a possibility that the Fund will experience
greater fluctuation in the market value of its assets.
Furthermore, when the time comes for a Fund to meet its obligations
under when-issued commitments, the Fund will do so by use of its then available
cash, by the sale of securities held in the separate account, by the sale of
other securities or, although it would not normally expect to do so, by
directing the sale of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation thereunder). The
sale of securities to meet such obligations carries with it a greater potential
for the realization of net short-term capital gains, which are not exempt from
federal income taxes. The value of when-issued securities on the settlement date
may be more or less than the purchase price.
5
<PAGE>
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.
Foreign Currency Transactions
As described in the Prospectuses, the 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
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward foreign currency
exchange contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when NationsBank and/or the Sub-Adviser
believe 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 NationsBank and the Sub-Adviser
believe 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, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where NationsBank
and/or the Sub-Adviser believe 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.
6
<PAGE>
The precise matching of the forward contract amount and the
value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change
as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and
date it matures.
The Funds' custodian will place cash not available for investment or
U.S. Government securities or other high-quality debt securities in a separate
account of a Fund 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 securities placed in a separate account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to maintaining all
or part of the separate account, 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.
Futures, Options and Other Derivative Instruments
Futures Contracts in General. A futures contract is an agreement
between two parties for the future delivery of fixed income securities or for
the payment or acceptance of a cash settlement in the case of futures contracts
on an index of fixed income securities or stock index futures contracts. A
"sale" of a futures contract means the contractual obligation to deliver the
securities at a specified price on a specified date, or to make the cash
settlement called for by the contract. Futures contracts have been designed by
exchanges which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC") and must be executed through a brokerage firm, known
as a futures commission merchant, which is a member of the relevant contract
market. Futures contracts trade on these markets, and the exchanges, through
their clearing organizations, guarantee that the contracts will be performed as
between the clearing members of the exchange. Presently, futures contracts are
based on such debt securities as long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, three-month U.S. Treasury Bills, bank certificates of deposit, and
on indexes 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 very seldom
made. Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
7
<PAGE>
Futures contracts on indexes 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 Indexes. As
noted in their respective Prospectuses, the Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indexes of government securities, in the case of the 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 these transactions, a Fund will purchase
fixed income 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 indexes 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
8
<PAGE>
portfolio securities. To the extent a Fund enters into futures
contracts for this purpose, the assets in the segregated asset
accounts maintained by a Fund will consist of cash, cash
equivalents or high quality debt securities of the Fund in an amount
equal to the difference between the fluctuating market value of such
futures contract and the aggregate value of the initial deposit and
variation margin payments made by the Fund with respect to such futures
contracts.
Stock Index Futures Contracts. As described in the Prospectuses, the
Funds may sell stock index futures contracts in order to offset a decrease in
market value of its securities that might otherwise result from a market
decline. A Fund may do so either to hedge the value of its portfolio as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of securities to be sold. Conversely, a Fund may purchase stock index
futures contracts in order to protect against anticipated increases in the cost
of securities to be acquired. As also described above with respect to futures
contracts on fixed income securities and related indexes, in a substantial
majority of these transactions, the Fund would purchase such securities upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.
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 enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
Options on Futures Contracts on Fixed Income Securities and Restated
Indexes. As described in the Prospectuses, the Funds may purchase put options on
futures contracts in which the 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.
9
<PAGE>
Options on Stock Index Futures Contracts, Options on Stock Indexes and
Options on Equity Securities. As described in the Prospectuses, the Funds may
purchase put options on stock index futures contracts, stock indexes or equity
securities for the purpose of hedging the relevant portion of its portfolio
securities against an anticipated market-wide decline or against declines in the
values of individual portfolio securities, and it may purchase call options on
such futures contracts as a hedge against a market advance when it is not fully
invested. A Fund would write options on such futures contracts primarily for the
purpose of termination existing positions. In general, options on stock indexes
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.
NationsBank 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. NationsBank and/or the Sub-Adviser may
seek to increase the current return of a Fund by writing covered call or put
options. In addition, through the writing and purchase of options and the
purchase and sale of U.S. and certain foreign stock index futures contracts,
interest rate futures contracts, foreign currency futures contracts and related
options on such futures contracts, NationsBank and/or the Sub-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 option" 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 indexes,
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
10
<PAGE>
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. A Fund may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as NationsBank and/or the
Sub-Adviser determine 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.
11
<PAGE>
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 Stock Indexes. A Fund may
purchase and sell options on non-U.S. stock indexes and stock index futures as a
hedge against movements in the equity markets.
Options on stock indexes 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 indexes 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 NationsBank and/or the Sub-Adviser expect 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, NationsBank and/or the
Sub-Adviser expect 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 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
12
<PAGE>
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
indexes or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified futures 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 Funds 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
13
<PAGE>
underlying currency future, or a combination of the foregoing. A
Fund will, so long as it is obligated as the writer or 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 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. NationsBank
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of the 15% test imposed by
the SEC staff.
14
<PAGE>
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 NationsBank and/or the Sub-Adviser deem it desirable to do so.
Although a Fund will not enter into an option or futures position unless
NationsBank and/or the Sub-Adviser believe 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 securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indexes 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 NationsBank and/or the Sub-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 fund through transactions in futures, options on futures
or options on stock indexes 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 indexes 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
15
<PAGE>
nature of the markets, such as differences in margin requirements,
the liquidity of such markets and the participation of speculators
in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of
underlying futures contract will not be fully reflected in the value
of the option purchased. The risk of imperfect correlation, however,
generally tends to diminish as the maturity date of the futures contract
or termination date of the option approaches. The risk incurred in
purchasing an option on a futures contract is limited to the amount of
the premium plus related transaction costs, although it may be necessary
under certain circumstances to exercise the option and enter into the
underlying futures contract in order to realize a profit. Under
certain extreme market conditions, it is possible that a Fund will not
be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in
NationsBank's and/or the Sub-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
NationsBank's and/or the Sub-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 indexes involve the risk that
if NationsBank's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may
16
<PAGE>
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. NationsBank and/or the Sub-Adviser do not
believe that these trading and position limits will have an adverse impact on
the hedging strategies regarding the Funds' investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and 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 deposited in a segregated
account 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.
Interest Rate Transactions
Among the strategic transactions into which a Fund 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. Each 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
17
<PAGE>
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. Inasmuch as these swaps, caps and
floors are entered into for good faith hedging purposes, NationsBank and the
Funds believe such obligations do not constitute senior securities under the
1940 Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from a Nationally Recognized Statistical Rating
Organization ("NRSRO") or is determined to be of equivalent credit quality by
NationsBank. 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.
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 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. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. 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 are not as effective in
18
<PAGE>
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 residential mortgage loans, the interest in
which is in most cases issued and guaranteed by an agency or instrumentality of
the U.S. Government, though not necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by GNMA, by FNMA and 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. Each mortgage loan included in the pool
is either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely,
it is not possible to accurately predict the average life of a particular issue
of GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with a 25- to 30-year
maturity, the type of mortgage which backs most GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest of GNMA Certificates is lower than the
interest paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates.
The yield which will be earned on GNMA Certificates 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
19
<PAGE>
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.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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
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.
Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced,
established trading markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the
maturities of the underlying mortgage instruments, which have maximum maturities
of 40 years. 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 refinancing, or foreclosures. The rate
20
<PAGE>
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 NationsBank and used for the purpose
of determining the average weighted maturity of the Funds.
Non-Mortgage Asset Backed Securities. Non-mortgage asset backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional 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.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue Asset Backed Securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the Asset Backed Securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the Asset Backed Securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the Asset Backed Securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related Asset Backed Securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other Asset Backed Securities, credit card receivables are unsecured obligations
of the card holder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for Asset Backed
Securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private
21
<PAGE>
organizations and non-mortgage backed securities is not as well
developed. As stated above, NationsBank, as adviser to each Fund,
intends to limit its purchases of mortgage backed securities issued by
certain private organizations and non-mortgage backed securities
to securities that are readily marketable at the time of purchase.
Special Situations
As described in the Prospectuses, certain Funds may invest in "special
situations." A special situation arises when, in the opinion of NationsBank
and/or the Sub-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.
Equity Swap Contracts
The counterparty to an Equity Swap Contract will typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty will
generally agree to pay a Fund the amount, if any, by which the notional amount
of the Equity Swap Contract would have increased in value had it been invested
in the stocks comprising the S&P 500 Index in proportion to the composition of
the Index, plus the dividends that would have been received on those stocks. A
Fund will agree to pay to the counterparty a floating rate of interest
(typically the London Inter Bank Offered Rate) on the notional amount of the
Equity Swap Contract plus the amount, if any, by which that notional amount
would have decreased in value had it been invested in such stocks. Therefore,
the return to a Fund on any Equity Swap Contract should be the gain or loss on
the notional amount plus dividends on the stocks comprising the S&P 500 Index
less the interest paid by the Fund on the notional amount. A Fund will only
enter into Equity Swap Contracts on a net basis, i.e., the two parties'
obligations are netted out, with the Fund paying or receiving, as the case may
be, only the net amount of any payments. Payments under the Equity Swap
Contracts may be made at the conclusion of the contract or periodically during
its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Each Fund 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.
22
<PAGE>
Equity Swap Contracts will not be used to leverage a Fund. A Fund will
not enter into any Equity Swap Contract or Reverse Equity Swap Contract unless,
at the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed 15% of the Fund's total
assets.
NationsBank 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.
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
form 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 NationsBank 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 of the Funds may
lend their portfolio securities to broker-dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. Collateral for such loans may include cash, securities
of the U.S. Government, its agencies or instrumentalities, an irrevocable letter
of credit issued by (i) a U.S. bank that has total assets exceeding $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
23
<PAGE>
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 30% of the value of its total
assets. 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
NationsBank to be of good standing and when, in its judgment, the
income to be earned from the loan justifies the attendant risks. A
Fund that is engaged in lending its portfolio securities has the right
to call each loan, and obtain the return of securities identical to the
transferred securities upon such termination of the loan, upon notice
of not more than five business days.
Short Sales
As described in the Prospectuses, certain Funds may from time to time
enter into short sales transactions. A Fund will not make short sales of
securities nor maintain a short position unless at all times when a short
position is open, such Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by a Fund for the purpose of deferring
recognition of gain or loss for federal income tax purposes.
Guaranteed Investment Contracts
Guaranteed Investment Contracts ("GlCs") are issued by highly rated
insurance companies. Pursuant to such contracts, a Fund makes cash contributions
to a deposit fund of the insurance company's general or separate accounts. The
insurance company then credits to the Fund guaranteed interest. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The purchase price paid for a GIC 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 GlCs from issuers which, at the time of
purchase, meet quality and credit standards established by NationsBank.
Generally, GlCs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GlCs 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. Therefore, GlCs are
generally considered to be illiquid investments.
Illiquid Securities
The Funds may invest up to 15% of their net assets in securities that
are considered illiquid because of the absence of a readily available market or
due to legal or contractual restrictions. Certain restricted securities that are
not registered for sale to the general public but that can be resold to
institutional investors may not be considered illiquid, provided that a dealer
or institutional trading market exists. The institutional trading market is
relatively new, and liquidity of a Fund's investments could be impaired if
trading does not develop or declines.
24
<PAGE>
Commercial Instruments
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, the Funds may acquire unrated
commercial paper and corporate bonds that are determined by NationsBank and/or
the Sub-Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the 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. 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 NationsBank. Substantial holdings of
variable rate instruments could reduce portfolio liquidity.
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. The
instruments are not typically rated by credit rating agencies, but issuers of
variable and floating rate instruments must satisfy similar criteria to that set
forth above for issuers of commercial paper. A Fund may invest in variable and
floating rate instruments only when NationsBank deems the investment to involve
minimal credit risk. If such instruments are not rated, NationsBank will
consider the earning power, cash flows, and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period specified in the instrument.
Municipal Securities
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by a Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
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.
25
<PAGE>
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 instrument. The absence of an active secondary market, however,
could make it difficult for a Fund to dispose of the instrument if the issuer
defaulted on its payment obligation or during periods the Fund is not entitled
to exercise its demand rights, and the Fund could, for these or other reasons,
suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by NationsBank to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by NationsBank to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the ability of the municipal borrower to meet an obligation for full repayment
of principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, NationsBank will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Fund's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income 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
26
<PAGE>
at a specified price. A Fund 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 NationsBank. 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.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both Equity and Mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended (the "Code").
Additional Investment Limitations
The most significant investment restrictions applicable to the Funds'
investment programs are set forth in the Prospectuses under the heading "How
Objectives Are Pursued-Investment Limitations" Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of a Fund's
shareholders (as that term is defined under the heading "Investment Advisory,
Administration, Custody, Transfer Agency, Shareholder Servicing and Distribution
Agreements -- The Company and Its Common Stock" in this SAI). each Fund will
not:
1. Borrow money or issue senior securities as defined in the 1940 Act except
that (a) a Fund may borrow money from banks for temporary or emergency
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.
27
<PAGE>
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.
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 Portfolio's investment program may be deemed an
underwriting. This restriction shall not limit a Fund's ability to invest
in securities issued be other registered investment companies.
4. Invest in real estate or real estate limited partnership interests. (The
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.
In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. No Fund of the Company will not 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 of the Company 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 principal domestic or foreign exchanges (for purposes of this
undertaking, warrants acquired by a Fund in units or attached to securities
will be deemed to have no value).
28
<PAGE>
5. No Fund of the Company will purchase securities of companies for the
purpose of exercising control.
6. No Fund of the Company will invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits with maturities
in excess of seven days, 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
under 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.
7. No Fund of the Company 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.
8. No Fund of the Company 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.
9. No Fund of the Company 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).
NET ASSET VALUE
Purchases and Redemptions
See "How to Buy Shares" and "How to Redeem Shares" in the Prospectuses
for a complete description of the manner in which Shares of the various classes
of the Funds may be purchased and redeemed.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposal of portfolio securities or the
valuation of the net assets of a Fund of the Company not reasonably practicable.
Net Asset Value Determination
Shares of the common stock of each class of Shares of each Fund that
are offered by the Prospectuses are sold at their respective net asset value
next determined after the receipt of the purchase order, plus any applicable
sales charge. Shareholders may at any time redeem all or a portion of their
Shares at net asset value next determined following receipt of a redemption
order, less any contingent deferred sales charge applicable to Investor Shares.
29
<PAGE>
The net asset value per share of each of the Funds is determined at the
times and in the manner described in the Prospectuses.
A security of a Fund listed or traded on an exchange is valued at its
last sales price on the exchange where the security is principally traded or,
lacking any sales on a particular day, the security is valued at the mean
between the closing bid and asked prices on that day. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date. Securities may be valued on the basis of
prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as yield, type of issue, coupon rate
maturity and seasoning differential. Securities for which prices are not
provided by the pricing service are valued at the mean between the last bid and
asked prices based upon quotes furnished by market makers for such securities.
Securities of the Fund for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by the
Board of Directors of the Company. Short-term obligations having 60 days or less
to maturity are valued at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Shares of a Fund are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the directors.
For purposes of determining the net asset value per Share of a Fund,
all assets and liabilities of such Fund 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.
30
<PAGE>
Exchanges
By use of the exchange privilege, the holder of Investor Shares
authorizes the transfer agent or the shareholder's financial institution to rely
on telephonic instructions from any person representing himself to be the
investor and reasonably believed to be genuine. The transfer agent's or a
financial institution's records of such instructions are binding. Exchanges are
taxable transactions for Federal income tax purposes; therefore, a shareholder
will realize a capital gain or loss depending on whether the Investor Shares
being exchanged have a value which is more or less than their adjusted cost
basis.
The Company may limit the number of times the exchange privilege may be
exercised by a shareholder within a specified period of time. Also, the exchange
privilege may be terminated or revised at any time by the Company upon such
notice as may be required by applicable regulatory agencies (presently sixty
days for termination or material revision), provided that the exchange privilege
may be terminated or materially revised without notice under certain unusual
circumstances.
The prospectuses for the Investor Shares of each Fund describe the
exchange privileges available to holders of such Investor Shares.
DESCRIPTION OF SHARES
Dividends and Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below with respect to the Emerging
Markets Fund and the Pacific Growth Fund.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his/her Shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his/her Shares. Conversely, if a Fund elects to retain its
net capital gain, the Fund will be taxed thereon (except to the extent of any
available capital loss carryovers) at the applicable corporate tax rate. If a
Fund elects to retain its net capital gain, it is expected that the Fund also
will elect to have shareholders treated as if each received a distribution of
its pro rata share of such gain, with the result that each shareholder will be
required to report its pro rata share of such gain on its tax return as
long-term capital gain, will receive a refundable tax credit for its share of
tax paid by the Fund on the gain and will increase the basis for its Shares by
an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Emerging Markets Fund with
respect to a taxable year will qualify for the 70% dividends received deduction
generally available to corporations (other than corporations, such as "S"
corporations, which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A
31
<PAGE>
dividend received by the Emerging Markets Fund will not be treated as a
qualifying dividend (a) if it has been received with respect to any
share of stock that the Fund has held for less than 46 days (91 days in
the case of certain preferred stock), excluding for this purpose
under the rules of Code Section 246(c)(3) and (4): (i) any day more than
45 days (or 90 days in the case of certain preferred stock) after the
date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the
grantor of a deep-in-the money or otherwise nonqualified option to
buy or has otherwise diminished its risk of loss by holding other
positions with respect to, such (or substantially identical) stock;
(b) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property; or (c) to
the extent the stock on which the dividend is paid is treated as debt
financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be
disallowed or reduced (i) if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or
(ii) by application of Code Section 246(b) which in general limits the
dividends received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction
and certain other items).
To the extent that the Pacific Growth Fund invests in the securities of
U.S. domestic corporations the foregoing discussion of the dividends received
deduction generally available to corporations may be applicable to the corporate
shareholders of the Pacific Growth Fund.
For purposes of the corporate alternative minimum tax (the "AMT") and
the environmental superfund tax the corporate dividends received deduction is
not itself an item of tax preference that must be added back to taxable income
or is otherwise disallowed in determining a corporation's alternative minimum
taxable income ("AMTI"). However, corporate shareholders will generally be
required to take the full amount of any dividend received from the Emerging
Markets Fund or the Pacific Growth Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings.
Investment income that may be received by the Funds from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle each Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of each Fund's assets to be invested in various countries is not
known. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
such Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would, therefore, be allowed
to either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
The Funds may purchase the securities of certain foreign investment
funds or trusts called passive foreign investment companies ("PFICs"). If a Fund
invests in PFICs, it may be
32
<PAGE>
subject to U.S. federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such
income is distributed as a taxable dividend to shareholders. In addition
to bearing their proportionate share of such Fund's expenses
(management fees and operating expenses), shareholders will also bear
indirectly similar expenses of PFICs in which the Fund has invested.
Additional charges in the nature of interest may be imposed on
either the Fund or its shareholders in respect of deferred taxes
arising from such distributions or gains. Capital gains on the sale
of such holdings will be deemed to be ordinary income regardless of
how long such PFICs are held. If a Fund were to invest in a PFIC and
elect to treat the PFIC as a "qualified electing fund" under the Code,
in lieu of the foregoing requirements, such Fund might be required to
include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed
to the Fund, and such amounts would be subject to the 90% and calendar
year distribution requirements described above.
Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his/her Shares; any excess will be treated as gain from the sale of
his/her shares, as discussed below.
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.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional Shares of such Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional Shares will be treated as receiving a
distribution in an amount equal to the fair market value of the Shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases Shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However,
distributions declared in October, November or December of any year and payable
to shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such distributions are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of Shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
33
<PAGE>
failed to certify to a Fund that it is not subject to backup withholding or that
it is a corporation or other "exempt recipient."
Emerging Markets Fund and Pacific Growth Fund
Dividends and distributions from net investment income, if any, are
declared and paid quarterly, and capital gains distributions are declared and
paid annually. The Investor A, Investor C, Investor N and Trust B Shares of the
Funds shall accrue an additional expense not borne by the Trust A Shares as a
result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of Shares of the Funds.
Global Government Income Fund
Dividends and distributions from net investment income are declared
daily and paid monthly, and capital gains distributions are declared and paid
annually. The Investor A, Investor C, Investor N and Trust B Shares of the Fund
shall accrue an additional expense not borne by the Trust A Shares as a result
of the 12b-1 Plans and the Shareholder Servicing Plan. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of Shares of the Fund.
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.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning.
The Company has received a private letter ruling from the Internal
Revenue Service to the effect that the differing fees imposed on Trust A, Trust
B, Investor A, Investor C and Investor N Shares with respect to servicing,
distribution and administrative support services, and transfer agency
arrangements, and the differing sales charges on purchases and redemptions of
such Shares, does not result in the Company's dividends or distributions
constituting "preferential dividends" under the Code.
Qualification as a Regulated Investment Company
Each Fund expects to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, each Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of
34
<PAGE>
its investment company taxable income (i.e., net investment income and
the excess of short-term capital gain over net long-term capital loss)
and at least 90% of its tax-exempt income (net of expenses allocable
thereto) for the taxable year (the "Distribution Requirement"), and
satisfies certain other requirements of the Code that are described
below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of
the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (i) derive at least 90% of its 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 (the "Income Requirement"); and (ii) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by a Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Code
Section 988, gain or loss recognized on the disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other
35
<PAGE>
things, must not be deep-in-the-money) with respect thereto) or
(iii) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. However, for purposes of the
Short-Short Gain Test, the holding period of the asset disposed of
may be reduced only in the case of clause (i) above. In addition, a
Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent
of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by certain of the Funds (such as
futures contracts and options on stock indexes and futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. The
net amount of such gain or loss for the entire taxable year (including gain or
loss arising as a consequence of the year-end deemed sale of such contracts) is
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The Internal Revenue Service has held in several private rulings that
gains arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256. A Fund may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if they had been incurred in the succeeding year.
In addition to satisfying the requirement described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
36
<PAGE>
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Corporate shareholders of the Emerging Markets and Pacific Growth
Funds may be eligible for the dividends-received deduction on the dividends
(excluding the net capital gains dividends) paid by these Funds to the extent
that that Fund's income is derived from dividends (which, if received directly,
would qualify for such deduction) received from domestic corporations. In order
to qualify for the dividends-received deduction, a corporate shareholder must
hold the fund shares paying the dividends upon which the deduction is based for
at least 46 days.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company may (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income to
avoid liability for the excise tax. However, investors should note that a Fund
may in certain circumstances be required to liquidate Fund investments to make
sufficient distributions to avoid excise tax liability.
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
Shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the Shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other Shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of Shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of Shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such Shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such Shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
37
<PAGE>
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring Shares of a Fund,
(ii) disposes of such Shares less than 91 days after they are acquired and (iii)
subsequently acquires Shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the Shares disposed of, then the sales load
on the Shares disposed of (to the extent of the reduction in the sales load on
the Shares subsequently acquired) shall not be taken into account in determining
gain or loss on the Shares disposed of, but shall be treated as incurred on the
acquisition of the Shares subsequently acquired.
The Company may make payment for redemptions in readily marketable
securities or other property if it is appropriate to do so in light of the
company's responsibilities under the 1940 Act.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale of Shares of a Fund,
capital gain dividends and exempt-interest dividends and amounts retained by a
Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens, U.S. Residents, or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
38
<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such taxes. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Funds.
DIRECTORS AND OFFICERS
The directors and executive officers of the 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 the 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 Company Directorships
<S> <C> <C>
Edmund L. Benson, III, 57 Director Director, President and
Saunders & Benson, Inc. Treasurer, Saunders &
728 East Main Street Benson, Inc. (Insurance);
Suite 400 Director, The Capital Mutual
Richmond, VA 23219 Funds; Director, Nations
Fund, Inc.; Trustee, Nations
Fund Trust, Director, Nations
Fund Portfolios, Inc.
James Ermer, 52 Director Since October 1985, Senior
CSX Corporation Vice President- Finance,
One James Center CSX Corporation
901 East Cary Street (transportation and natural
Richmond, VA 23219 resources); Director, The
Capital Mutual Funds;
Director, National Mine
Service; Director, Lawyers
Title Corporation; Director,
Nations Fund, Inc.; Trustee,
Nations Fund Trust, Director,
Nations Fund Portfolios, Inc.
39
<PAGE>
William H. Grigg, 62 Director Since April 1994, Chairman
Duke Power Co. and Chief Executive Officer;
422 South Church Street November 1991 to April
PB04G 1994, Vice Chairman, Duke
Charlotte, NC 28242-0001 Power Co.; from April 1988
to November 1991, Executive
Vice President Customer Group,
Duke Power Co.;
Director, The Capital
Mutual Funds; Director,
Hatteras Income
Securities, Inc.,
Nations Government
Income Term Trust 2003,
Inc., Nations Government
Income Term Trust 2004,
Inc., Nations Balanced
Target Maturity Fund,
Inc. (Investment
companies); Director,
Nations Fund, Inc.;
Trustee, Nations Fund
Trust, Director, Nations
Fund Portfolios, Inc.
Thomas F. Keller, 63 Director R.J. Reynolds Industries Professor of
Fuqua School of Business Business Administration and Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27706 University; Director, LADD Furniture,
Inc.; Director, The
Capital Mutual Funds;
Director, Hatteras
Income Securities, Inc.,
Nations Government
Income Term Trust 2003,
Inc., Nations Government
Income Term Trust 2004,
Inc., Nations Balanced
Target Maturity Fund,
Inc. (investment
companies); Director,
Wendy's International
Mentor Growth Fund, and
Cambridge Trust;
Director, Nations Fund,
Inc.; Trustee, Nations
Fund Trust, Director,
Nations Fund Portfolios.
Inc.
Carl E. Mundy, Jr., 60 Director Commandant, United States. Marine
9308 Ludgate Drive Corps, from July 1991 to July 1995;
Alexandria, VA 23309 Commanding General, Marine Forces
Atlantic, from June 1990 to June 1991.
40
<PAGE>
A. Max Walker, 72* President, Director Financial consultant; Director and
6215 Riverwood Drive, N.W. and Chairman of Chairman of the Board, Hatteras
Atlanta, GA 30328 the Board Income Securities, Inc., Nations Government
Income Term Trust 2003,
Inc., Nations
Government Income Term
Trust 2004, Inc.,
Nations Balanced Target
Maturity Fund, Inc.
(investment companies);
Formerly, President, A.
Max Walker, Inc.;
Director, The Capital
Mutual Funds; Director
and Chairman of the
Board, Nations Fund,
Inc.; Trustee and
Chairman of the Board,
Nations Fund Trust,
Director, Nations Fund
Portfolios. Inc.
Charles B. Walker, 56 Director Since 1989, Director,
Ethyl Corporation Executive Vice President,
P.O . Box 2189 Chief Financial Officer and
330 South Fourth Street Treasurer, Ethyl Corporation
Richmond, VA 23217 (chemicals, plastics, and aluminum
manufacturing); since
1994, Vice Chairman,
Ethyl Corporation and
Vice Chairman, Chief
Financial Officer and
Treasurer, Albemarle
Corporation, Director,
Nations Fund, Inc.;
Trustee, Nations Fund
Trust, Director,
Nations Fund
Portfolios, Inc.
Thomas S. Word, Jr., 56* Director Partner, McGuire Woods
McGuire, Woods, Battle Battle & Boothe (law);
& Boothe Director, The Capital Mutual
One James Center Funds; Director, Vaughan
Richmond, VA 23219 Bassett Furniture Company,
Director VB Williams
Furniture Company,
Inc.; Director, Nations
Fund, Inc.; Trustee,
Nations Fund Trust,
Director, Nations Fund
Portfolios, Inc.
41
<PAGE>
Richard H. Blank, Jr., 38 Secretary Since 1994, Vice President
Stephens Inc. of Mutual Fund Services,
Stephens Inc. 1990 to
1994, Manager Mutual
Fund Services, Stephens
Inc. 1983 to 1990,
Associate in Corporate
Finance Department,
Stephens Inc.
Michael W. Nolte, 34 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 42 Assistant Secretary Corporate Syndicate
Stephens Inc. Associate, Stephens Inc.
James E. Banks, 38 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
Corporate Counsel,
Federated Investors;
from 1991 to 1993,
Staff Attorney,
Securities and
Exchange Commission
from 1988 to 1991
Richard H. Rose, 39 Treasurer Since 1994, Vice President,
The Shareholder Services Division Manager, The
Group, Inc. Shareholder Services Group;
One Exchange Place since 1988, Senior Vice
Boston, MA 02109 President, The Boston ComDanv
Advisors. Inc.
Joseph C. Viselli, 31 Assistant Treasurer Assistant Vice President, The Boston
The Shareholder Services Company Advisors, Inc. since April
Group, Inc. 1992.
One Exchange Place
Boston, MA 02109
</TABLE>
Mr. Rose serves as Treasurer to certain other investment companies for
which the Shareholder Services Group. Inc. or its affiliates serve as sponsor,
distributor, administrator and/or investment adviser.
Each Director of the Company is also a Director of Nations Fund, Inc.
and a Trustee of Nations Fund Trust, each a registered investment company that
is part of the Nations Fund Family. Richard H. Blank, Jr., Richard H. Rose,
Joseph C. Viselli, Michael W. Nolte, Louise P. Newcomb and James E. Banks, Jr.
are also officers of Nations Fund. Inc. and Nations Fund Trust.
As of the date of this SAI, the directors and officers of the
Company as a group owned less than 1% of the outstanding shares of each
of the Funds.
42
<PAGE>
The Company has adopted a Code of Ethics which, 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 the Company, (ii)
any employee of the Company (or any company in a control relationship with the
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 the Company, and (iii) any natural person in a control
relationship with the Company who obtains information concerning recommendations
made to the 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 the
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 money
market instruments and certain U.S. Government securities. To facilitate
enforcement, the Code of Ethics generally requires that the Company's access
persons, other than its "disinterested" Directors, submit reports to the
Company's designated compliance person regarding transactions involving
securities which are eligible for purchase by a Fund.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors (the "Retirement Plan"), each director may be entitled to certain
benefits upon retirement from the Board of Directors. Pursuant to the Retirement
Plan, the normal retirement date is the date on which the eligible director has
attained age 65 and has completed at least five years of continuous service with
one or more of the open-end investment companies ("Funds") advised by
NationsBank. If a director retires before reaching age 65, no benefits are
payable. Each eligible director 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
fees payable by the Funds during the calendar year in which the director'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 in quarterly installments for a period of
no more than five years. If an eligible director dies after attaining age 65,
the director's surviving spouse (if any) will be entitled to receive 50% of the
benefits that would have been paid (or would have continued to have been paid)
to the director if he had not died. The Retirement Plan is unfunded. The
benefits owed to each director are unsecured and subject to the general
creditors of the Funds. At present the Plan is not in effect and therefore there
are no fees to disclose.
Nations Funds Deferred Compensation Plan
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors (the "Deferred Compensation Plan"), each director 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
for that calendar year. An application will be submitted to the SEC to permit
deferring directors 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. Until approval is received from the SEC, the rate
of return on any fees deferred by a director will be tied to the yield on 90-day
U.S. Treasury Bills. Distributions from the deferring directors' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of
43
<PAGE>
five years beginning on the date the deferring director's retirement
benefits commence under the Retirement Plan. The Board of Directors, in
its sole discretion, may accelerate or extend such payments
after a director's termination of service. If a deferring director
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 death. If a deferring director 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. Amounts payable under the
Deferred Compensation Plan are not funded or secured in any way and
deferring directors have the status of unsecured creditors of the Funds
from which they are deferring compensation.
44
<PAGE>
<TABLE>
<CAPTION>
Nations
Total Compensation Nations Fund
Aggregate from Registrant and Fund Deferred
Name of Person Compensation Fund Complex Paid Retirement Compensation
Position (1) from Registrant (2) to Directors Plan Plan
- ---------------- ------------------- -------------------- ----------- ------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III $7,500.00 $36,500.00 N/A N/A
Director
James Ermer $7,500.00 $36,500.00 N/A N/A
Director
William H. Grigg $7,500.00 $45,500.00 N/A N/A
Director
Thomas F. Keller $7,500.00 $45,500.00 N/A N/A
Director
A. Max Walker $9,500.00 $51,500.00 N/A N/A
Chairman of the Board
Charles B. Walker $7,500.00 $36,500.00 N/A N/A
Director
Thomas S. Word $7,500.00 $36,500.00 N/A N/A
Director
</TABLE>
(1) All directors receive reimbursements for expenses related to their
attendance at meetings of the Board of Directors. Officers of the Company
receive no direct remuneration in such capacity from the Company.
(2) For current fiscal year and includes estimated future payments. Each
Director receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Company, plus (ii) a fee of
$1,000 for attendance at each "in-person" meeting of the Board of Directors
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including the Company, that are deemed to be part of
the Nations Fund "fund complex," as that term is defined under Rule 14a-101
of the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer,
C. Walker and Word receive compensation from four investment companies,
including the Company, deemed to be part of the Nations Fund fund complex.
45
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS
The Company and Its Common Stock
The Company is an open-end diversified management investment company
organized as a corporation under the laws of the State of Maryland on January
23, 1995. The Company offers shares of common stock which represent interests in
one of three separate Funds. This SAI relates to the following Funds of the
Company: the Emerging Markets Fund, the Pacific Growth Fund and the Global
Government Income Fund. Each Fund offers the following separate classes of
shares: Trust A Shares, Trust B Shares, Investor A Shares, Investor C Shares and
Investor N Shares. Certain classes of the Company are offered on a no load
basis, and others are offered at the public offering price plus a sales charge.
Shares of each Fund of the Company are redeemable at the net asset value (less
any applicable contingent deferred sales charge ("CDSC") thereof at the option
of the holders thereof or in certain circumstances at the option of the Company.
For information concerning the methods of redemption and the rights of share
ownership, consult the Prospectuses under the captions "How to Buy Shares," "How
to Redeem Shares" and "Organization and History."
Trust Shares are sold exclusively through banks and certain other
financial institutions primarily to their fiduciary clients and similar
customers. Investor Shares are available to non-fiduciary customers of certain
broker-dealers and other financial institutions. Certain charges that apply to
one class of shares of a Fund may not be charged to the other class of shares of
the same Fund. Consequently, the yield earned on one class of shares of a Fund
may be different from that of the other class of shares of the same Fund, and
the net asset value per share of the classes of shares of each Fund will differ.
As used in this SAI and in the Prospectuses, the term "majority of the
outstanding shares" of the Company, a particular Fund or a particular class of
shares of a Fund means, respectively, the vote of the lesser of (i) 67% or more
of the shares of the Company, Fund or class (as appropriate) present at a
meeting of shareholders, if the holders of more than 50% of the outstanding
shares entitled to vote, are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Company, Fund or class.
The Board of Directors may classify or reclassify any unissued shares
of the 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.
Investment Adviser
NationsBank, N.A. (Carolinas) ("NationsBank"), through its Investment
Management Division, serves as investment adviser to the Funds. NationsBank is a
wholly owned subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation.
46
<PAGE>
NationsBank and NationsBank Corporation are located at One
NationsBank Plaza, Charlotte, North Carolina 28255. NationsBank is
successor to NationsBank of North Carolina, N.A., which was merged
with and into NationsBank of South Carolina. N.A.. effective January 3,
1995. The resulting entity was renamed NationsBank, N.A. (Carolinas).
NationsBank also serves as investment adviser to Nations Fund, Inc.,
Nations Fund Trust and The Capitol Mutual Funds, each a registered investment
company that is part of the Nations Fund family of funds. In addition,
NationsBank 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.
Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank and its affiliates manage over $50 billion, including over
$13 billion in Nations Fund assets. It is a company dedicated to a goal of
providing responsible investment management and superior service. NationsBank is
recognized for its sound investment approaches, which place it among the
nation's foremost financial institutions. NationsBank and its affiliated
organizations make available a wide range of financial services to its over 6
million customers through over 1700 banking and investment centers.
Approximately 12 of NationsBank's personnel are involved in stock and bond
research.
Nations Gartmore Investment Management ("Nations Gartmore"), with
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255,
serves as sub-investment adviser to the Funds pursuant to a sub-advisory
agreement. Nations Gartmore is a joint venture structured as a Delaware general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, an indirect wholly owned subsidiary of Gartmore plc,
a publicly listed U.K. company. Banque Indosuez, a French bank, indirectly owns
75% of Gartmore plc's outstanding voting shares, and the remaining 25% are owned
by the public and by Gartmore plc's employees. Banque Indosuez, a wholly owned
subsidiary of Compagnie de Suez, S.A., acquired Gartmore plc in 1990. Nations
Gartmore is a registered investment adviser in the United States and a member of
the Investment Management Regulatory Organization Limited, a U.K. regulatory
authority.
Pursuant to the terms of the Advisory and Sub-Advisory Agreements
relating to the Funds (sometimes referred to collectively as the "Advisory
Agreements"), NationsBank and Nations Gartmore (the "Sub-Adviser"), subject at
all times to the control of the Company's Board of Directors and in conformance
with the stated policies of the Company, select and manage the investments of
the Funds. NationsBank and the Sub-Adviser obtain and evaluate economic,
statistical and financial information to formulate and implement investment
policies for the Funds. Each Advisory Agreement provides that NationsBank or the
Sub-Adviser shall not be liable to the Company or to its shareholders for any
act or omission by NationsBank or the Sub-Adviser or for any loss sustained by
the Company or by its shareholders except in the case of NationsBank's or the
Sub-Adviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of NationsBank or the Sub-Adviser, as the case may
be.
The advisory fee for the Emerging Markets Fund is calculated daily and
paid monthly at the annual rate of 1.10% of the Fund's average daily net assets.
NationsBank pays the Sub-Adviser a fee determined at the annual rate of 0.85% of
the Fund's average daily net assets. The
47
<PAGE>
advisory fee for the Pacific Growth Fund is calculated daily and paid
monthly at the annual rate of 0.90% of the Fund's average daily net
assets. NationsBank pays the Sub-Adviser a fee determined at the
annual rate of 0.70% of the Fund's average daily net assets. The Global
Government Income Fund pays NationsBank an advisory fee determined at
the annual rate of 0.70% of the Fund's average daily net assets.
NationsBank pays the Sub-Adviser a fee determined at the annual rate of
0.54% of the Fund's average daily net assets.
NationsBank and/or the Sub-Adviser may waive a portion of their fees;
however, any such waiver may be discontinued at any time. As discussed under the
caption "Expenses," NationsBank and the Sub-Adviser will be required to reduce
their fees from the Funds, in direct proportion to the fees payable by the Funds
to NationsBank, Sub-Adviser, the Administrator and the Co-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.
The Advisory Agreements were approved by the Company's Board of
Directors on January 26, 1995 and by the initial shareholder on June 30, 1995.
The Advisory Agreements continue in effect for an initial term of two years from
their respective effective dates and continue in effect from year to year
thereafter only if such continuance is specifically approved at least annually
by the Company's Board of Directors and the affirmative vote of a majority of
the directors who are not parties to the Advisory Agreements or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The respective Funds or NationsBank may terminate the Advisory
Agreement, and the respective Funds, NationsBank or Nations Gartmore may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Advisory Agreement and Sub-Advisory Agreement each terminates
automatically in the event of its "assignment," as defined in the 1940 Act.
Investment Styles
The Company uses various investment strategies to manage its
portfolios. These strategies have been categorized into investment styles which
consist of the Emerging Markets and Pacific Growth Funds Style and the Global
Government Income Fund Style.
These styles are described below.
Nations Emerging Markets and Pacific Growth Funds Style
The Emerging Markets and Pacific Growth Funds utilize an investment
philosophy that emphasizes investment in reasonably priced growth stocks. This
philosophy assumes that superior earnings growth will lead to greater investment
returns. In the case of global or international portfolios this philosophy
concentrates on stock selection and asset allocation aimed at strategically
overweighting growing markets while avoiding those with less possibility of
appreciation. This investment approach is designed to add value while also
providing diversification to minimize risk.
Nations Gartmore selects stocks for its portfolios using rigorous stock
selection criteria. Their analysis is designed to discover securities which
demonstrate a potential for above market earnings growth rates while maintaining
reasonable valuation levels and whose parent corporations show strong balance
sheets and quality management. In order to ascertain these facts, Nations
Gartmore representatives make on site inspections of the companies under review,
as well as their competitors, suppliers and customers.
48
<PAGE>
The allocation of assets is determined by portfolio managers based on
both qualitative and quantitative research. This research includes the
identification of investment themes, political and economic trends,
price/earnings ratios, real interest rates and earnings growth projections.
These factors determine economic, market, interest rate and currency forecasts
which are, in turn, used to determine regional allocations.
Global Government Income Fund Style
The Global Government Income Fund bases its investment decisions on an
analysis of longer term economic trends which are believed to be key to
successful fixed income investing. This tendency to take into account long term
economic trends is coupled with the practice of investing primarily in
investment grade government securities which minimize the investor's credit
risk.
This investment policy is effected by carefully analyzing interest rate
forecasts and currency movements for various markets and using this information
to determine regional allocations. These allocations are then adjusted to
reflect the portfolio manager's perception of the most favorable markets and
issuers. Fundamental economic strength, credit quality and interest rate trends
are the principal factors considered by the portfolio's management in
determining whether to increase or decrease the emphasis placed on a particular
country or type of security.
Administrator and Co-Administrator
The Company has retained Stephens Inc. ("Administrator") as the
administrator and The Shareholder Services Group, Inc. (the "Co-Administrator")
as the co-administrator of the Company.
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Directors on January 25, 1995. The Administrator receives, as
compensation for its services rendered under the Administration Agreement and as
agent for the Co-Administrator for the services it provides under the
Co-Administration Agreement, an administrative fee, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of each
Fund.
Pursuant to the Administration Agreement, the Administrator has agreed
to, among other things, (i) maintain office facilities for the Funds, (ii)
furnish statistical and research data, data processing, clerical, and internal
executive and administrative services to the Company, (iii) furnish corporate
secretarial services to the Company, including coordinating the preparation and
distribution of materials for Board of Directors meetings, (iv) coordinate the
provision of legal advice to the Company with respect to regulatory matters, (v)
coordinate the preparation of reports to the Company's shareholders and the SEC,
including annual and semi-annual reports, (vi) coordinating the provision of
services to the Company by the Co-Administrator, the Transfer Agents and the
Custodians, and (vii) generally assist in all aspects of the Company's
operations. Additionally, the Administrator is authorized to receive, as agent
for the Co-Administrator, the fees payable to the Co-Administrator by the
Company for its services rendered under the Co-Administration Agreement. The
Administrator bears all expenses incurred in connection with the performance of
its services.
49
<PAGE>
Pursuant to the Co-Administration Agreement, the Co-Administrator 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 the 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. The Co-Administrator bears all expenses
incurred in connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Directors, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the non-assigning party.
Furthermore, the Administration Agreement and the Co-Administration Agreement
provide that the Administrator and Co-Administrator, respectively, shall not be
liable to the Funds or to their shareholders except in the case of the
Administrator's or Co-Administrator's respective, willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
As discussed under the caption "Expenses," the Administrator and
Co-Administrator will be required to reduce their fee from the Company, in
direct proportion to the fees payable to the Administrator and Co-Administrator
by the Company, if the expenses of the Company exceed the applicable expense
limitation of any state in which the Funds' shares are registered or qualified
for sale.
Distributor
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Funds.
At a meeting held on January 25, 1995, the Board of Directors selected
Stephens Inc. as Distributor, and approved a distribution agreement
("Distribution Agreement") with the Distributor. Pursuant to 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
Company or the Transfer Agent (as defined under the caption "Transfer Agents and
Custodian"). 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 Company
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 or a
vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of a 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
50
<PAGE>
Board of Directors, the vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of such Fund, or by the
Distributor.
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares
Investor A Shares
The Company has adopted a 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 Company ("Servicing Agents"), up to 0.25% (on an annualized
basis) of the average daily net asset value of such Fund.
Payments under the Investor A Plan may be made to 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 to Servicing
Agents that have entered into a Shareholder Servicing Agreement with the Company
for providing shareholder support services to their Customers which hold of
record or beneficially Investor A Shares of a Fund. Such shareholder support
services provided by Servicing Agents to holders of Investor A Shares of the
Funds may include (i) aggregating and processing purchase and redemption
requests for Investor A Shares from their Customers and transmitting promptly
net purchase and redemption orders to the Company's 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 subaccounting with respect to
Investor A Shares beneficially owned by their Customers or the information
necessary for subaccounting; (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 their Customers; (ix) forwarding to their Customers proxy statements and
proxies containing any proposals regarding the Shareholder Servicing Agreement;
(x) providing general shareholder liaison services; and (xi) providing such
other similar services as the Company may reasonably request to the extent the
Selling Agent is permitted to do so under applicable statutes, rules or
regulations.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
51
<PAGE>
Investor C Shares
The Directors of the Company have approved a Distribution Plan in
accordance with Rule 12b-1 under the 1940 Act for the Investor C Shares of the
Funds (the "Investor C Plan"). Pursuant to the Investor C Plan, each Fund may
pay the Distributor for certain expenses that are incurred in connection with
the distribution of shares. Payments under the Investor C Plan will be
calculated daily and paid monthly at a rate set from time to time by the Board
of Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of Investor C Shares of a Fund. Payments to the
Distributor pursuant to the Investor C Plan will be used (i) to compensate
Selling Agents for providing sales support assistance relating to Investor C
Shares, (ii) for promotional activities intended to result in the sale of
Investor C Shares such as to pay for the preparation, printing and distribution
of prospectuses to other than current shareholders, and (iii) to compensate
Selling Agents for providing sales support services with respect to their
Customers who are, from time to time, beneficial and record holders of Investor
C Shares. Currently, substantially all fees paid pursuant to the Investor C Plan
are paid to compensate Selling Agents for providing the services described in
(i) and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor C Shares. Fees received by the Distributor pursuant to the Investor C
Plan will not be used to pay any interest expenses, carrying charges or other
financing costs (except to the extent permitted by the SEC) and will not be used
to pay any general and administrative expenses of the Distributor.
Pursuant to the Investor C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor C Shares of
the Funds. Such Selling Agents will be compensated at the annual rate of up to
0.75% of the average daily net asset value of the Investor C Shares of the Funds
held of record or beneficially by such Customers. The sales support services
provided by Selling Agents may include providing distribution assistance and
promotional activities intended to result in the sales of shares such as paying
for the preparation, printing and distribution of prospectuses to other than
current shareholders.
Fees paid pursuant to the Investor C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor C Plan in
any given year may exceed the sum of the fees received under the Investor C Plan
and payments received pursuant to contingent deferred sales charges. Any such
excess may be recovered by the Distributor in future years so long as the
Investor C Plan is in effect. If the Investor C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved a Shareholder Servicing Plan
("Servicing Plan") with respect to the Investor C Shares of the Funds (the
"Investor C Servicing Plan"). Pursuant to the Investor C Servicing Plan, each
Fund may pay banks, broker/dealers or other financial institutions that have
entered into a Shareholder Servicing Agreement with Nations Fund ("Servicing
Agents") for certain expenses that are incurred by the Servicing Agents in
connection with shareholder support services that are provided by the Servicing
Agents. Payments under the Investor C Servicing Plan will be calculated daily
and paid monthly at a rate set from time to time by the Board of Directors,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase
52
<PAGE>
and redemption requests for such Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to the
Company's distributor or transfer agent; (ii) providing Customers
with a service that invests the assets of their accounts in such
Investor C Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information
periodically to Customers showing their positions in such Investor C
Shares; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in such Investor C Shares; (vii)
providing subaccounting with respect to such Investor C Shares
beneficially owned by Customers or providing the information
necessary for subaccounting; (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.
Investor N Shares
The Directors of the Company have approved the Investor N Distribution
Plan in accordance with Rule 12b-1 under the 1940 Act with respect to Investor N
Shares of the Funds. Pursuant to the Investor N Distribution Plan, a Fund may
compensate or reimburse the Distributor for any activities or expenses primarily
intended to result in the sale of such Fund's Investor N Shares, including for
sales related services provided by Selling Agents. Payments under a Fund's
Investor N 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
Fund's Investor N Shares.
The fees payable under the Investor N 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 N 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 Investor N Shares of the Funds (the
"Investor N Servicing Plan"). Pursuant to the Investor N
53
<PAGE>
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 N 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 Investor
N Shares of the Funds.
The fees payable under the Investor N 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 N 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 N 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 Investor N
Shares; (v) arranging for bank wires; (vi) responding to Customers' inquiries
concerning their investment in such Investor N Shares; (vii) providing
sub-accounting with respect to such Investor N Shares beneficially owned by
Customers or providing the information 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
Investor N 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 Investor N Distribution Plan and Investor N
Servicing Plan (together, the "Investor N 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 N Plans which exceed
the payments made to the Selling Agents and Servicing Agents by the Distributor
or Nations Fund and reimbursed by the Fund pursuant to the Investor N Plans. Any
such excess expenses may be recovered in future years, so long as the Investor N
Plans are in effect. Because there is no requirement under the Investor N 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 N 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 N Plans or in connection with contingent deferred
sales charges, if for any reason the Investor N Plans are terminated, the
Directors will consider at that time the manner in which to treat such expenses.
Information Applicable to Investor A, Investor C and Investor N Shares
The Investor A Plan, the Investor C Plan, the Investor C Servicing
Plan, the Investor N Distribution Plan and the Investor N 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.
54
<PAGE>
Compensation payable to Selling Agents or Servicing Agents for
shareholder support services under the Plans is subject to, among other
things, the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice 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 their 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 January 26, 1995. 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.
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 C or Investor N Shares and the holders of such shares. The Plans were
approved by their initial shareholders on June 30, 1995.
Each Plan may be terminated with respect to its shares by vote of a
majority of the Qualified Directors or by vote of a majority of holders of its
outstanding voting securities. Any change in a Plan that would increase
materially the distribution expenses paid by the Investor A, Investor C or
Investor N 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 Investor C Servicing Plan and the Investor 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 Nations Fund 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 maneuvers 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.
Shareholder Servicing Agreements (Trust B Shares)
As stated in the Prospectuses for the Trust Shares, the Company has a
separate Shareholder Servicing Plan with respect to the Trust B Shares. Pursuant
to the Shareholder Servicing Plan, the Company has entered into 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 Trust 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:
55
<PAGE>
(i) aggregating and processing purchase, exchange and redemption
requests for Trust 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 Trust B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and
distribution payments from the Company on behalf of Customers; (v)
providing information periodically to Customers showing, their
positions in Trust B Shares; (v) arranging for bank wires; (vi)
responding to Customer inquiries concerning their investment in Trust
B Shares; (vii) providing sub-accounting with respect to Trust 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 Services 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,
including a majority of the Qualified Directors, specifically approves the plan
at least annually.
Expenses
The Administrator and/or Co-Administrator furnishes, without additional
cost to the Company, the services of the Treasurer and Secretary of the Company
and such other personnel (other than the personnel of NationsBank or
Sub-Adviser) as are required for the proper conduct of the 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 the 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 C and Investor N
Shares of each Fund, sales-related expenses incurred by the Distributor may be
reimbursed by the Company.
The Company pays, or causes to be paid, all other expenses of the
Company, including without limitation: the fees of NationsBank, the Sub-Adviser,
the Administrator and Co-Administrator; the charges and expenses of any
registrar, any custodian or depository appointed by the Company for the
safekeeping of its cash, fund securities and other property, and any stock
transfer, dividend or accounting agent or agents appointed by the Company;
brokerage commissions chargeable to the Company in connection with fund
securities transactions to which the Company is a party; all taxes, including
securities issuance and transfer taxes; corporate fees payable by the Company to
federal, state or other governmental agencies; all costs and expenses in
connection with the registration and maintenance of registration of the 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 and statements of additional information of
the Company (including supplements thereto) and periodic reports and of printing
and distributing such prospectuses and statements of additional information
(including supplements thereto) to the 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 the
Company's Shares; fees and expenses of legal counsel and of independent auditors
in connection with any
56
<PAGE>
matter relative to the 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 the 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 the Company's operation unless otherwise explicitly
assumed by NationsBank (and/or the Sub-Adviser), the Administrator or
Co-Administrator.
Expenses of the 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 the Company based upon the relative net assets of each class
or Fund. Expenses of the 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 the 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 Agreement and the
Administration Agreement require NationsBank, the Sub-Adviser 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 NationsBank, the Sub-Adviser or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to NationsBank, the Sub-Adviser and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, NationsBank,
the Sub-Adviser 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
The Shareholder Services Group, Inc. ("TSSG"), is located at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109, and acts as
transfer agent (the "Transfer Agent") for the Company's Trust Shares and
Investor Shares. Under a transfer agency agreement, the Transfer Agent maintains
shareholder account records for the Company, handles certain communications
between shareholders and the Company, distributes dividends and distributions
payable by the Company to shareholders and produces statements with respect to
account activity for the Company 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 the Company during the month and is
reimbursed for out-of-pocket expenses. NationsBank of Texas, N.A. ("NationsBank
of Texas"), 901 Main Street, Dallas, Texas 75201, serves as sub-transfer agent
for each Fund's Trust Shares.
Morgan Guaranty Trust Company serves as custodian (the "Custodian") for
the portfolio securities and cash of the Funds. The Custodian maintains custody
of the Funds' securities cash and other property, delivers securities against
payment upon sale and pays for securities against delivery upon purchase, makes
payments on behalf of the Funds for payments of dividends, distributions and
redemptions, endorses and collects on behalf of the Funds all checks, and
57
<PAGE>
receives all dividends and other distributions made on securities owned by the
Funds. The Custodian receives compensation from the Funds for its services based
on a percentage of the market value of the Funds' securities and a charge for
fund transactions.
INDEPENDENT ACCOUNTANTS AND REPORTS
At least semi-annually, the Company will furnish shareholders of the
Funds with a list of the investments held in the Funds and financial statements
for the Funds. The annual financial statements will be audited by the Company's
independent auditors. The Board of Directors has selected Price Waterhouse LLP,
160 Federal Street, Boston, Massachusetts 02110 as the Company's independent
accountant to audit the Company's books and review the Company's tax returns for
the Funds' fiscal years ending on and after March 31, 1996.
The Company's Statement of Assets and Liabilities dated July 27, 1995
and Report of Independent Accountants dated June 28, 1995 appearing in
Post-Effective Amendment No. 1 to the Registration Statement are incorporated by
reference in this SAI. The Company's unaudited Financial Statements for the
period ended September 30, 1995 appearing in the Company's September 30, 1995
Semi-Annual Report also are incorporated by reference in this SAI.
COUNSEL
Morrison & Foerster serves as legal counsel to the Company. Its
address is 2000 Pennsylvania Avenue. N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Company's
Funds may be obtained by calling the Company at (800) 321-7854.
Yield Calculations
The yield of the Trust Shares and Investor Shares of the Funds is a
measure of the net investment income per share (as defined) earned over a 30-day
period expressed as a percentage of the maximum offering price of a share of
such classes at the end of the period. Yield figures are determined by dividing
the net investment income per share earned during the specified 30-day period by
the maximum offering price per share on the last day of the period, according to
the following formula:
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 = 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
58
<PAGE>
For purposes of yield quotation, income is calculated in accordance
with standardized methods applicable to all stock and bond mutual funds. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses are
excluded from the calculation.
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.
Total Return Calculations
Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Fund. The Funds' average annual and cumulative total
return figures are computed in accordance with the standardized methods
prescribed by the SEC.
Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
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
59
<PAGE>
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period
P = initial payment of $ 1,000.
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
The Trust Shares and Investor Shares of the Funds may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Global Government
Income Fund) or a three-month (in the case of the Emerging Markets Fund and
Pacific Growth Fund) period as a percentage of the maximum offering price per
share on the last day of such period.
The performance figures of the Funds as described above will vary from
time to time depending upon market and economic conditions, the composition of
their portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
The Funds may compare the performance and yield of a class or series of
shares to those of other mutual funds with similar investment objectives and to
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance and yield of a class of shares in a Fund may be
compared to data prepared by Lipper Analytical Services, Inc. Performance and
yield data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or
in publications of a local or regional nature, also may be used in comparing the
performance of a class of shares in a Fund.
In addition, the performance and yield of a class of shares in the
Emerging Markets Fund and Pacific Growth Fund 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 or the Europe, Far East and Australia Index, a recognized unmanaged
index of international stocks. The performance and yield of a class of shares in
the Global Government Income Fund may be compared to the Lehman Brothers
Government/Corporate Bond Index, an unmanaged index of U.S. government, treasury
and agency securities, corporate and yankee bonds, the Salomon Brothers
Long-Term-High-Grade Corporate Bond Index, an unmanaged index of nearly all U.S.
"Aaa-" and "Aa-" rated bonds or international bond index. Any given performance
comparison should not be considered representative of a Fund's performance for
any future period.
Each Fund of the Company may quote information obtained from the
Investment Company Institute in its advertising
materials and sales literature.
60
<PAGE>
MISCELLANEOUS
Certain Record Holders
The following indicates those persons who owned 5% or more of the
indicated class of shares as of December 12, 1995. Unless otherwise indicated,
the address for each recordholder of Trust Shares is 1401 Elm Street, 11th
Floor, Dallas, Texas 75202.
Percentage of Shares
Name and Address Held of Record Only
Nations Emerging Markets Fund
Trust A Shares
Nations Bank N.A.
101 South Tryon Street
Charlotte, NC 28255 44.08%
Investor A Shares
BSDT CUST
Charles R. Egan IRA RO
410 Ridge Drive
Naples, FL 33963 23.00%
Stephens Inc.
Custodian for Theodore Otto Johnson
P.O. Box 34127
Little Rock, AR 72203 20.20%
BSDT Cust Ira FBO
Barbara B. Church
1535 Providence Road
Charlotte, NC 28207-2627 5.87%
Stephens Inc.
111 Center Street
Little Rock, AR 72201 5.05%
Investor C Shares
Stephens Inc.
111 Center Street 56.40%
Little Rock, AR 72201
61
<PAGE>
Elmer Timberman Lodge 54
Scholarship Fund Inc.
P.O. Box 27
Annandale, VA 22003-0027 17.25%
Renee A. Kriz
7734 Middle Valley Drive
Springfield, VA 22153 12.60%
Youssef I A Talaat Cust For
Ashraf Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153 6.83%
Youssef I A Talaat Cust For
Adham Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153 6.83%
Nations Global Government Income Fund
Trust A Shares
Nations Bank N.A.
101 South Tryon Street 92.51%
Charlotte, NC 28255
Investor A Shares
William A. Bridges &
Nancy P. Bridges JT TEN
112 Country Club Drive
Greenville, SC 29605 43.59%
Stephens Inc.
111 Center Street
Little Rock, AR 72201
37.23%
Winston Burt &
Gweneth A. Burt JT TEN
306 Gresham Street
Baytown, TX 77520-2610 16.68%
Investor C Shares
Stephens Inc.
111 Center Street 99.88%
Little Rock, AR 72201
62
<PAGE>
Investor N Shares
Dixie Restaurant
Equipment Co. Inc.
2734 Spring Garden Road
Winston Salem NC, 27106-5714 65.91%
Dean Witter Reynolds Cust For
Alex Thomson IRA SEP
c/o McGladrey & Pullen
P.O. Box 1730
Wilmington, NC 28402 11.86%
Charlotte S. Copeland
103 Quail Drive Meadowbrook
Summerville, SC 29485 9.49%
Dean Witter Reynolds Cust For
Sandra D. Riggs
1608 Summerwood Trail
Hixson, TN 37343 6.39%
Stephens Inc.
111 Center Street 5.60%
Little Rock, AR 72201
Nations Pacific Growth Fund
Trust A Shares
NationsBank N.A.
101 South Tryon Street
Charlotte, NC 28255 35.23%
Investor A Shares
Mohammad Athari M.D.
2802 Garth Road
Baytown, TX 77521-3900 41.03%
Stephens Inc.
P.O. Box 34127
Little Rock, AR 72203 7.65%
63
<PAGE>
Stephens Inc.
Attn: Customer Control
P.O. Box 34127
Little Rock, AR 72203 5.84%
Investor C Shares
Carolyn Branan
19209 Hidden Cove Lane
Huntersville, NC 28078 52.32%
Stephens Inc.
111 Center Street 17.66%
Little Rock, AR 72201
Dean Witter Reynolds Cust For
Jean M. De Ru IRA
2664 Sharondale Drive
Atlanta, GA 30305-3858 10.75%
William D. Ratliff III
801 Cherry Street, Suite 1300
Fort Worth, TX 76102 10.70%
64
<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. BB
represents the lowest degree of speculation and B a higher degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
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 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
A-1
<PAGE>
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 which are rated Ba are judged to have speculative
elements; their future cannot be as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
as well safeguarded during both good times and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bond which 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 Aa1, A1 or Baa1,
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 during economic cycles.
A-2
<PAGE>
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.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
A-3
<PAGE>
SP-2 -- 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 Duff 1, Duff 2, and
Duff 3. D&P employs three designations, Duff 1 +, Duff 1 and Duff 1-, within the
highest rating category. Duff 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." Duff 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.
Duff 1 indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 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. Duff 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 three 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 Prime1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1 but, to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate. may be more affected by
external conditions. ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
A-4
<PAGE>
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 is 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 very high.
AA - The second highest category; indicates a superior 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.
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 degree of
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 three highest long-term debt
ratings used by IBCA Limited and its affiliate, IBCA Inc. (collectively
"IBCA"):
A-5
<PAGE>
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.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 + Obligations supported by the highest capacity for timely
repayment and possessing a particularly strong credit future.
A1 Obligations supported by the highest capacity for timely repayment.
A2 Obligations supported by a good capacity for timely repayment.
A-6
<PAGE>
dc-17300 B-12
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Fund may enter into futures contracts and
options for hedging purposes. Such transactions are described in this Schedule.
During the current fiscal year, each of the 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.
B-1
<PAGE>
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 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 U.S. Treasury Bonds and Notes; GNMA modified
pass-through mortgagee-backed securities; three-month U.S. 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.
For example, 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 U.S. Treasury
bonds. The investment 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 investment 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 investment 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
loses 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.
B-2
<PAGE>
Examples of Future Contracts Purchases. 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 investment 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 investment adviser believes
that, because of an anticipated fall in interest rates, the price will have
risen to 105 (and the yield will have dropped to about 9-1/2%) in four months.
The Fund might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from 98
to 103. In that case, the 5-point increase in the price that the Fund pays for
the long-term bond would be offset by the 5-Point gain realized by closing out
the futures contract purchase.
The investment 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 fail 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 indexes, such
as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, 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 indexes based on an industry or
market segment, such as oil and gas stocks. Futures
B-3
<PAGE>
contracts are traded on organized exchanges regulated by the CFTC.
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).
B-4
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-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 = $40,00
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.
B-5
<PAGE>
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
Price= $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted
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 on Futures = $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.
B-6
<PAGE>
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, and 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 investment 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 the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. 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 investment 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
investment 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
B-7
<PAGE>
decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser still may not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
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 investment
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
B-8
<PAGE>
sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased
prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described above. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for example,
the existence of a liquid secondary market). In addition, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to a Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). Although permitted by their fundamental
investment policies, the Funds do not currently intend to write future options,
and will not do so in the future absent any necessary regulatory approvals.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles. Generally, futures contracts and
options on futures contracts held by a Fund at the close of the Fund's taxable
year will be treated for Federal income tax purposes as sold for their fair
market value on the last business day of such year, a process known as
"marking-to-market." Forty percent (40%) of any gains or loss resulting from
such constructive sale will be treated as short-term capital gain or loss and
sixty percent (60%) of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Fund holds the futures
contract or option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by a Fund in a subsequent sale or other disposition of those
futures contracts will be adjusted to reflect any capital gain or loss taken
into account by the Fund in a prior year as a result of the constructive sale of
the contracts and options. With respect to futures contracts to sell or options
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by the Fund,
losses as to such contracts to sell or options will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof which exceeds the unrecognized gain
(if any) with respect to the other part of the straddle, and to certain wash
sales regulations. Under short sales rules, which also will be applicable, the
holding period of the securities forming part of the straddle will (if they have
not been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle.
B-9
<PAGE>
With respect to certain futures contracts and options, deductions
for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such and certain
options, a Fund may make an election which will except (in whole or in
part) those identified futures contracts or options from being
treated for Federal income tax purposes as sold on the last business
day of the Fund's taxable year, but gains and losses will be subject
to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under
temporary regulations, a Fund would be allowed (in lieu of the
foregoing) to elect to either ( 1 ) offset gains or losses from
portions which are part of a mixed straddle by separately identifying
each mixed straddle to which such treatment applies, or (2) establish a
mixed straddle account for which gains and losses would be recognized
and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be
treated as long-term and not more than 40% of any net loss may be
treated as short-term.
Certain foreign currency contracts entered into by a Fund may be subject to
the "marking-to-market" process and the 40%-60% rule in a manner similar to that
described in the preceding paragraph for futures contracts and options on
futures contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
As described more full in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
company under the Code a Fund must derive less than 30% of its gross income from
investments held for less than three months. With respect to futures contracts
and other financial instruments subject to the marking-to-market rules, the
Internal Revenue Service has ruled in private letter rulings that a gain
realized from such a futures contract or financial instrument will be treated as
being derived from a security held for three months or more (regardless of the
actual period for which the contract or instrument is held) if the gain arises
as a result of a constructive sale under the marking-to-market rules, and will
be treated as being derived from a security held for less than three months only
if the contract or instrument is terminated (or transferred) during the taxable
year (other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of each Fund's futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
B-10
<PAGE>
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest be FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to
B-11
<PAGE>
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 Funds expect 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
("VRMs"), growing equity mortgages ("GEM"), graduated payment mortgages ("GPM")
and other types where the principal and interest payment procedures vary. VRMs
are mortgages which reset the mortgage's interest rate periodically with changes
in open market interest rates. To the extent that the Fund is actually invested
in VRMs, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRMs. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage
B-12
<PAGE>
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.
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.
B-13
<PAGE>
NATIONS
- ------ FUND --
SEMI
ANNUAL
For the Period Ended September 30, 1995
REPORT
NATIONS EMERGING
MARKETS FUND
NATIONS PACIFIC
GROWTH FUND
NATIONS GLOBAL
GOVERNMENT INCOME FUND
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
NOT MAY LOSE VALUE
FDIC -
INSURED NO BANK GUARANTEE
- ----------------------------------------------------------------------------
</TABLE>
Nations Fund Distributor: Stephens Inc. Stephens Inc., which is not affiliated
with NationsBank, is not a bank and securities offered by it are not guaranteed
by any bank or insured by the FDIC.
Stephens Inc., member NYSE-SIPC.
Nations Fund Investment Adviser: NationsBank, N.A. ("NationsBank")
Nations Fund Portfolios, Inc. Investment Sub-Adviser: Nations Gartmore
Investment Management
<PAGE>
3
NATIONS FUND PORTFOLIOS, INC.
DEAR SHAREHOLDER:
In early 1995, global markets were unsettled by the fear that U.S.
short-term interest rates would be raised to counter inflationary pressures
building in the U.S. economy. However, the U.S. Federal Reserve Board's (the
"Fed") policy of incremental interest rate increases, which had begun in the
spring of 1994, eventually resulted in U.S. economic growth decelerating to
non-inflationary levels. The perception that followed was that the U.S. economy
could be entering a period of steady growth and low inflation. As a result, the
second quarter saw rallies in both global bonds and equities, with the exception
of Japan. The Japanese economy continued to suffer from the effects of an overly
strong currency, exacerbated by the lack of consumer spending, resulting in
part, from the Kobe earthquake and Tokyo subway gas attacks.
Moving into the third quarter of 1995, U.S. equities continued to
experience what appeared to be an almost unstoppable rise. U.S. Treasury
securities proved to be more volatile, although their yields ended the quarter
unchanged from levels at the quarter's start. The U.K. markets, which were
depressed by the surprise resignation of Prime Minister John Major at the end of
the second quarter, rebounded following his successful re-election as
Conservative Party leader. Continental European markets, which were sensitive to
a rising dollar, also rose. In the Pacific Rim, markets were lackluster, despite
strong economic growth. Taiwan was adversely affected by hostile noises from
Beijing. Thailand and Malaysia continued to run high current account deficits,
although most of the balance was the result of importing capital and
intermediate goods.
Looking forward, our overall themes are as follows: We are optimistic on
U.K. and Continental European bonds with longer maturities. The outlook for the
Japanese economy remains less optimistic, even though investors responded
positively to the perception that Japanese authorities had finally taken the
necessary steps to address the deflationary threat besieging their economy. In
terms of the emerging and Pacific Basin markets, we are cautious about Latin
America over the short term, and favor the Pacific Basin as we believe countries
in this region offer solid economic and earnings growth potential.
The key question remains: Where is the current global economic cycle
headed? Are we now experiencing a period of sustainable non-inflationary
economic growth or is inflation or a recession about to emerge? We believe the
world's major economies are entering a period of prolonged moderate growth.
Therefore, overall, we remain positive on both the international stock and bond
markets and continue to believe they offer opportunities not found in the
domestic markets.
We hope this information proves valuable in the development of your
investment strategy. We look forward to continuing to help you pursue your
investment goals.
Sincerely,
[LOGO]
A. Max Walker
President and Chairman of the Board
September 30, 1995
1
<PAGE>
THE NATIONS FUND FAMILY -- A BROAD SPECTRUM OF
ACTIVELY MANAGED INVESTMENT PORTFOLIOS
Nations Fund portfolios span the risk/reward spectrum providing investors
with the ability to pursue a wide range of objectives within a single fund
family. Stock, bond and money market portfolios allow investors to pursue
short-, intermediate-, and long-term investment goals ranging from preservation
of principal to capital accumulation.*
[CHART SHOWING ASSET ALLOCATION OF FUNDS]
* Mutual fund investment returns will fluctuate with market conditions so that
shares, when redeemed, may be worth more or less than original cost. Money
market instruments are neither insured nor guaranteed by the U.S. government.
While money market funds strive to maintain a constant $1.00 per share, there
can be no assurance that the funds will be able to maintain a stable net
asset value.
2
<PAGE>
NATIONS EMERGING MARKETS FUND
PERFORMANCE AND COMMENTARY
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Andrew Fleming is the Chief Investment Officer for Nations Gartmore Investment
Management and head of the emerging markets team. Andrew has spent all of his
investment career in international investments. He joined London-based Gartmore
plc, the holding company for Gartmore Capital Management, in 1984 as an analyst
and fund manager, specializing in Europe. In 1986, Andrew joined the Far East
team and, in 1993, was promoted to head the team. He is a graduate of the
University of York, England.
INVESTMENT OBJECTIVE
Nations Emerging Markets Fund's investment objective is to seek long-term
capital growth. It seeks to achieve this objective by investing primarily in
securities of companies that conduct their principal business activities in
emerging markets. The Fund invests primarily in companies located in countries
considered to have the potential for rapid economic growth and that have a
relatively low gross national product per capita compared to the world's major
economies.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Nations Emerging Markets Fund commenced operations on June 30, 1995, and
therefore, reports only for the three-month period ended September 30, 1995.
Since the Fund's inception, activity has concentrated on carefully establishing
positions. During the period under review, emerging stock markets performed
relatively poorly, which contributed to the Fund's aggregate total return of
(1.20)%.* This underperformed the (0.34)% return provided by the Fund's
benchmark, the International Finance Corporation (IFC) Investables Composite
Index, mostly due to the steps taken to establish the initial portfolio. The IFC
is a division of the World Bank which tracks more than 1,400 stocks in 25
emerging markets in Asia, Latin America, eastern Europe, Africa and the Middle
East.
MANAGER COMMENTARY
LET'S START WITH LATIN AMERICA. HOW DID KEY COUNTRIES PERFORM?
The best-performing market for the period was Brazil, where measures to
slow the economy have proven quite successful. The Mexican market rose strongly
over the start of the reporting period, continuing the recovery from the first
quarter of the year following the peso devaluation crisis of late 1994. However,
the Mexican market fell back in September as it became clearer that the economy
would improve far more slowly than anticipated.
WHAT HAPPENED IN ASIA?
Tight monetary policies have taken their toll on the equity markets over
the past three months, with Thailand, Malaysia and the Philippines turning in
poor performances. Central banks in these countries have been curbing credit and
loan growth to counter the growing threat of both economic overexpansion and
inflation. Also, a turn for the worse in China-Taiwan relations undermined
investor sentiment, driving foreign funds and domestic institutions away. The
rush for the door resulted in a fall of more than 6% in the value of the Taiwan
dollar, relative to the U.S. dollar.
- ---------------
* Trust A Shares total return.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST UPON
REDEMPTION.
3
<PAGE>
WHAT EFFECT DID EVENTS IN THESE REGIONS HAVE ON THE FUND'S PERFORMANCE?
The Fund had a larger position in Brazil than its comparable index, and,
therefore, benefited from that market's outperformance. The underweight position
in Mexico had a mostly neutral effect. The Fund was most negatively affected by
its heavier weighting in Pacific Basin countries.
WHAT WERE SOME COMPANIES IN THE PORTFOLIO THAT PERFORMED ESPECIALLY WELL?**
A specific stock worth mentioning is a Brazilian company, Vale Rio Doce,
(VRD), the world's largest producer of iron ore and a major producer of other
metals. VRD has a low level of debt and strong U.S. dollar cash flows. It is
expected to be one of Brazil's next privatizations, which should boost interest
in the stock. Telekom Malaysia (in Malaysia) also looks attractive. It is the
country's prime provider of voice telephone services and operates a nationwide
mobile telephone network.
WHAT IS YOUR GENERAL OUTLOOK FOR EMERGING MARKETS?
Generally, we expect continued volatility for the emerging markets,
specifically Latin America. This supports our policy of broadly diversifying the
Fund's portfolio across many securities and markets that should benefit from the
longer-term opportunities in developing and emerging economies.
WHERE ARE THOSE OPPORTUNITIES?
In Latin America, we continue to like Brazil and the Fund will remain
overweight there. In the Pacific Rim, we will continue to add to the favored
markets of South Korea and Taiwan. Following underperformance in South Korean
and Taiwanese equities in the first half of the year, we expect interest rates
to decline given the current stage of the economic cycle and long-term financial
deregulation. Thus, we expect potentially stronger relative performance.
WHAT MARKETS LOOK LESS FAVORABLE?
Mexico. A meaningful economic recovery is not likely to commence until well
into 1996, so the Fund will retain relatively low exposure there. South Africa
is not a diversified economy, dominated as it is by only one or two major
industries. Therefore, the Fund will continue to have a smaller position there,
at around 10%, against the 23% weighting in the IFC Investables Composite Index.
- ---------------
** Portfolio holdings are subject to change and may not be representative of
the Fund's current holdings.
4
<PAGE>
NATIONS PACIFIC GROWTH FUND
PERFORMANCE AND COMMENTARY
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Seok Teoh is the investment manager on the Far East team for Nations Gartmore
Investment Management, which currently manages over $2 billion in Pacific Basin
equities. Previously, Seok managed Far East equities for Rothschild Asset
Management in Tokyo and in Singapore. She was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore. Seok
graduated from the University of Durham.
INVESTMENT OBJECTIVE
Nations Pacific Growth Fund's investment objective is to seek long-term capital
growth, with income a secondary consideration. It seeks to achieve this
objective by investing primarily in securities of issuers that conduct their
principal business activities in the Pacific Basin and the Far East (excluding
Japan).
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Nations Pacific Growth Fund commenced operations on June 30, 1995, and
therefore, reports only for the three-month period ended September 30, 1995.
Since the Fund's inception, activity has concentrated on establishing positions.
During the period under review, the Pacific Basin equity markets produced
lackluster performance which was reflected in the Fund's aggregate total return
of (2.90)%.* This return underperformed the (2.00)% return provided by the
Fund's benchmark, the Morgan Stanley Capital International Combined Far East
ex-Japan Free Index.
MANAGER COMMENTARY
PLEASE DESCRIBE MARKET CONDITIONS THAT PREVAILED DURING THE PERIOD.
For the three-month period under review, the Pacific Basin equity markets
overall performed poorly, due to a variety of factors. In Thailand, consumer and
wholesale price inflation was running at very high levels, the latter putting
pressure on factory prices and the margins of manufacturing companies. In
addition, political concerns about the make-up of the ruling coalition resulted
in heavy selling by local funds. Tight monetary policies in Malaysia and the
Philippines took their toll on the equity markets, particularly in financial and
property stocks in the former and large-capitalization stocks in the latter.
WHAT ABOUT TAIWAN, DIDN'T POLITICAL PROBLEMS AFFECT THE MARKETS THERE?
In Taiwan, the market was weak due to a combination of political worries
and domestic financial scandal. Investors were unnerved by China's test firing
of guided missiles some 70 miles off the Taiwanese coast. Later, a turn for the
worse in China-Taiwan relations undermined investor sentiment and drove foreign
funds and domestic institutions away from the market. What's more, a credit
union collapsed on the back of fraud, which also caused investors to turn to
cash and away from equities.
WHERE WAS THERE STRONG PERFORMANCE?
On the brighter side, stocks in Hong Kong performed well, buoyed by the cut
in U.S. interest rates earlier in the year, and by the results of property
companies. Interest rate sensitive bank stocks also did well there. In Korea,
electronics shares and construction shares did well as did the barometers of
stock market performance, bank shares.
- ---------------
* Trust A Shares total return.
PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST UPON
REDEMPTION.
5
<PAGE>
WHAT SECTORS/STOCKS HELPED FUND PERFORMANCE, ESPECIALLY GIVEN THESE DIFFICULT
MARKET CONDITIONS?**
The Fund performed reasonably well against these difficult market
conditions, as it was appropriately positioned in Korea and Hong Kong, while
remaining underweight in Malaysia and Thailand. Holdings of conglomerates such
as Hutchison Whampoa and smaller banks such as Wing Hang Bank and Dao Heng Bank
Group in Hong Kong did well, outperforming the local index, the Hang Seng. The
Fund also benefited from an overweight position in electronics and
export-related stocks in Korea. Samsung Electronics, the world's largest
producer of memory chips, performed particularly well. The relative strength of
the Fund's technology-related stock holdings in Taiwan partially offset the
negative impact of the Taiwanese market's overall poor performance.
AND THE BAD PERFORMERS?
Blue-chip telecom holdings in Thailand negatively impacted the Fund's
performance, as there was heavy selling in these shares where the Fund was
invested.
WHEN DO YOU THINK THE PACIFIC BASIN WILL TURN AROUND?
Looking ahead, we believe the Pacific Basin markets will rebound over the
next few months after the end of the corporate reporting season. And, over the
longer term, valuation of the markets looks very attractive. The Pacific Basin
should also be a beneficiary of any further yen weakness, stimulating portfolio
investment by Japanese institutions in the region. In addition, the region
should benefit from stable U.S. interest rates. The ongoing rush to build
infrastructure, the high savings and investment rates and continued strong
foreign capital investment in the region are expected to keep the growth
momentum going.
WHERE WILL YOU POSITION THE FUND GOING FORWARD?
While interest rates have been high in Korea and Taiwan, we believe they
are likely to decline given the stage of the economic cycle and long-term
financial deregulation. Therefore, we expect the Fund to be overweight versus
the index in these countries, particularly in domestic-related and
export-related stocks. We also expect to add to the Fund's positions in Hong
Kong, particularly property developers, which are showing signs of a recovery in
earnings that we expect will continue over the next 12 months. We are cautious
about markets in Thailand, the Philippines and Malaysia, where the Fund will
continue to be underweight; the trend in these countries is for higher consumer
prices and poor liquidity conditions over the next one to two quarters.
- ---------------
** Portfolio holdings are subject to change and may not be representative of
the Fund's current holdings.
6
<PAGE>
NATIONS GLOBAL GOVERNMENT INCOME FUND
PERFORMANCE AND COMMENTARY
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Mark Rimmer is the international fixed income manager for Nations Gartmore
Investment Management. Previously, Mark managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University.
INVESTMENT OBJECTIVE
Nations Global Government Income Fund's investment objective is to seek current
income. Although the Fund emphasizes income when selecting investments, the
potential for growth of capital also is considered. It seeks to achieve this
objective by investing primarily in debt securities issued by governments, banks
and supranational entities located throughout the world.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Nations Global Government Income Fund commenced operations on June 30,
1995, and therefore, reports only for the three-month period ended September 30,
1995. Since the Fund's inception, activity has concentrated on establishing
positions. During the period under review, global bond markets provided a
disappointing overall return, which reflected upon the Fund's performance. For
the three-month period ended September 30, the Fund provided an aggregate total
return of 1.69%.* However, this return substantially outperformed the (0.12)%
return provided by the Fund's benchmark, the J.P. Morgan Global Government Bond
Index, which tracks government bonds issued in 12 countries in the U.S., Europe
and the Far East.
MANAGER COMMENTARY
WHAT HAPPENED IN THE GLOBAL BOND MARKETS OVER THE PAST THREE MONTHS?
The most notable feature over the past three months was the recovery in the
U.S. dollar, which rose sharply against the deutschemark, and even more sharply
against the yen.
The U.S. bond market had a volatile quarter, ending slightly ahead from
levels at the quarter's start. After a lull in economic activity, which prompted
a 25-basis-point (0.25%) cut in the Fed funds rate in July, evidence emerged
that the economy was growing too quickly. As the summer progressed, it became
clear that the economy was growing at a steady, non-inflationary pace, a climate
still favorable for bond investment. The heavy buying of the dollar in August,
as well as expectations that the Japanese would step up their investment
overseas, were additional factors behind the U.S. bond market rally. Toward the
end of September, the bond market gave back some ground though, due to
profit-taking and a modest setback in the dollar.
WHAT ABOUT OVERSEAS MARKETS?
The U.K. bond market performed well; long-maturity bonds hovered around 8%.
The rally in the U.S. dollar prompted a continuation of the rally in the
high-yielding bond markets of Continental Europe, particularly Denmark, Sweden,
Italy and Spain. However, at the end of the reporting period, this trend was
upset by a setback in the dollar and controversy over the European Monetary
Union.
- ---------------
* Trust A Shares total return.
PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST UPON
REDEMPTION.
7
<PAGE>
WHAT'S THE DIFFERENCE BETWEEN THE EUROPEAN UNION AND EUROPEAN MONETARY UNION,
AND CAN YOU EXPAND ON THE RECENT CONTROVERSY?
A European Union (EU) was created to strengthen ties between western,
central and eastern Europe. One goal of the EU is the European Monetary Union
(EMU)--the creation of a single currency and a central bank by January 1, 1999.
So far, 15 countries are members of the EU working toward meeting the strict
criteria set for the EMU.
The EMU controversy was a debate sparked by leaked comments from German
Finance Minister Waigel that he didn't see Italy meeting the EMU criteria by
1999. This was accompanied by doubts about the ability of France and Belgium to
meet the criteria, expressed by a Bundesbank member. These sentiments caused
uncertainty in the bond markets of these countries and susceptibility to
overreaction. The French bond market did suffer in response to these comments
and in the wake of a disappointing budget deficit.
WAS THE FUND INVESTED IN FRANCE?
The Fund had a smaller position than its comparable index, with a 7%
allocation in France at the end of the reporting period--part of which was
hedged back into U.S. dollars to protect investors against the weakening franc.
GETTING BACK TO MARKET BEHAVIOR, HOW DID EVENTS IMPACT THE FUND'S PERFORMANCE?
In terms of the markets, in keeping with our conviction that the dollar was
undervalued and would strengthen, the Fund took a large position in dollar
assets, investing directly in dollar-bloc countries (U.S., Canada and Australia)
and engaging in some defensive hedging activity. These moves had a favorable
effect on the Fund's performance. At the end of August, we lengthened the
duration of the Fund's U.S. bond position toward neutral from a previously
underweight position, taking advantage of a pullback in U.S. bond prices. The
high-yielding bond markets of Italy, Spain and Sweden, which rallied as the
dollar strengthened, helped the Fund's performance, as did a large position in
Danish bonds, which outperformed most markets over the period.
YOU MENTIONED DEFENSIVE HEDGING ACTIVITY. YOUR CONVICTION ON A STRONGER DOLLAR
MUST HAVE BEEN VERY STRONG.
It was; we rarely hedge, only doing so in an effort to protect potential
investor returns. We hedged most of the Fund's limited yen bond exposure back
into the dollar so the Fund benefited from the rally in the dollar against the
yen. Some of the European exposure was also hedged back into dollars, protecting
the Fund from the impact of the strengthening dollar.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
We expect both the U.S. and the core European bond markets to provide the
potential for attractive returns, particularly in the longer maturities.
Overall, duration in the Fund has been increased, to approximately 4.9 years.
Most of the duration was added in the U.S. which, at the start of the reporting
period, was underweight the index.
In terms of hedging, we expect the dollar to show only modest upside
strength against the deutschemark and, therefore, the hedge has been partially
reduced.
WHAT ABOUT JAPAN?
While the Japanese bond market was recently supported by the Bank of Japan,
which bought bonds to add liquidity to the market, we expect bond yields to rise
again in the months ahead. Therefore, the Fund has retained an underweight
position there. The yen hedge remains in place as we believe the yen is still
overvalued versus the dollar.
8
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- 81.1%
ARGENTINA -- 4.3%
6,800 Banco de Galicia+............................................... $ 122,400
4,600 Central Costanera, ADR.......................................... 111,550
19,000 Compania Naviera Perez.......................................... 161,500
7,000 Quilmes Industrial SA Ord+...................................... 129,500
7,000 Y.P.F. Sociedad Anonima......................................... 126,000
--------------
650,950
--------------
BRAZIL -- 14.1%
27,000 Aracruz Celubse SA, ADR......................................... 270,000
13,700 Cemig Companhia, ADR+........................................... 301,400
30,000 Cia Acos Especiais Itab, ADR.................................... 455,550
19,300 Electrobras, ADR+............................................... 289,500
10,500 Telebras, ADR................................................... 456,750
8,150 Vale Rio Doce................................................... 341,027
--------------
2,114,227
--------------
COLUMBIA -- 1.5%
4,500 Banco Ganadero, Class C, ADR.................................... 63,000
5,900 Banco Industrial Colombiano, ADR................................ 80,387
4,300 Cementos Diamante SA, GDS+...................................... 79,963
--------------
223,350
--------------
HONG KONG -- 3.1%
254,000 Guangdong Investment Ltd. ...................................... 151,939
48,000 New World Development Company................................... 189,350
436,000 Yizheng Chemical Fibre.......................................... 128,290
--------------
469,579
--------------
INDIA -- 4.6%
6,300 Hindalco, GDR................................................... 214,200
4,900 Ranbaxy Laboratories Ltd., GDS+................................. 138,425
18,200 Reliance Industries Ltd., GDS................................... 329,966
--------------
682,591
--------------
INDONESIA -- 3.4%
27,500 Hanjaya Mandala Sampoerna, Alien Shares......................... 256,124
5,500 PT Indonesian Satellite, ADR.................................... 193,188
20,000 Semen Gresik+................................................... 56,500
--------------
505,812
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
MALAYSIA -- 17.4%
190,000 Bandar Raya+.................................................... $ 358,519
117,000 Development & Commercial Bank Holdings Corporation.............. 326,035
68,000 Malayan Banking Berhad.......................................... 549,522
218,000 Renong Berhad................................................... 378,376
190,000 Tan Chong Motor Holdings Berhad+................................ 208,758
51,000 Telekom Malaysia................................................ 383,718
62,000 United Engineers (Malaysia) Berhad.............................. 397,373
--------------
2,602,301
--------------
MEXICO -- 5.8%
48,000 Cemex SA........................................................ 184,702
46,000 Cifra SA de CV, ADR+............................................ 53,820
4,900 Desc de CV, Class C, ADR+....................................... 74,113
12,900 Grupo Carso SA de CV, ADR+...................................... 148,350
52,000 Grupo Modelo SA de CV, Class C.................................. 211,505
6,300 Telefonos de Mexico SA, ADR..................................... 200,025
--------------
872,515
--------------
PERU -- 1.9%
21,000 Banco Wiese, ADR................................................ 141,750
10,000 Cementos Lima, ADR+............................................. 140,000
--------------
281,750
--------------
PHILIPPINES -- 2.5%
200,000 Ayala Corporation, Class B...................................... 195,740
136,000 Petron Corporation.............................................. 63,942
1,780 Philippines Long Distance Telephone, ADR........................ 118,148
--------------
377,830
--------------
PORTUGAL -- 0.6%
6,500 Soares da Costa................................................. 94,913
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<C> <S> <C>
RUSSIA -- 0.4%
10,000 Petersburg Long Distance, ADR+.................................. $ 63,750
--------------
SOUTH AFRICA -- 9.9%
8,000 Angelo-American Industrial Corporation SA....................... 385,569
13,000 Barlow Ltd...................................................... 146,847
50,000 Gencor Ltd...................................................... 186,212
20,000 Malbak Ltd. NPV................................................. 135,551
1,500 Polifin Ltd.+................................................... 3,122
20,000 Remrandt Group.................................................. 167,043
10,000 Sasol NPV....................................................... 82,152
150,000 South Africa Iron & Steel Industrial Corporation................ 162,251
7,000 South African Breweries......................................... 220,442
--------------
1,489,189
--------------
SOUTH KOREA -- 4.1%
9,500 Dong Ah Construction, EDR+...................................... 242,250
7,500 Korea Electric Power Corporation, ADR........................... 190,312
2,550 Samsung Electronics, GDS++...................................... 178,500
--------------
611,062
--------------
THAILAND -- 4.0%
3,400 Siam Cement Public Company Ltd., Alien Shares................... 200,518
26,000 Thai Farmers Bank Public Company Ltd., Alien Shares............. 225,862
13,000 United Communications Industry.................................. 168,878
--------------
595,258
--------------
TURKEY -- 3.5%
63,000 Alarko Saway.................................................... 67,721
130,000 Cimentas........................................................ 77,781
483,000 Ege Biracilik Vem............................................... 178,780
510,000 Netas Ord....................................................... 196,532
--------------
520,814
--------------
TOTAL COMMON STOCKS
(Cost $12,417,663)........................................... 12,155,891
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
MUTUAL FUNDS -- 4.3%
<C> <S> <C>
CHILE -- 1.7%
6,000 Chile Fund Inc.................................................. $ 135,750
43,300 Five Arrows Chile Investment Trust Ltd.......................... 124,271
--------------
260,021
--------------
SOUTH KOREA -- 1.5%
50 Korea Europe Fund............................................... 218,750
--------------
TAIWAN -- 1.1%
15,000 Taiwan Index Fund............................................... 157,500
--------------
TOTAL MUTUAL FUNDS
(Cost $643,657).............................................. 636,271
==============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
CONVERTIBLE BOND -- 0.9% (Cost $137,945)
<C> <S> <C>
SOUTH KOREA
CHF150,000 Yukong Convertible,
1.000% due 12/31/98............................................... 142,085
===========
TOTAL INVESTMENTS (Cost $13,199,265*).................................. 86.3% 12,934,247
OTHER ASSETS AND LIABILITIES (NET)..................................... 13.7 2,048,022
----- -----------
NET ASSETS............................................................. 100.0% $14,982,269
===== ===========
- ---------------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration
to qualified institutional buyers.
</TABLE>
ABBREVIATIONS:
<TABLE>
<S> <C>
ADR American Depositary Receipt
CHF Swiss Franc
EDR European Depositary Receipt
GDR Global Depositary Receipt
GDS Global Depositary Share
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
AT SEPTEMBER 30, 1995 SECTOR DIVERSIFICATION WAS AS FOLLOWS:
<TABLE>
<CAPTION>
% OF
NET VALUE
SECTOR DIVERSIFICATION ASSETS (NOTE 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS:
Banking.............................................................. 10.6% $ 1,578,711
Construction/Engineering............................................. 9.5 1,420,329
Utility.............................................................. 9.0 1,349,512
Telecommunications................................................... 8.8 1,324,238
Metal and Mining..................................................... 8.0 1,196,989
Industrial........................................................... 5.7 851,086
Diversified.......................................................... 4.8 722,466
Food and Beverage.................................................... 3.5 528,722
Tobacco.............................................................. 2.8 423,168
Basic Industry....................................................... 2.4 362,769
Real Estate.......................................................... 2.4 358,519
Oil and Gas.......................................................... 2.3 351,442
Financial Services................................................... 2.3 341,290
Paper and Forest Products............................................ 1.8 270,000
Retail............................................................... 1.8 262,578
Chemicals............................................................ 1.4 213,564
Electronic........................................................... 1.2 178,500
Consumer Services.................................................... 0.9 141,750
Pharmaceuticals and Healthcare....................................... 0.9 138,425
Manufacturing........................................................ 0.5 67,721
Miscellaneous........................................................ 0.5 74,112
----- -----------
TOTAL COMMON STOCKS.................................................. 81.1 12,155,891
MUTUAL FUNDS......................................................... 4.3 636,271
CONVERTIBLE BOND..................................................... 0.9 142,085
----- -----------
TOTAL INVESTMENTS.................................................... 86.3 12,934,247
OTHER ASSETS AND LIABILITIES (NET)................................... 13.7 2,048,022
----- -----------
NET ASSETS........................................................... 100.0% $14,982,269
===== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- 82.0%
<C> <S> <C>
AUSTRALIA -- 3.8%
87,000 Australia & New Zealand Bank Group................................. $ 372,804
18,000 Broken Hill Property............................................... 247,856
125,000 Skilled Engineering Ltd............................................ 240,895
38,000 Western Mining Corporation Holdings................................ 248,702
-----------
1,110,257
-----------
HONG KONG -- 27.7%
134,000 China Light & Power................................................ 693,250
246,000 Dao Heng Bank Group................................................ 816,108
66,000 Hang Seng Bank Ltd................................................. 544,188
180,000 Hong Kong & China Gas.............................................. 289,846
270,000 Hong Kong Telecommunications....................................... 490,642
64,800 HSBC Holdings...................................................... 900,966
199,000 Hutchison Whampoa.................................................. 1,078,430
50,400 Jardine Matheson Holdings.......................................... 340,200
168,000 New World Development Company...................................... 662,726
149,000 Sun Hung Kai Properties............................................ 1,209,275
98,000 Swire Pacific...................................................... 776,349
95,000 Wing Hang Bank..................................................... 321,307
-----------
8,123,287
-----------
INDONESIA -- 4.9%
52,500 Bank Dagang Nasional Indonesia..................................... 48,085
153,000 Bank Dagang Nasional Indonesia, Alien Shares....................... 140,135
11,000 Hanjaya Mandala Sampoerna.......................................... 102,450
35,000 Hanjaya Mandala Sampoerna, Alien Shares............................ 325,977
11,000 PT Indonesian Satellite, ADR....................................... 386,375
80,000 Semen Cibinong, Alien Shares....................................... 217,171
80,000 Semen Gresik, Alien Shares......................................... 225,999
-----------
1,446,192
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<C> <S> <C>
MALAYSIA -- 14.9%
230,000 Bandar Raya+....................................................... $ 433,997
110,000 Cement Industries of Malaysia+..................................... 352,508
120,000 Development & Commercial Bank Holdings Corporation................. 334,395
38,000 Genting Berhad..................................................... 328,264
208,000 Highlands & Lowlands............................................... 354,395
100,000 Hong Leong Bank Berhad............................................. 270,701
67,000 Malayan Banking Berhad............................................. 541,441
285,000 Renong Berhad...................................................... 494,666
100,000 RJ Reynolds Berhad................................................. 210,987
75,000 Telekom Malaysia................................................... 564,291
73,000 United Engineers (Malaysia) Berhad................................. 467,874
-----------
4,353,519
-----------
PHILIPPINES -- 2.7%
84,400 Ayala Corporation, Class B......................................... 82,602
80,000 Ayala Land Inc., Class B........................................... 89,042
900,000 Belle Corporation.................................................. 153,713
48,000 First Philippines Holdings, Class B+............................... 116,062
100,000 Philipino Telephone Corporation+................................... 94,991
3,900 Philippines Long Distance Telephone, ADR........................... 258,863
-----------
795,273
-----------
SINGAPORE -- 11.2%
35,000 Cycle & Carriage................................................... 312,324
63,000 Development Bank of Singapore, Alien Shares........................ 717,116
23,000 Fraser & Neave..................................................... 266,653
265,000 Liang Court Holdings+.............................................. 256,956
145,000 Parkway Holdings+.................................................. 362,704
44,000 Singapore International Airlines, Alien Shares..................... 408,094
110,000 Straits Steamship Land Ltd......................................... 301,433
395,000 Sunright Ltd.+..................................................... 265,054
45,000 United Overseas Bank, Alien Shares................................. 388,912
-----------
3,279,246
-----------
SOUTH KOREA -- 6.0%
19,500 Dong Ah Construction, EDR.......................................... 497,250
22,450 Korea Electric Power Corporation, ADR.............................. 569,669
13,500 LG Electronics Inc., GDS+.......................................... 167,130
22 Samsung Electronics, GDR+.......................................... 1,288
5,300 Samsung Electronics, GDS++......................................... 371,000
14,000 Yukong Ltd., GDS+.................................................. 147,000
-----------
1,753,337
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
<C> <S> <C>
THAILAND -- 10.8%
28,000 Advanced Information Services...................................... $ 441,841
132,000 Krung Thai Bank Public Company Ltd................................. 526,001
104,000 National Petrochemical Company+.................................... 217,573
32,000 Phatra Thanakit Finance & Securities, Alien Shares................. 232,078
20,000 Quality Houses+.................................................... 93,246
26,000 Quality Houses, Alien Shares+...................................... 124,328
10,000 Siam Cement Public Company Ltd..................................... 589,759
76,200 Thai Farmers Bank Public Company Ltd., Alien Shares................ 661,949
40,000 Thai Telephone & Telecom+.......................................... 278,940
-----------
3,165,715
-----------
TOTAL COMMON STOCKS
(Cost $24,437,624).............................................. 24,026,826
===========
MUTUAL FUNDS -- 3.5%
HONG KONG -- 1.6%
40,000 New Taipai Fund Ltd................................................ 480,000
-----------
SOUTH KOREA -- 1.9%
126 Korea Europe Fund.................................................. 551,250
-----------
TOTAL MUTUAL FUNDS
(Cost $1,025,750)............................................... 1,031,250
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 2.2%
<C> <S> <C>
SOUTH KOREA -- 0.5%
CHF150,000 Yukong Convertible,
1.000% due 12/31/98............................................... $ 142,085
-----------
TAIWAN -- 1.7%
USD 30,000 Acer Inc.,
4.000% due 06/10/01............................................... 96,450
USD255,000 United Microelectronics,
1.250% due 06/08/04............................................... 412,463
-----------
508,913
-----------
TOTAL CONVERTIBLE BONDS
(Cost $680,175)................................................... 650,998
===========
</TABLE>
<TABLE>
<CAPTION>
SHARES
-----
RIGHTS -- 0.0%# (Cost $12,693)
<C> <S> <C>
58,750 Liang Court Holdings, Expire 10/6/95.............................. 11,765
===========
TOTAL INVESTMENTS (Cost $26,156,242*)................................... 87.7% 25,720,839
OTHER ASSETS AND LIABILITIES (NET)...................................... 12.3 3,597,164
----- -----------
NET ASSETS.............................................................. 100.0% $29,318,003
===== ===========
- ---------------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
# Amount represents less than 0.1%.
</TABLE>
ABBREVIATIONS:
<TABLE>
<S> <C>
ADR American Depositary Receipt
CHF Swiss Franc
EDR European Depositary Receipt
GDR Global Depositary Receipt
GDS Global Depositary Share
USD United States Dollar
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
AT SEPTEMBER 30, 1995 SECTOR DIVERSIFICATION WAS AS FOLLOWS:
<TABLE>
<CAPTION>
% OF
NET VALUE
SECTOR DIVERSIFICATION ASSETS (NOTE 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS:
Banking.............................................................. 19.4% $ 5,683,142
Real Estate.......................................................... 9.1 2,661,990
Telecommunications................................................... 8.6 2,515,944
Diversified.......................................................... 7.3 2,134,464
Construction/Engineering............................................. 6.8 2,001,697
Financial Services................................................... 6.1 1,795,770
Utility.............................................................. 5.3 1,552,764
Transportation....................................................... 4.0 1,184,444
Basic Industry....................................................... 2.9 837,615
Electronics.......................................................... 2.7 804,472
Tobacco.............................................................. 2.2 639,413
Agriculture/Farming.................................................. 1.2 354,395
Wholesaler........................................................... 1.2 340,200
Leisure.............................................................. 1.1 328,264
Automobiles.......................................................... 1.1 312,324
Nondurable Goods..................................................... 0.9 266,653
Metal and Mining..................................................... 0.9 248,702
Chemicals............................................................ 0.7 217,573
Oil and Gas.......................................................... 0.5 147,000
----- -----------
TOTAL COMMON STOCKS.................................................. 82.0 24,026,826
MUTUAL FUNDS......................................................... 3.5 1,031,250
CONVERTIBLE BONDS.................................................... 2.2 650,998
RIGHTS............................................................... 0.0# 11,765
----- -----------
TOTAL INVESTMENTS.................................................... 87.7 25,720,839
OTHER ASSETS AND LIABILITIES (NET)................................... 12.3 3,597,164
----- -----------
NET ASSETS........................................................... 100.0% $29,318,003
===== ===========
</TABLE>
- ---------------
# Amount represents less than 0.1%.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CONTRACT TO BUY NET UNREALIZED
-------------------------------------------------- APPRECIATION/
LOCAL VALUE IN IN EXCHANGE (DEPRECIATION) OF
MATURITY DATE CURRENCY U.S. $ FOR U.S. $ CONTRACT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/02/95 92,001 SGD..................... 64,646 63,845 $ 801
10/02/95 398,229 THB..................... 15,749 15,752 (3)
10/03/95 798,043 THB..................... 31,799 31,807 (8)
10/04/95 128,681,324 IDR..................... 56,777 56,813 (36)
10/04/95 689,940 MYR..................... 274,660 273,509 1,151
10/04/95 131,992 SGD..................... 92,754 92,399 355
10/05/95 191,798 MYR..................... 76,354 75,930 424
10/06/95 96,223 MYR..................... 38,306 38,218 88
-------- ------- -------
651,045 648,273 $ 2,772
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
CONTRACT TO SELL NET UNREALIZED
-------------------------------------------------- APPRECIATION/
LOCAL VALUE IN IN EXCHANGE (DEPRECIATION) OF
MATURITY DATE CURRENCY U.S. $ FOR U.S. $ CONTRACT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/03/95 1,340,418 PHP....................... 51,444 51,495 $ 51
10/04/95 1,217,260 PHP....................... 46,716 46,692 (24)
10/05/95 462,584 PHP....................... 17,752 17,683 (69)
------- ------- -------
115,912 115,870 $ (42)
======= ======= =======
Net Unrealized Appreciation of Forward Foreign
Exchange Contracts.............................................. $ 2,730
=======
-------------------------------------------
ABBREVIATIONS OF CURRENCY
THAT ISSUE IS HELD IN:
IDR Indonesian Rupee
MYR Malaysian Ringgit
PHP Philippine Peso
SGD Singapore Dollar
THB Thai Baht
-------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Global Government Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BONDS AND NOTES -- 80.3%
<S> <C> <C> <C>
AUSTRALIA -- 5.0%
AUD 1,340,000 Government of Australia,
8.750% due 01/15/01................................. $ 1,037,769
------------
AUSTRIA -- 3.7%
DM 1,000,000 Government of Austria,
8.000% due 06/17/02................................. 752,274
------------
BELGIUM -- 4.7%
USD 950,000 Kingdom of Belgium,
7.000% due 07/07/99................................. 973,750
------------
CANADA -- 4.8%
CAD 1,280,000 Government of Canada,
8.500% due 03/01/00................................. 992,418
------------
DENMARK -- 7.4%
DKK 7,800,000 Kingdom of Denmark,
9.000% due 11/15/00................................. 1,510,190
------------
FRANCE -- 6.7%
FRF 6,500,000 Government of France,
8.125% due 05/25/99................................. 1,381,704
------------
GERMANY -- 12.2%
DM 725,000 Bundes Obligation,
6.125% due 05/20/99................................. 521,655
DM 580,000 Federal Republic of Germany,
7.250% due 10/21/02................................. 425,644
DM 1,000,000 Federal Republic of Germany,
6.250% due 01/04/24................................. 602,519
USD 900,000 LKB, (Baden Wurltemb),
8.125% due 01/27/00................................. 954,045
------------
2,503,863
------------
ITALY -- 3.7%
ITL 1,300,000,000 Republic of Italy,
9.500% due 12/01/99................................. 758,636
------------
JAPAN -- 6.4%
JPY 115,000,000 Japan Development Bank,
5.000% due 10/01/99................................. 1,313,349
------------
NETHERLANDS -- 4.7%
NLG 1,400,000 Government of Netherlands,
8.250% due 06/15/02................................. 970,436
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Global Government Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BONDS AND NOTES -- (CONTINUED)
<S> <C> <C> <C>
PORTUGAL -- 4.6%
ECU 830,000 Government of Portugal,
6.000% due 02/16/04................................. $ 943,618
-----------
SPAIN -- 2.5%
ESP 60,000,000 Government of Spain,
12.250% due 03/25/00................................ 511,852
-----------
SUPRANATIONAL -- 6.5%
GBP 380,000 European Investment Bank,
8.000% due 06/10/03................................. 587,679
DM 1,000,000 International Bank for Reconstruction & Development,
7.250% due 10/13/99................................. 740,868
-----------
1,328,547
-----------
SWEDEN -- 2.5%
SEK 4,500,000 Government of Sweden,
6.000% due 02/09/05................................. 514,901
-----------
UNITED KINGDOM -- 4.9%
GBP 300,000 United Kingdom Treasury,
8.000% due 12/07/00................................. 481,733
GBP 340,000 United Kingdom Treasury,
8.000% due 09/27/13................................. 523,468
-----------
1,005,201
-----------
TOTAL FOREIGN GOVERNMENT BONDS AND NOTES
(Cost $16,539,863)................................. 16,498,508
===========
U.S. TREASURY OBLIGATIONS -- 14.8%
USD 1,400,000 U.S. Treasury Note,
7.500% due 05/15/02................................. 1,508,992
USD 1,500,000 U.S. Treasury Note,
6.500% due 08/15/05................................. 1,536,388
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,016,716).................................. 3,045,380
===========
TOTAL INVESTMENTS (Cost $19,556,579*)................................ 95.1% 19,543,888
OTHER ASSETS AND LIABILITIES (NET)................................... 4.9 1,000,259
----- -----------
NET ASSETS........................................................... 100.0% $20,544,147
===== ===========
- ---------------
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Global Government Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CONTRACT TO BUY NET UNREALIZED
-------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION) OF
DATE CURRENCY U.S. $ FOR U.S. $ CONTRACT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/06/95 550,000 DM ..................... 384,942 373,972 $10,970
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CONTRACT TO SELL NET UNREALIZED
-------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION) OF
DATE CURRENCY U.S. $ FOR U.S. $ CONTRACT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/06/95 1,650,000 DM ..................... 1,154,827 1,198,867 $ 44,040
10/06/95 3,870,000 FRF..................... 785,853 798,152 12,299
10/06/95 85,000,000 JPY .................... 858,548 1,016,017 157,469
--------- --------- --------
2,799,228 3,013,036 $213,808
========= ========= ========
Net Unrealized Appreciation of Forward Foreign
Exchange Contracts........................................ $224,778
========
-----------------------------------------------------------------
ABBREVIATIONS OF CURRENCY
THAT ISSUE IS HELD IN:
AUD Australian Dollar
CAD Canadian Dollar
DM German Deutschemark
DKK Danish Kroner
ECU European Currency Units
ESP Spanish Peseta
FRF French Franc
GBP Great Britain Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherlands Guilder
SEK Swedish Krona
USD United States Dollar
-----------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NATIONS
NATIONS NATIONS GLOBAL
EMERGING PACIFIC GOVERNMENT
MARKETS GROWTH INCOME
FUND FUND FUND
--------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value. See accompanying schedule...... $12,934,247 $25,720,839 $19,543,888
Cash.................................................. 2,319,261 3,871,496 143,901
Foreign currency, at value (Cost $14,556)............. 14,449 -- --
Net unrealized appreciation of forward foreign
exchange contracts. See accompanying schedule....... -- 2,730 224,778
Dividends receivable.................................. 11,028 32,058 --
Interest receivable................................... 928 11,443 656,231
Receivable for investment securities sold............. -- 115,919 --
Receivable for Fund shares sold....................... 47,961 250,589 1,036
Unamortized organization costs (Note 6)............... 118,953 122,462 119,238
Prepaid expenses and other assets..................... 14,310 18,642 2,867
----------- ----------- -----------
Total Assets..................................... 15,461,137 30,146,178 20,691,939
=========== =========== ===========
LIABILITIES:
Payable for Fund shares redeemed...................... 7,926 14,939 7,926
Payable for investment securities purchased........... 387,888 722,131 --
Investment advisory fee payable (Note 2).............. 12,779 20,337 11,686
Administration fee payable (Note 2)................... 1,162 2,260 1,670
Shareholder servicing and distribution fees payable
(Note 3)............................................ 299 67 62
Transfer agent fees payable (Note 2).................. 101 157 314
Custodian fees payable (Note 2)....................... 5,490 9,328 1,089
Dividends payable..................................... -- -- 87,540
Organization cost payable............................. 53,386 47,134 25,355
Accrued Directors' fees and expenses (Note 2)......... 1,762 2,497 3,134
Accrued expenses and other payables................... 8,075 9,325 9,016
----------- ----------- -----------
Total Liabilities................................ 478,868 828,175 147,792
----------- ----------- -----------
NET ASSETS............................................ $14,982,269 $29,318,003 $20,544,147
=========== =========== ===========
Investments, at cost (Note 1)......................... $13,199,265 $26,156,242 $19,556,579
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NATIONS
NATIONS NATIONS GLOBAL
EMERGING PACIFIC GOVERNMENT
MARKETS GROWTH INCOME
FUND FUND FUND
--------------------------------------
<S> <C> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net investment income/(accumulated net
investment loss).................................... $ (1,174) $ 6,956 $ --
Accumulated net realized loss on investments sold,
forward foreign exchange contracts and foreign
currency transactions............................... (43,676) (89,559) (115,135)
Net unrealized appreciation/(depreciation) of
investments, forward foreign exchange contracts,
foreign currencies and net other assets............. (265,068) (435,647) 204,672
Par value............................................. 1,517 3,019 2,045
Paid-in capital in excess of par value................ 15,290,670 29,833,234 20,452,565
----------- ----------- -----------
$14,982,269 $29,318,003 $20,544,147
=========== =========== ===========
NET ASSETS:
Trust A Shares........................................ $14,529,320 $28,726,552 $20,402,340
=========== =========== ===========
Investor A Shares..................................... $ 56,637 $ 161,219 $ 23,140
=========== =========== ===========
Investor C Shares..................................... $ 10,030 $ 45,592 $ 8,637
=========== =========== ===========
Investor N Shares..................................... $ 386,282 $ 384,640 $ 110,030
=========== =========== ===========
SHARES OUTSTANDING:
Trust A Shares........................................ 1,471,177 2,957,866 2,031,348
=========== =========== ===========
Investor A Shares..................................... 5,740 16,612 2,304
=========== =========== ===========
Investor C Shares..................................... 1,018 4,708 860
=========== =========== ===========
Investor N Shares..................................... 39,208 39,706 10,955
=========== =========== ===========
TRUST A SHARES:
Net asset value, offering price and redemption price
per share........................................... $9.88 $9.71 $10.04
=========== =========== ===========
INVESTOR A SHARES:
Net asset value and redemption price per share........ $9.87 $9.70 $10.04
=========== =========== ===========
Maximum sales charge.................................. 5.75% 5.75% 4.75%
Maximum offering price per share...................... $10.47 $10.29 $10.54
=========== =========== ===========
INVESTOR C SHARES:
Net asset value and offering price per share*......... $9.85 $9.68 $10.04
=========== =========== ===========
INVESTOR N SHARES:
Net asset value and offering price per share*......... $9.85 $9.69 $10.04
=========== =========== ===========
- ---------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995 (UNAUDITED)*
<TABLE>
<CAPTION>
NATIONS
NATIONS NATIONS GLOBAL
EMERGING PACIFIC GOVERNMENT
MARKETS GROWTH INCOME
FUND FUND FUND
-----------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $47, $48 and
$654, respectively)...................................... $ 30,219 $ 18,167 $ 319,156
Dividends (net of foreign withholding taxes of $1,853 and
$9,367 respectively)..................................... 19,419 68,657 --
--------- --------- ---------
Total investment income............................... 49,638 86,824 319,156
--------- --------- ---------
EXPENSES:
Investment advisory fee (Note 2)........................... 29,735 42,625 34,963
Administration fee (Note 2)................................ 2,703 4,736 4,995
Transfer agent fees (Note 2)............................... 152 236 471
Custodian fees (Note 2).................................... 726 10,868 2,479
Legal and audit fees....................................... 5,210 5,292 5,292
Directors' fees and expenses (Note 2)...................... 2,859 5,894 4,833
Amortization of organization costs (Note 6)................ 5,979 5,979 5,774
Other...................................................... 3,040 3,886 1,117
--------- --------- ---------
Subtotal.............................................. 50,404 79,516 59,924
Shareholder servicing and distribution fees (Note 3):
Investor A Shares........................................ 24 36 7
Investor C Shares........................................ 22 61 20
Investor N Shares........................................ 362 255 66
--------- --------- ---------
Total expenses........................................ 50,812 79,868 60,017
--------- --------- ---------
NET INVESTMENT INCOME/(LOSS)............................... (1,174) 6,956 259,139
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN/
(LOSS) ON INVESTMENTS (NOTES 1 AND 4):
Realized gain/(loss) from:
Security transactions.................................... (32,609) (80,672) (94,464)
Forward foreign exchange contracts....................... (19,654) (36,624) (108,993)
Foreign currency transactions............................ 8,587 27,737 88,322
--------- --------- ---------
Net realized loss on investments during the period......... (43,676) (89,559) (115,135)
--------- --------- ---------
Change in unrealized appreciation/(depreciation) of:
Securities............................................... (265,018) (435,403) (12,691)
Forward foreign exchange contracts....................... -- 2,730 224,778
Foreign currencies and net other assets.................. (50) (2,974) (7,415)
--------- --------- ---------
Net unrealized appreciation/(depreciation) of investments
during the period........................................ (265,068) (435,647) 204,672
--------- --------- ---------
Net realized and unrealized gain/(loss) on investments..... (308,744) (525,206) 89,537
--------- --------- ---------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................. $(309,918) $(518,250) $ 348,676
========= ========= =========
- ---------------
* The Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund commenced operations on June 30, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD ENDED SEPTEMBER 30, 1995 (UNAUDITED)*
<TABLE>
<CAPTION>
NATIONS
NATIONS NATIONS GLOBAL
EMERGING PACIFIC GOVERNMENT
MARKETS GROWTH INCOME
FUND FUND FUND
----------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)....................... $ (1,174) $ 6,956 $ 259,139
Net realized loss on investments sold, forward
foreign exchange contracts and foreign currency
transactions during the period................... (43,676) (89,559) (115,135)
Change in unrealized appreciation/(depreciation) of
investments, forward foreign exchange contracts,
foreign currencies and net other assets during
the period....................................... (265,068) (435,647) 204,672
----------- ----------- -----------
Net increase/(decrease) in net assets resulting
from operations.................................. (309,918) (518,250) 348,676
Distributions to shareholders from net investment
income:
Trust A Shares................................ -- -- (258,664)
Investor A Shares............................. -- -- (154)
Investor C Shares............................. -- -- (90)
Investor N Shares............................. -- -- (231)
Net increase in net assets from Fund share
transactions (Note 5):
Trust A....................................... 14,819,814 29,233,410 20,305,801
Investor A.................................... 49,343 153,819 14,465
Investor C.................................... 1,703 38,027 99
Investor N.................................... 387,327 376,997 100,245
----------- ----------- -----------
Net increase in net assets......................... 14,948,269 29,284,003 20,510,147
NET ASSETS:
Beginning of period................................ 34,000 34,000 34,000
----------- ----------- -----------
End of period...................................... $14,982,269 $29,318,003 $20,544,147
=========== =========== ===========
Undistributed net investment income/(accumulated
net investment loss)............................. $ (1,174) $ 6,956 $ --
=========== =========== ===========
- ---------------
* The Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund commenced operations on June 30, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (UNAUDITED)
<TABLE>
<CAPTION>
NATIONS EMERGING NATIONS PACIFIC NATIONS GLOBAL GOVERNMENT
MARKETS FUND GROWTH FUND INCOME FUND
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 1995* SEPTEMBER 30, 1995** SEPTEMBER 30, 1995***
------------------------- ------------------------- -------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TRUST A SHARES:
Sold....................... 1,472,351 $14,840,039 2,975,376 $29,412,359 2,031,636 $20,317,161
Issued as reinvestment
of dividends............. -- -- -- -- 11 109
Redeemed................... (2,024) (20,225) (18,360) (178,949) (1,149) (11,469)
---------- ----------- ---------- ----------- ---------- -----------
Net increase............... 1,470,327 $14,819,814 2,957,016 $29,233,410 2,030,498 $20,305,801
========== =========== ========== =========== ========== ===========
INVESTOR A SHARES:
Sold....................... 5,697 $ 57,668 15,772 $ 153,920 1,439 $ 14,311
Issued as reinvestment
of dividends............. -- -- -- -- 15 154
Redeemed................... (807) (8,325) (10) (101) -- --
---------- ----------- ---------- ----------- ---------- -----------
Net increase............... 4,890 $ 49,343 15,762 $ 153,819 1,454 $ 14,465
========== =========== ========== =========== ========== ===========
INVESTOR C SHARES:
Sold....................... 168 $ 1,703 3,858 $ 38,027 1 $ 10
Issued as reinvestment
of dividends............. -- -- -- -- 9 89
---------- ----------- ---------- ----------- ---------- -----------
Net increase............... 168 $ 1,703 3,858 $ 38,027 10 $ 99
========== =========== ========== =========== ========== ===========
INVESTOR N SHARES:
Sold....................... 38,358 $ 387,327 38,856 $ 376,997 10,082 $ 100,014
Issued as reinvestment
of dividends............. -- -- -- -- 23 231
---------- ----------- ---------- ----------- ---------- -----------
Net increase............... 38,358 $ 387,327 38,856 $ 376,997 10,105 $ 100,245
========== =========== ========== =========== ========== ===========
- ---------------
* The Nations Emerging Markets Fund's Trust A Shares, Investor A Shares,
Investor C Shares and Investor N Shares commenced operations on June 30,
1995.
** The Nations Pacific Growth Fund's Trust A Shares, Investor A Shares,
Investor C Shares and Investor N Shares commenced operations on June 30,
1995.
*** The Nations Global Government Income Fund's Trust A Shares, Investor A
Shares, Investor C Shares and Investor N Shares commenced operations on June
30, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
TRUST A INVESTOR A INVESTOR C INVESTOR N
SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------------
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
09/30/95*# 09/30/95*# 09/30/95*# 09/30/95*#
--------------------------------------------------------------
<S> <C> <C> <C> <C>
NATIONS EMERGING MARKETS FUND:
Operating performance:
Net asset value, beginning of period..................... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment loss##.................................... (0.00)** (0.01) (0.02) (0.02)
Net realized and unrealized loss on investments.......... (0.12) (0.12) (0.13) (0.13)
------ ------ ------ ------
Net decrease in net assets resulting from investment
operations............................................. (0.12) (0.13) (0.15) (0.15)
------ ------ ------ ------
Net asset value, end of period........................... $9.88 $9.87 $9.85 $9.85
====== ====== ====== ======
Total return++........................................... (1.20)% (1.30)% (1.50)% (1.50)%
====== ====== ====== ======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)................. $14,529 $ 57 $ 10 $ 386
Ratio of operating expenses to average net assets.... 1.90%+ 2.15%+ 2.90%+ 2.90%+
Ratio of net investment loss to average net assets... (0.03)%+ (0.28)%+ (1.03)%+ (1.03)%+
Portfolio turnover rate.............................. 10% 10% 10% 10%
- ---------------
* The Nations Emerging Markets Fund Trust A, Investor A, Investor C and
Investor N Shares commenced operations on June 30, 1995, respectively.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
</TABLE>
<TABLE>
<CAPTION>
TRUST A INVESTOR A INVESTOR C INVESTOR N
SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------------
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
09/30/95*# 09/30/95*# 09/30/95*# 09/30/95*#
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NATIONS PACIFIC GROWTH FUND:
Operating performance:
Net asset value, beginning of period..................... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income/(loss)............................. 0.01 (0.00)** (0.02) (0.01)
Net realized and unrealized loss on investments.......... (0.30) (0.30) (0.30) (0.30)
------ ------ ------ ------
Net decrease in net assets resulting from investment
operations............................................. (0.29) (0.30) (0.32) (0.31)
------ ------ ------ ------
Net asset value, end of period........................... $9.71 $9.70 $9.68 $9.69
====== ====== ====== ======
Total return++........................................... (2.90)% (3.00)% (3.20)% (3.10)%
====== ====== ====== ======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)................. $28,727 $161 $46 $385
Ratio of operating expenses to average net assets.... 1.70%+ 1.95%+ 2.70%+ 2.70%+
Ratio of net investment income/(loss) to average net
assets............................................. 0.15%+ (0.10)%+ (0.85)%+ (0.85)%+
Portfolio turnover rate.............................. 3% 3% 3% 3%
- ---------------
* The Nations Pacific Growth Fund Trust A, Investor A, Investor C and Investor
N Shares commenced operations on June 30, 1995, respectively.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED) (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
TRUST A INVESTOR A INVESTOR C INVESTOR N
SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------------
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
09/30/95* 09/30/95* 09/30/95* 09/30/95*
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NATIONS GLOBAL GOVERNMENT INCOME FUND:
Operating performance:
Net asset value, beginning of period..................... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income.................................... 0.13 0.12 0.10 0.10
Net realized and unrealized gain on investments.......... 0.04 0.04 0.04 0.04
------ ------ ------ ------
Net increase in net assets resulting from investment
operations............................................. 0.17 0.16 0.14 0.14
Distributions:
Dividends from net investment income................... (0.13) (0.12) (0.10) (0.10)
------ ------ ------ ------
Total distributions.................................... (0.13) (0.12) (0.10) (0.10)
------ ------ ------ ------
Net asset value, end of period........................... $10.04 $10.04 $10.04 $10.04
====== ====== ====== ======
Total return++........................................... 1.69% 1.63% 1.46% 1.46%
====== ====== ====== ======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)................. $20,402 $23 $9 $110
Ratio of operating expenses to average net assets.... 1.30%+ 1.55%+ 2.30%+ 2.30%+
Ratio of net investment income to average net
assets............................................. 5.61%+ 5.36%+ 4.61%+ 4.61%+
Portfolio turnover rate.............................. 104% 104% 104% 104%
- ---------------
* The Nations Global Government Income Fund Trust A, Investor A, Investor C
Shares and Investor N Shares commenced operations on June 30, 1995,
respectively.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Nations Fund Portfolios, Inc. ("Nations Portfolios") is a Maryland
corporation registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as a diversified, open-end management investment company and
consists of three separate portfolios: Nations Emerging Markets Fund ("Emerging
Markets Fund"), Nations Pacific Growth Fund ("Pacific Growth Fund") and Nations
Global Government Income Fund ("Global Government Income Fund") (individually a
"Fund", collectively the "Funds"). Each Fund currently offers four classes of
shares: Trust A Shares, Investor A Shares, Investor C Shares and Investor N
Shares. The Board of Directors has authorized each Fund to issue Trust B Shares.
As of September 30, 1995, no Trust B Shares have been issued. Shareholders of a
Fund have equal voting rights on matters affecting all of a Fund's shareholders
equally. In addition, each class of shares of a Fund has exclusive voting rights
on matters that relate solely to that class, and separate voting rights on
matters in which the interests of one class of shares differ from the interests
of any other class. The following is a summary of the significant accounting
policies followed by the Funds in the preparation of their financial statements.
SECURITIES VALUATION: A security listed or traded on an exchange is valued
at its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the mean
between the closing bid and asked prices on that day. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last available bid and
asked prices based upon quotes furnished by market makers for such securities.
Each security reported on the NASDAQ National Market System is valued at the
last sales price on the valuation date. Debt obligations that are issued or
guaranteed by the U.S. government, its agencies, authorities and
instrumentalities are 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 general market
conditions. Securities for which market quotations are not readily available are
valued at fair value under the supervision of the Board of Directors. Short-term
investments that mature in 60 days or less are valued at amortized cost.
REPURCHASE AGREEMENTS: Each Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, a Fund pays a
counterparty cash for, and takes possession of, debt obligation subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the collateral held by the Fund is at least equal, at all times, to the
total amount of the repurchase obligations, including interest. In the event of
counterparty default, a Fund generally has the right to use the collateral to
offset losses incurred. There is potential loss to a Fund in the event the Fund
is delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Funds' investment adviser, acting under the supervision of the Board
of Directors, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Funds enter into repurchase agreements to
evaluate potential risks.
FOREIGN CURRENCY TRANSACTIONS: A Fund will generally enter into forward
currency exchange contracts only under two circumstances. A Fund may enter into
forward currency exchange contracts when such Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, to "lock"
in the U.S. dollar price of the security. The use of forward foreign currency
contracts does not eliminate fluctuations in the underlying prices of a Fund's
investment securities, but it does establish a rate of exchange that can be
30
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
achieved in the future. Although forward foreign currency contracts limit the
risk of loss due to a decline in the value of a particular currency, they also
limit any potential gain that might result should the value of the currency
increase. In addition, a Fund could be exposed to risks if the counterparties to
the contracts are unable to meet the terms of their contracts. The risk exposure
to counterparties is therefore monitored. A Fund may also enter into a forward
currency exchange contract when NationsBank N.A. and/or Nations Gartmore
Investment Management ("Nations Gartmore") believes that the currency of a
particular foreign country may experience a substantial movement against another
currency. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into a forward contract with a term of greater than one year.
Forward foreign currency contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded by a Fund as an
unrealized gain or loss. When the contract is closed, a Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
FOREIGN CURRENCY: The books and records of the Funds are maintained in
United States (U.S.) dollars. Foreign currencies, investments and other assets
and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated on the respective dates of such
transactions. Unrealized gains and losses on investments which result from
changes in foreign currency exchange rates have been included in the unrealized
appreciation/(depreciation) of investments. Net realized foreign currency gains
and losses resulting from changes in exchange rates include foreign currency
gains and losses between trade date and settlement date of investment securities
transactions, foreign currency transactions and the difference between the
amounts of interest and dividends recorded on the books of a Fund and the amount
actually received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains and losses on
investment securities sold.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
accounted for on a trade date basis. Realized gains and losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of discounts and premiums on
investments on the straight-line method, is earned from settlement date and is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are recorded as soon
as the Funds are informed of the ex-dividend date. Each Fund's investment income
and realized and unrealized gains and losses are allocated among the classes
based upon the relative net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net
investment income, if any, for the Emerging Markets Fund and the Pacific Growth
Fund are declared and paid each calendar quarter. Dividends from net investment
income for the Global Government Income Fund are declared on each day the Fund
is open for business and paid monthly. Each Fund's net realized capital gains
(including net short-term capital gains), unless offset by any available capital
loss carryforward, are distributed to shareholders annually after the fiscal
year in which they were earned. Additional distributions of net investment
income and capital gains may be made at the discretion of the Board of Directors
in order to avoid the application of a 4% non-deductible Federal excise tax.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
timing differences and differing characterization of distributions made by a
Fund as a whole.
31
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
INCOME TAXES: Each Fund intends to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies and by distributing
substantially all of its earnings to shareholders. Therefore, no Federal income
tax provision is required.
EXPENSES: General expenses of Nations Portfolios are allocated to each
Fund based upon its net assets. Operating expenses directly attributable to a
class of shares are charged to that class' operations. Expenses of Nations
Portfolios not directly attributable to the operations of any class of shares or
portfolio are prorated among the classes based on the relative net assets of
each class.
2. INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND
RELATED PARTY TRANSACTIONS.
Nations Portfolios has entered into an Investment Advisory Agreement with
NationsBank, N.A. (together with its predecessors "NationsBank"), as successor
to NationsBank of North Carolina, N.A., an indirect wholly-owned subsidiary of
NationsBank Corporation, with respect to each Fund.
Under the terms of this Investment Advisory Agreement, NationsBank is
entitled to receive an advisory fee from the Funds at the following annual rates
of the average daily net assets:
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Emerging Markets Fund..................................... 1.10%
Pacific Growth Fund....................................... 0.90%
Global Government Income Fund............................. 0.70%
</TABLE>
Nations Portfolios, on behalf of the Funds also has entered into a
Sub-Investment Advisory Agreement with Nations Gartmore. Nations Gartmore is a
joint venture structured as a general partnership between NB Partners Corp., a
wholly owned subsidiary of NationsBank and Gartmore U.S. Limited, a wholly owned
subsidiary of Gartmore plc.
Under the terms of the Sub-Investment Advisory Agreement, NationsBank will
pay Nations Gartmore a fee at the following annual rates of average daily net
assets:
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Emerging Markets Fund..................................... 0.85%
Pacific Growth Fund....................................... 0.70%
Global Government Income Fund............................. 0.54%
</TABLE>
Stephens Inc. ("Stephens") serves as Nations Portfolios' administrator
pursuant to an Administration Agreement. The Shareholder Services Group, Inc.
("TSSG"), an indirect wholly-owned subsidiary of First Data Corporation, serves
as Nations Portfolio's co-administrator pursuant to a Co-Administration
Agreement. Pursuant to the Administration and Co-Administration Agreements, the
administrator and co-administrator are entitled to receive a combined fee,
computed daily and paid monthly, at the annual rate of 0.10% of each Fund's
average daily net assets.
For the period ended September 30, 1995, Stephens earned $7,466 for its
services.
No officer, director or employee of NationsBank, Nations Gartmore, Stephens
or TSSG, or any affiliate thereof, receives any compensation from Nations
Portfolios for serving as Director or officer of Nations Portfolios. Nations
Portfolios pays each Director an annual fee of $1,000 ($3,000 for the Chairman
of the Board), plus $500 per Fund and an additional $1,000 for each in-person
board meeting, and $500 for each telephonic board meeting, attended. Nations
Portfolios also reimburses expenses incurred by the Directors in attending such
meetings.
32
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Each Fund's eligible Directors may participate in a nonqualified deferred
compensation and retirement plan which may be terminated at any time. All
benefits provided under these plans are unfunded and any payments to plan
participants are paid solely out of the Funds' assets. Income earned on each
plan participant's deferral account will be tied to the rate of return of the
eligible mutual funds selected by the participants or, if no funds are selected,
to the rate of return of the Nations Treasury Fund, a fund of Nations Fund, Inc.
Morgan Guaranty Trust Company acts as the Funds' custodian. TSSG serves as
transfer agent for the Funds' shares.
Stephens acts as the distributor of the Funds' shares. For the period ended
September 30, 1995, the Funds were informed that the distributor received
$1,017, representing commission (sales charges) on sales of Investor A Shares of
the Funds. A substantial portion of these fees were paid to affiliates of
NationsBank. For the period ended September 30, 1995, the Funds were informed
that the distributor received no contingent deferred sales charges from Investor
A, Investor C and Investor N Shareholders of the Funds.
3. SHAREHOLDER SERVICING AND DISTRIBUTION PLAN.
Nations Portfolios has adopted a shareholder servicing and distribution
plan ("Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act for Investor
A Shares of each Fund. Fees payable under the Investor A Plan may not exceed
0.25%, on an annualized basis, of the average daily net assets of the Investor A
Shares of the Fund. Each Fund pays fees under the Investor A Plan directly to
the distributor. Fees paid pursuant to the Investor A Plan are charged as
expenses of Investor A Shares of such Fund as accrued.
Nations Portfolios has adopted a distribution plan pursuant to Rule 12b-1
under the 1940 Act with respect to Investor C Shares ("Investor C Plan") and
Investor N Shares ("Investor N Plan") of each Fund. Pursuant to the Plan, each
Fund pays fees directly to the distributor for certain expenses that are
incurred in connection with the support and distribution of Investor C or
Investor N Shares of such Fund. Payments under the Investor C Plan and Investor
N Plan are accrued daily and paid monthly at a rate that will not exceed 0.75%,
on an annualized basis, of the average daily net assets of the Investor C and
Investor N Shares, respectively, of each Fund. Fees paid pursuant to the
Investor C Plan and Investor N Plan are charged as expenses of Investor C and
Investor N Shares of a Fund, respectively, as accrued.
Nations Portfolios also has adopted a shareholder servicing plan with
respect to Investor C Shares ("Investor C Servicing Plan") and Investor N Shares
("Investor N Servicing Plan") of each Fund. Under the Plan, each Fund may pay
for certain shareholder support services that are provided to holders of
Investor C and Investor N Shares by servicing agents that have entered into a
shareholder servicing agreement with such Fund. Payments under the Investor C
Servicing Plan and Investor N Servicing Plan are accrued daily and paid monthly
at a rate that will not exceed 0.25% of the average daily net assets of the
Investor C and Investor N Shares of each Fund, respectively. Fees paid pursuant
to the Investor C Servicing Plan and Investor N Servicing Plan are charged as
expenses of Investor C and Investor N Shares of a Fund, respectively, as
accrued.
A substantial portion of the fees paid, pursuant to the Plans described
above, are paid to affiliates of NationsBank.
33
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the period ended September 30, 1995, the Funds incurred the following
amounts pursuant to the above referenced plans:
<TABLE>
<CAPTION>
FEES PAID PURSUANT TO
---------------------------------------------------------------------------
INVESTOR A INVESTOR C INVESTOR C INVESTOR N INVESTOR N
PLAN PLAN SERVICING PLAN PLAN SERVICING PLAN
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund..... $ 24 $ 17 $ 5 $ 271 $ 91
Pacific Growth Fund....... 36 46 15 191 64
Global Government
Income Fund............. 7 15 5 50 16
</TABLE>
The chart below shows the effective rates, expressed as a percentage of
average daily net assets, paid by the Funds under the shareholder servicing and
distribution plans for the period ended September 30, 1995:
<TABLE>
<CAPTION>
INVESTOR A INVESTOR C INVESTOR C INVESTOR N INVESTOR N
PLAN PLAN SERVICING PLAN PLAN SERVICING PLAN
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund..... 0.25% 0.75% 0.25% 0.75% 0.25%
Pacific Growth Fund....... 0.25 0.75 0.25 0.75 0.25
Global Government
Income Fund............. 0.25 0.75 0.25 0.75 0.25
</TABLE>
4. PURCHASES AND SALES OF SECURITIES.
The aggregate cost of purchases and proceeds from sales of investment
securities, excluding short-term securities and U.S. government securities, for
the period ended September 30, 1995, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------
<S> <C> <C>
Emerging Markets Fund........................... $13,873,044 $ 763,249
Pacific Growth Fund............................. 26,698,697 456,127
Global Government Income Fund................... 28,375,974 10,575,999
</TABLE>
The aggregate cost of purchases and proceeds from sales of long-term U.S.
government securities for the period ended September 30, 1995 was as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------
<S> <C> <C>
Global Government Income Fund..................... $6,494,625 $4,617,549
</TABLE>
At September 30, 1995, aggregate gross unrealized appreciation and
unrealized depreciation for tax purposes were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION
---------------------------
<S> <C> <C>
Emerging Markets Fund......................... $480,015 $ 745,033
Pacific Growth Fund........................... 774,150 1,209,553
Global Government Income Fund................. 262,127 274,818
</TABLE>
5. CAPITAL STOCK.
As of September 30, 1995, 150,000,000,000 shares of $.001 par value capital
stock were authorized for Nations Portfolios.
34
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. ORGANIZATION COSTS.
Each Fund bears all costs in connection with its organization including the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs are being
amortized on the straight-line method over a period of five years from the
commencement of operations of each Fund. In the event that any of the shares
issued by a Fund to their sponsor prior to the commencement of the Fund's public
offering ("initial shares") are redeemed during such amortization period, the
Fund will be reimbursed for any unamortized costs in the same proportion as the
number of shares redeemed bears to the number of initial shares outstanding at
the time of the redemption.
7. FOREIGN SECURITIES.
Each Fund may invest in foreign securities. Investing in securities of
foreign companies and foreign governments involves special risks and
considerations not typically associated with investing in U.S. companies and the
U.S. government. These risks include re-valuation of currencies, less reliable
information about issuers, different securities transaction clearance and
settlement practices, and future adverse political and economic developments.
These risks are heightened for investments in emerging markets countries.
Moreover, securities of many foreign companies and foreign governments and their
markets may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies and the U.S. government.
8. SUBSEQUENT EVENT.
As of November 1, 1995, The Shareholder Services Group, Inc. will be known
as First Data Investor Services Group, Inc.
35
<PAGE>
THE NATIONS FUND FAMILY
EQUITY FUNDS
GROWTH
Nations Capital Growth Fund
Nations Disciplined Equity Fund
Nations Emerging Growth Fund
Nations Emerging Markets Fund
Nations Equity Index Fund*
Nations International Equity Fund
Nations Pacific Growth Fund
GROWTH AND INCOME
Nations Balanced Assets Fund
Nations Equity Income Fund
Nations Value Fund
BOND FUNDS
INCOME
Nations Diversified Income Fund
Nations Global Government Income Fund
Nations Government Securities Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities Fund*
TAX-EXEMPT INCOME
Nations Florida Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Municipal Bond Fund
Nations Intermediate Municipal Bond Fund
Nations Short-Term Municipal Income Fund
MONEY MARKET FUNDS
Nations Government Money Market Fund
Nations Prime Fund
Nations Tax Exempt Fund
Nations Treasury Fund
* Trust classes only
<PAGE>
This report is submitted for the general information of shareholders of Nations
Fund Portfolios, Inc. For more detailed information about Nations Fund
Portfolios, Inc., including fees and expenses, please see the prospectus and
statement of additional information of Nations Fund Portfolios, Inc.
<PAGE>
NATIONS
- ------- FUND -- BULK RATE
U.S. POSTAGE
PO Box 9654 PAID
Providence, RI 02940-9654 BOSTON, MA
Toll Free 1-800-982-2271 PERMIT NO.
54201
SAR6-9/95
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
FILE NO. 33-89742; 811-8982
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a)(1) Statement of Assets and Liabilities of Nations
Fund Portfolios, Inc. at June 27, 1995 are
included in Part B, Item 23.
(a)(2) The unaudited financial statements for the period
ended September 30, 1995 for Trust A Shares,
Investor A Shares, Investor C Shares and Investor
N Shares of Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global
Government Income Fund are included in Part B,
Item 23.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
1(a) - Articles of Incorporation, dated January 23, 1995 are incorporated by reference to
the Registration Statement on Form N-1A filed on February 23, 1995.
1(b) - Articles Supplementary, dated April 20, 1995
are incorporated by reference to Pre-Effective
Amendment No. 1 filed on May 9, 1995.
2 - By-Laws, dated January 25, 1995 are incorporated by reference to the Registration
Statement on Form N-1A filed on February 23, 1995.
3 - Not applicable
4 - Not applicable
5(a) - Form of Advisory Agreement between Nations Fund Portfolios, Inc. and NationsBank,
N.A. ("Carolinas") ("NationsBank") is incorporated by reference to the
Registration Statement on Form N-1A filed on February 23, 1995.
(b) - Form of Sub-Advisory Agreement with NationsBank on behalf of Nations Global
Government Income Fund, Nations Pacific Growth Fund and Nations Emerging Markets
Fund is incorporated by reference
C-1
<PAGE>
to the Registration Statement on Form N-1A filed
on February 23, 1995.
6(a) - Form of Distribution Agreement with Stephens Inc. on behalf of each Fund is
incorporated by reference to the Registration Statement on Form N-1A filed on
February 23, 1995.
(b) - Forms of Sales Support Agreements are incorporated by reference to the
Registration Statement on Form N-1A filed on February 23, 1995.
(c) - Forms of Shareholder Servicing Agreements are incorporated by reference to the
Registration Statement on Form N-1A filed on February 23, 1995.
7 - Not applicable
8 - Form of Custodian Agreement between the Company and Morgan Guaranty Trust Company
of New York is incorporated by reference to Pre-Effective Amendment No. 1 filed on
May 9, 1995.
9(a) - Form of Transfer Agency and Registrar Agreement to be filed by Amendment
(b) - Form of Administration Agreement between Stephens Inc. and Nations Fund
Portfolios, Inc. is incorporated by reference to the Registration Statement on
Form N-1A filed on February 23, 1995.
(c) - Form of Co-Administration Agreement between The Shareholder Servicing Group, Inc.
and Nations Fund Portfolios, Inc. is incorporated by reference to the Registration
Statement on Form N-1A filed on February 23, 1995.
(d) - Cross Indemnification Agreement between Nations Fund Portfolios, Inc., Nations
Fund, Inc. and Nations Fund Trust is incorporated by reference to Post-Effective
Amendment No. 1 filed on June 30, 1995.
10 - Opinion and Consent of Counsel is filed herewith
11 - Accountants' Consent is filed herewith
12 - Not applicable
13 - Investment Letter, incorporated by reference to Pre-Effective Amendment No. 2
filed on June 29, 1995.
14 - Not applicable
C-2
<PAGE>
15(a) - Form of Shareholder Servicing Plan, Trust B
Shares is incorporated by reference to the
Registration Statement on Form N-1A filed on
February 23, 1995.
(b) - Form of Shareholder Servicing and Distribution Plan, Investor A Shares is
incorporated by reference to the Registration Statement on Form N-1A filed on
February 23, 1995.
(c) - Form of Shareholder Servicing Plan, Investor C Shares is incorporated by reference
to the Registration Statement on Form N-1A filed on February 23, 1995.
(d) - Form of Distribution Plan, Investor C Shares is incorporated by reference to the
Registration Statement on Form N-1A filed on February 23, 1995.
(e) - Form of Shareholder Servicing Plan, Investor N Shares is incorporated by reference
to the Registration Statement on Form N-1A filed on February 23, 1995.
(f) - Form of Distribution Plan, Investor N Shares is incorporated by reference to the
Registration Statement on Form N-1A filed on February 23, 1995.
16 - Schedule for Computation of Performance Quotations to be filed by Amendment
17 - Not Applicable
18 - Form of Plan entered into by Registrant pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the "1940 Act") is incorporated by reference to
Pre-Effective Amendment No. 1 filed on May 9, 1995.
</TABLE>
Item 25. Persons Controlled by or under
Common Control with Registrant.
No person is controlled by or under common control with Registrant.
C-3
<PAGE>
Item 26. Number of Holders of Securities.
As of December 12, 1995, the number of record holders of each class of
securities of the Registrant was as follows:
Title of Class Number of Record Holders
Nations Global Government
Income Fund
Trust A Shares 41
Trust B Shares 0
Investor A Shares 8
Investor C Shares 2
Investor N Shares 7
Nations Pacific Growth Fund
Trust A Shares 873
Trust B Shares 0
Investor A Shares 134
Investor C Shares 7
Investor N Shares 259
Nations Emerging Markets Fund
Trust A Shares 368
Trust B Shares 0
Investor A Shares 87
Investor C Shares 6
Investor N Shares 136
Item 27. Indemnification.
The following paragraphs of Article VIII of the Registrant's Articles of
Incorporation provide:
(h) The Corporation shall indemnify (1)
its Directors and officers, whether serving the
Corporation or at its request any other entity,
to the full extent required or permitted by the
General Laws of the State of Maryland now or
hereafter in force, including the advance of
expenses under the procedures and to the full
extent permitted by law, and (2) its other
employees and agents to such extent as shall be
authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law.
The foregoing rights of indemnification shall not
be exclusive of any other rights to which those
seeking indemnification may be entitled. The
Board of Directors may take such action as is
necessary to carry out these indemnification
provisions and is expressly empowered to adopt,
approve and amend
C-4
<PAGE>
from time to time such By-Laws,
resolutions or contracts implementing such
provisions or such further indemnification
arrangements as may be permitted by law. No
amendment of these Articles of Incorporation of
the Corporation shall limit or eliminate the
right to indemnification provided hereunder with
respect to acts or omissions occurring prior to
such amendment or repeal. Nothing contained
herein shall be construed to authorize the
Corporation to indemnify any Director or officer
of the Corporation against any liability to the
Corporation or to any holders of securities of
the Corporation to which he is subject by reason
of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties
involved in the conduct of his office. Any
indemnification by the Corporation shall be
consistent with the requirements of law,
including the 1940 Act.
(i) To the fullest extent
permitted by Maryland statutory and decisional
law and the 1940 Act, as amended or interpreted,
no Director or officer of the Corporation shall
be personally liable to the Corporation or its
stockholders for money damages; provided,
however, that nothing herein shall be construed
to protect any Director or officer of the
Corporation against any liability to which such
Director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties
involved in the conduct of his office. No
amendment, modification or repeal of this Article
VIII shall adversely affect any right or
protection of a Director or officer that exists
at the time of such amendment, modification or
repeal.
Under the terms of the Maryland Corporation Law
and the Registrant's Charter and By-Laws,
incorporated by reference as Exhibits (1) and 2
hereto, provides for the indemnification of
Registrant's directors and employees.
Indemnification of Registrant's principal
underwriter, custodian, and transfer agent is
provided for, respectively, in the Registrant's:
1. Administration Agreement with Stephens
Inc.;
2. Co-Administration Agreement with The
Shareholder Services Group, Inc. ("TSSG");
3. Distribution Agreement with Stephens Inc.
4. Custody Agreement with Morgan Guaranty
Trust Company of New York
5. Transfer Agency and Registrar Agreement
with TSSG
C-5
Item 28. Business and Other Connections
of Investment Adviser.
To the knowledge of Registrant, none of the directors or officers of,
NationsBank or Nations Gartmore Investment Management ("Nations Gartmore")
except those set forth below, is or has been, at any time during the past two
calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the company that
owns all the outstanding stock (other than directors' qualifying shares) of
NationsBank or Nations Gartmore or other subsidiaries of NationsBank
Corporation. Set forth below are the names and principal businesses of the
directors and certain of the senior executive officers of NationsBank and
Nations Gartmore who are engaged in any other business, profession, vocation or
employment of a substantial nature.
(a) NationsBank performs investment advisory
services for Registrant and certain other
customers. NationsBank is a wholly owned
subsidiary of NationsBank Corporation.
<TABLE>
<CAPTION>
Position with Other Business Type of
NationsBank Name Connections Business
<S> <C> <C> <C>
CEO Hugh L. McColl, Jr. CEO, Banking
NationsBank
Corporation
President Joel A. Smith, III President, Banking
NationsBank, N.A.
(Carolinas)
Director James W. Thompson Vice Chairman, Banking
NationsBank
Corporation;
Chairman,
NationsBank
East; Chairman,
NationsBank, N.A.
(Carolinas); Chairman
NationsBank of
Virginia, N.A.;
Chairman,
NationsBank of
Maryland, N.A.,
and NationsBank
of D.C., N.A.
C-6
<PAGE>
Director Gayle O. Avery Chairman Emeritus, Insurance
Colonial Companies,
Inc.
Director F. James Becher, Jr. President and Financial
Chief Executive Holding
Officer, Geneva Company
Corporation
Director H.W. McKay Belk Senior Vice Department
President, Belk Store
Stores Services,
Inc.
Director William L. Bethea, Partner, Bethea, Law
Jr., Esq. Jordan & Griffin,
P.A.
Director J.R. Hendrick, III President and Automobile
Chief Executive Dealer
Officer,
Hendrick
Automotive
Corporation
Director Edgar H. Lawton, Jr. President, Oil
Hartsville Oil Manu-
Mill facturing
Director Harold M. Messmer, Chairman and Financial
Jr. Chief Executive Personnel
Officer and Recruitment
President,
Robert Half
International,
Inc.
Director Dr. Joab M. Lesesne, President, Education
Jr. Wofford College
Director Donald S. Russell, Attorney Law
Jr., Esq.
Director Mrs. Minor M. Shaw President, Investment
Micco Corporation
C-7
<PAGE>
Director William E. Simms President, Insurance
Reinsurance
Division,
TransAmerica Life
Company
Director A. Pope Shuford President, Textiles
Shuford Mills, Inc.
President, Shuford
Industries
</TABLE>
All of the foregoing persons may be reached c/o NationsBank North Carolina,
One NationsBank Plaza, Charlotte, North Carolina 28255.
(b) Nations Gartmore performs sub-investment advisory services
for Registrant and certain other customers. Listed below
are the names and principal occupation of the directors
and principal executive officers of Nations Gartmore. The
address for the individuals listed below is Nations
Gartmore, Gartmore House, 16-18 Monument Street, London
EC3R 8AJ, England and NationsBank North Carolina, One
NationsBank Plaza, Charlotte, North Carolina 28255.
<TABLE>
<CAPTION>
Position with
Name Gartmore Capital Principal Occupation
<S> <C> <C>
Charles G. Smith IV Chief Executive Officer Chief Executive Officer, Nations Gartmore
Investment Management
Simon H. Davies Chief Investment Officer Chief Investment Officer, Nations Gartmore
Investment Management; Director of
International Investments, Gartmore
Investment Limited
James B. Sommers Committee Member NationsBank Corporation
President, NationsBank Trust
John W. Munce Committee Member Executive Vice President, NationsBank, N.A. (Carolinas)
Mark H. Williamson Committee Member Senior Vice President, NationsBank, N.A. (Carolinas)
Paul Myners Committee Member Executive Chairman, Gartmore plc
C-8
Andrew J. Brown Committee Member Finance Director and Chairman, Gartmore Fund Managers
International Limited, Gartmore Money
Management Limited, Gartmore Administration
Services Limited
David W. Watts Committee Member Chief Investment Officer, Gartmore plc
</TABLE>
No officer or director of Nations Fund Portfolios, Inc. is an officer,
employee, director, general partner or shareholder of Nations Gartmore or any
affiliate thereof.
Item 29. Principal Underwriters.
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for the Overland Express Funds,
Inc., Stagecoach Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the
exclusive placement agent for Master Investment Trust, Managed Series Investment
Trust, Life and Annuity Term 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., the Nations Government
Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.
and Managed Balanced Target Maturity Fund, Inc., closed-end management
investment companies.
(b) Information with respect to each director and officer of
the principal underwriter is incorporated by reference to Form ADV filed by
Stephens Inc., with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records.
<TABLE>
<CAPTION>
<S> <C>
(1) NationsBank, One NationsBank Plaza, Charlotte, North Carolina 28255 (records relating to its
function as investment adviser).
(2) Nations Gartmore, Gartmore House, 16-18 Monument Street, London EC3R 8AJ, England (records
relating to its function as sub-investment advisor)
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records relating to its
functions as Distributor)
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records relating to its
functions as Administrator)
(5) The Shareholder Services Group, Inc., One Exchange Place, Boston, Massachusetts 02109 (records
relating to its function as Co-Administrator and Transfer Agent and Registrar)
(6) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202 (records relating to its function as
Sub-Transfer Agent)
</TABLE>
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
<TABLE>
<CAPTION>
<S> <C>
(a) Not applicable.
(b) Insofar as indemnification for liability arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions set forth above in response to Item 27, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, 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 Act and will be governed by the final adjudication of such issue.
(c) Registrant undertakes to hold a special meeting of its shareholders for the purpose
of voting on the question of removal of a director or directors if requested in writing
by the holders of at least 10% of the Company's outstanding voting securities, and
to assist in communicating with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940.
(d) Registrant undertakes to furnish each person to whom a prospectus is delivered with
a copy of the Registrant's most recent annual report to shareholders upon request
and without charge.
</TABLE>
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 21st day of December, 1995.
NATIONS FUND PORTFOLIOS, INC.
By: *
A. Max Walker
President and Chairman
of the Board of Directors
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE
*
- ----------------------- President and Chairman December 21, 1995
(A. Max Walker) of the Board of Directors
(Principal Executive Officer)
*
- ------------------------ Treasurer December 21, 1995
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Director December 21, 1995
(Edmund L. Benson, III)
* Director December 21, 1995
- -----------------------
(James Ermer)
* Director December 21, 1995
- -----------------------
(William H. Grigg)
* Director December 21, 1995
- -----------------------
(Thomas F. Keller)
Director December 21, 1995
(Carl E. Mundy, Jr.)
* Director December 21, 1995
- ------------------------
(Charles B. Walker)
* Director December 21, 1995
- ------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27.a Financial Data Schedules-Emerging Markets Fund-Investor A
27.b Financial Data Schedules-Emerging Markets Fund-Investor C
27.c Financial Data Schedules-Emerging Markets Fund-Investor N
27.d Financial Data Schedules-Emerging Markets Fund-Trust A
27.e Financial Data Schedules-Global Government Income Fund-Investor A
27.f Financial Data Schedules-Global Government Income Fund-Investor C
27.g Financial Data Schedules-Global Government Income Fund-Investor N
27.h Financial Data Schedules-Global Government Income Fund-Trust A
27.i Financial Data Schedules-Pacific Growth Fund-Investor A
27.j Financial Data Schedules-Pacific Growth Fund-Investor C
27.k Financial Data Schedules-Pacific Growth Fund-Investor N
27.l Financial Data Schedules-Pacific Growth Fund-Trust A
EX-99.10 Opinion and Consent of Counsel
EX-99.11 Accountants' Consent
EXHIBIT 10
OPINION AND CONSENT OF COUNSEL
<PAGE>
EX99.B-10
[MORRISON & FOERSTER LETTERHEAD]
December 14, 1995
Nations Fund Portfolios, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Capital Stock of the
Nations Fund Portfolios, Inc.
Gentlemen:
We refer to Post-Effective Amendment No. 2 and Amendment No. 4 to the
Registration Statement on Form N-1A (SEC File Nos. 33-89742; 811-8982) (the
"Registration Statement") of Nations Fund Portfolios, Inc. (the "Company")
relating to the registration of an indefinite number of Shares of Capital Stock
of the Company's three portfolios, namely the Nations Global Government Income
Fund, the Nations Pacific Growth Fund and the Nations Emerging Markets Fund
(collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments, and certificates
of public officials and of the Company, made such inquiries of the Company, and
examined such questions of law as we have deemed necessary for the purpose of
rendering the opinion set forth herein. We have also verified with the Company's
transfer agent the maximum number of shares issued by the Company during the
fiscal period ended September 30, 1995. We have assumed the genuineness of all
signatures and the authenticity of all items submitted to us as originals and
the conformity with originals of all items submitted to us as copies.
<PAGE>
Nations Fund Portfolios, Inc.
December 14, 1995
Page Two
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the Fund's dividend reinvestment plan in accordance with the
description set forth in the Registration Statement, as amended, the Shares will
be validly issued, fully paid and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we consent to the use of our name and to the reference to
our Firm under the heading "Counsel" in the Statement of Additional Information
and the description of advice rendered by our Firm under the heading "How The
Funds Are Managed" in the Prospectuses, which are included as part of the
Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER
MORRISON & FOERSTER
<PAGE>
EX99.B-11
EXHIBIT 11
ACCOUNTANTS' CONSENT
<PAGE>
[PRICE WATERHOUSE LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 2 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated June 27, 1995,
relating to the financial statements of the Nations Fund Portfolios, Inc., which
is also incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Other Service Providers" in
the Prospectuses and under the heading "Independent Accountants and Reports" in
the Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 14, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Nations Fund Port Emerg Mrkts Inv-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 13,199,265
<INVESTMENTS-AT-VALUE> 12,934,247
<RECEIVABLES> 59,917
<ASSETS-OTHER> 14,310
<OTHER-ITEMS-ASSETS> 2,452,663
<TOTAL-ASSETS> 15,461,137
<PAYABLE-FOR-SECURITIES> 387,888
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,980
<TOTAL-LIABILITIES> 478,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,843
<SHARES-COMMON-STOCK> 5,740
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (1,174)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43,676)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (265,068)
<NET-ASSETS> 56,637
<DIVIDEND-INCOME> 30,219
<INTEREST-INCOME> 19,419
<OTHER-INCOME> 0
<EXPENSES-NET> 50,812
<NET-INVESTMENT-INCOME> (1,174)
<REALIZED-GAINS-CURRENT> (43,676)
<APPREC-INCREASE-CURRENT> (265,068)
<NET-CHANGE-FROM-OPS> (309,918)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,697
<NUMBER-OF-SHARES-REDEEMED> (807)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,948,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,812
<AVERAGE-NET-ASSETS> 39,502
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> 2.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Nations Fund Port Emerg Mrkts Inv-C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 13,199,265
<INVESTMENTS-AT-VALUE> 12,934,247
<RECEIVABLES> 59,917
<ASSETS-OTHER> 14,310
<OTHER-ITEMS-ASSETS> 2,452,663
<TOTAL-ASSETS> 15,461,137
<PAYABLE-FOR-SECURITIES> 387,888
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,980
<TOTAL-LIABILITIES> 478,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,203
<SHARES-COMMON-STOCK> 1,018
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (1,174)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43,676)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (265,068)
<NET-ASSETS> 10,030
<DIVIDEND-INCOME> 30,219
<INTEREST-INCOME> 19,419
<OTHER-INCOME> 0
<EXPENSES-NET> 50,812
<NET-INVESTMENT-INCOME> (1,174)
<REALIZED-GAINS-CURRENT> (43,676)
<APPREC-INCREASE-CURRENT> (265,068)
<NET-CHANGE-FROM-OPS> (309,918)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 168
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,948,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,812
<AVERAGE-NET-ASSETS> 9,349
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 2.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Nations Fund Port Emerg Mrkts Inv-N
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 13,199,265
<INVESTMENTS-AT-VALUE> 12,934,247
<RECEIVABLES> 59,917
<ASSETS-OTHER> 14,310
<OTHER-ITEMS-ASSETS> 2,452,663
<TOTAL-ASSETS> 15,461,137
<PAYABLE-FOR-SECURITIES> 387,888
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,980
<TOTAL-LIABILITIES> 478,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 395,827
<SHARES-COMMON-STOCK> 39,208
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (1,174)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43,676)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (265,068)
<NET-ASSETS> 386,282
<DIVIDEND-INCOME> 30,219
<INTEREST-INCOME> 19,419
<OTHER-INCOME> 0
<EXPENSES-NET> 50,812
<NET-INVESTMENT-INCOME> (1,174)
<REALIZED-GAINS-CURRENT> (43,676)
<APPREC-INCREASE-CURRENT> (265,068)
<NET-CHANGE-FROM-OPS> (309,918)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,358
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,948,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,812
<AVERAGE-NET-ASSETS> 151,674
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 2.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> Nations Fund Port Emerg Mkts Tr-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 13,199,265
<INVESTMENTS-AT-VALUE> 12,934,247
<RECEIVABLES> 59,917
<ASSETS-OTHER> 14,310
<OTHER-ITEMS-ASSETS> 2,452,663
<TOTAL-ASSETS> 15,461,137
<PAYABLE-FOR-SECURITIES> 387,888
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,980
<TOTAL-LIABILITIES> 478,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,828,314
<SHARES-COMMON-STOCK> 1,471,177
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (1,174)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43,676)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (265,068)
<NET-ASSETS> 14,529,320
<DIVIDEND-INCOME> 30,219
<INTEREST-INCOME> 19,419
<OTHER-INCOME> 0
<EXPENSES-NET> 50,812
<NET-INVESTMENT-INCOME> (1,174)
<REALIZED-GAINS-CURRENT> (43,676)
<APPREC-INCREASE-CURRENT> (265,068)
<NET-CHANGE-FROM-OPS> (309,918)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,472,351
<NUMBER-OF-SHARES-REDEEMED> (2,024)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,948,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,812
<AVERAGE-NET-ASSETS> 10,951,470
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.00)
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Nations Fund Port Glob Govt Inco Inv-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,556,579
<INVESTMENTS-AT-VALUE> 19,543,888
<RECEIVABLES> 657,267
<ASSETS-OTHER> 2,867
<OTHER-ITEMS-ASSETS> 487,917
<TOTAL-ASSETS> 20,691,939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,792
<TOTAL-LIABILITIES> 147,792
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,965
<SHARES-COMMON-STOCK> 2,304
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115,135)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 204,672
<NET-ASSETS> 23,140
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 319,156
<OTHER-INCOME> 0
<EXPENSES-NET> 60,017
<NET-INVESTMENT-INCOME> 259,139
<REALIZED-GAINS-CURRENT> (115,135)
<APPREC-INCREASE-CURRENT> 204,672
<NET-CHANGE-FROM-OPS> 348,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (154)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,439
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 15
<NET-CHANGE-IN-ASSETS> 20,510,147
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,017
<AVERAGE-NET-ASSETS> 13,060
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Nations Fund Port Glob Govt Inco Inv-C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,556,579
<INVESTMENTS-AT-VALUE> 19,543,888
<RECEIVABLES> 657,267
<ASSETS-OTHER> 2,867
<OTHER-ITEMS-ASSETS> 487,917
<TOTAL-ASSETS> 20,691,939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,792
<TOTAL-LIABILITIES> 147,792
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,599
<SHARES-COMMON-STOCK> 860
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115,135)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 204,672
<NET-ASSETS> 8,637
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 319,156
<OTHER-INCOME> 0
<EXPENSES-NET> 60,017
<NET-INVESTMENT-INCOME> 259,139
<REALIZED-GAINS-CURRENT> (115,135)
<APPREC-INCREASE-CURRENT> 204,672
<NET-CHANGE-FROM-OPS> 348,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (90)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 20,510,147
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,017
<AVERAGE-NET-ASSETS> 8,515
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> Nations Fund Port Glob Govt Inco Inv-N
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,556,579
<INVESTMENTS-AT-VALUE> 19,543,888
<RECEIVABLES> 657,267
<ASSETS-OTHER> 2,867
<OTHER-ITEMS-ASSETS> 487,917
<TOTAL-ASSETS> 20,691,939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,792
<TOTAL-LIABILITIES> 147,792
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,745
<SHARES-COMMON-STOCK> 10,955
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115,135)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 204,672
<NET-ASSETS> 110,030
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 319,156
<OTHER-INCOME> 0
<EXPENSES-NET> 60,017
<NET-INVESTMENT-INCOME> 259,139
<REALIZED-GAINS-CURRENT> (115,135)
<APPREC-INCREASE-CURRENT> 204,672
<NET-CHANGE-FROM-OPS> 348,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,082
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> 20,510,147
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,017
<AVERAGE-NET-ASSETS> 29,185
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> Nations Fund Port Glob Govt Inco Tr-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,556,579
<INVESTMENTS-AT-VALUE> 19,543,888
<RECEIVABLES> 657,267
<ASSETS-OTHER> 2,867
<OTHER-ITEMS-ASSETS> 487,917
<TOTAL-ASSETS> 20,691,939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,792
<TOTAL-LIABILITIES> 147,792
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,314,301
<SHARES-COMMON-STOCK> 2,031,348
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115,135)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 204,672
<NET-ASSETS> 20,402,340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 319,156
<OTHER-INCOME> 0
<EXPENSES-NET> 60,017
<NET-INVESTMENT-INCOME> 259,139
<REALIZED-GAINS-CURRENT> (115,135)
<APPREC-INCREASE-CURRENT> 204,672
<NET-CHANGE-FROM-OPS> 348,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (258,664)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,031,636
<NUMBER-OF-SHARES-REDEEMED> (1,149)
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 20,510,147
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,017
<AVERAGE-NET-ASSETS> 20,266,021
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Nations Fund Port Pacific Grow Inv-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,156,242
<INVESTMENTS-AT-VALUE> 25,720,839
<RECEIVABLES> 410,009
<ASSETS-OTHER> 18,642
<OTHER-ITEMS-ASSETS> 3,996,688
<TOTAL-ASSETS> 30,146,178
<PAYABLE-FOR-SECURITIES> 722,131
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,044
<TOTAL-LIABILITIES> 828,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162,319
<SHARES-COMMON-STOCK> 16,612
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 6,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (89,559)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (435,647)
<NET-ASSETS> 161,219
<DIVIDEND-INCOME> 68,657
<INTEREST-INCOME> 18,167
<OTHER-INCOME> 0
<EXPENSES-NET> 79,868
<NET-INVESTMENT-INCOME> 6,956
<REALIZED-GAINS-CURRENT> (89,559)
<APPREC-INCREASE-CURRENT> (435,647)
<NET-CHANGE-FROM-OPS> (518,250)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,772
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,284,003
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,868
<AVERAGE-NET-ASSETS> 60,435
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.00)
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Nations Fund Port Pacific Grow Inv-C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,156,242
<INVESTMENTS-AT-VALUE> 25,720,839
<RECEIVABLES> 410,009
<ASSETS-OTHER> 18,642
<OTHER-ITEMS-ASSETS> 3,996,688
<TOTAL-ASSETS> 30,146,178
<PAYABLE-FOR-SECURITIES> 722,131
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,044
<TOTAL-LIABILITIES> 828,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,527
<SHARES-COMMON-STOCK> 4,708
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 6,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (89,559)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (435,647)
<NET-ASSETS> 45,592
<DIVIDEND-INCOME> 68,657
<INTEREST-INCOME> 18,167
<OTHER-INCOME> 0
<EXPENSES-NET> 79,868
<NET-INVESTMENT-INCOME> 6,956
<REALIZED-GAINS-CURRENT> (89,559)
<APPREC-INCREASE-CURRENT> (435,647)
<NET-CHANGE-FROM-OPS> (518,250)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,858
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,284,003
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,868
<AVERAGE-NET-ASSETS> 25,577
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 2.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> Nations Fund Port Pacific Grow Inv-N
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,156,242
<INVESTMENTS-AT-VALUE> 25,720,839
<RECEIVABLES> 410,009
<ASSETS-OTHER> 18,642
<OTHER-ITEMS-ASSETS> 3,996,688
<TOTAL-ASSETS> 30,146,178
<PAYABLE-FOR-SECURITIES> 722,131
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,044
<TOTAL-LIABILITIES> 828,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 385,497
<SHARES-COMMON-STOCK> 39,706
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 6,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (89,559)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (435,647)
<NET-ASSETS> 384,640
<DIVIDEND-INCOME> 68,657
<INTEREST-INCOME> 18,167
<OTHER-INCOME> 0
<EXPENSES-NET> 79,868
<NET-INVESTMENT-INCOME> 6,956
<REALIZED-GAINS-CURRENT> (89,559)
<APPREC-INCREASE-CURRENT> (435,647)
<NET-CHANGE-FROM-OPS> (518,250)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,856
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,284,003
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,868
<AVERAGE-NET-ASSETS> 106,831
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 2.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 034
<NAME> Nations Fund Port Pacific Grow Tr-A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,156,242
<INVESTMENTS-AT-VALUE> 25,720,839
<RECEIVABLES> 410,009
<ASSETS-OTHER> 18,642
<OTHER-ITEMS-ASSETS> 3,996,688
<TOTAL-ASSETS> 30,146,178
<PAYABLE-FOR-SECURITIES> 722,131
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,044
<TOTAL-LIABILITIES> 828,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,241,910
<SHARES-COMMON-STOCK> 2,957,866
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 6,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (89,559)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (435,647)
<NET-ASSETS> 28,726,552
<DIVIDEND-INCOME> 68,657
<INTEREST-INCOME> 18,167
<OTHER-INCOME> 0
<EXPENSES-NET> 79,868
<NET-INVESTMENT-INCOME> 6,956
<REALIZED-GAINS-CURRENT> (89,559)
<APPREC-INCREASE-CURRENT> (435,647)
<NET-CHANGE-FROM-OPS> (518,250)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,975,376
<NUMBER-OF-SHARES-REDEEMED> (18,360)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,284,003
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,868
<AVERAGE-NET-ASSETS> 19,472,065
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
