As filed with the Securities and Exchange Commission
on January 29, 1996
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. 3 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [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):
[ ] Immediately upon filing pursuant [ ] on __________, pursuant
to Rule 485(b), or to Rule 485(b), or
[X] 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.
<PAGE>
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 add a Shareholder Administration Plan and
Shareholder Administration Agreements for the Trust B Shares.
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
CROSS REFERENCE SHEET
Part A
Item No. Prospectus
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; How to
Exchange 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
<PAGE>
Company and its Common Stock
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
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 31, 1996
Prospectus
TRUST B SHARES
MARCH , 1996
This Prospectus describes the 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 B Shares.
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Trust B 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 ("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.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the other
Funds. As used herein the "Adviser" shall mean NBAI,
TradeStreet and/or Nations Gartmore as the context
may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("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 AND CERTAIN OF ITS AFFILIATES PROVIDE
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.
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 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
Objectives 5
How Objectives Are Pursued 6
How Performance Is Shown 18
How the Funds Are Managed 18
Organization and History 23
About Your
Investment
How to Buy Shares 25
Shareholder Administration Arrangements 25
How to Redeem Shares 26
How to Exchange Shares 26
How the Funds Value Their Shares 27
How Dividends and Distributions Are Made; Tax
Information 27
Appendix A -- Portfolio Securities 29
Appendix B -- Description of Ratings 37
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 B 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 EQUITY/BALANCED FUNDS TRUST B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund 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
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Sales Load Imposed on
Purchases None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees1 .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses1 .67% .75% .70% 1.30% 1.30% .67% .70%
Total Operating Expenses1 1.42% 1.45% 1.60% 2.40% 2.20% 1.42% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Management Fees1 .75% .10% .75%
Other Expenses1 .75% .80% .70%
Total Operating Expenses1 1.50% .90% 1.45%
</TABLE>
1 After any waivers and reimbursements.
NATIONS FUND BOND FUNDS TRUST B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Management Fees1 .40% .50% .30% .50%
Other Expenses1 .53% .65% .57% .67%
Total Operating Expenses1 .93% 1.15% .87% 1.17%
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Management Fees1 .50% 0.70%
Other Expenses1 .52% 0.95%
Total Operating Expenses1 1.02% 1.65%
</TABLE>
1 After any waivers and reimbursements.
3
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Trust B Shares of
the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Equity International Emerging Pacific
Nations Value Fund Income Fund Equity Fund Markets Fund Growth Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 14 $ 15 $ 16 $ 24 $ 22
3 Years $ 45 $ 46 $ 50 $ 75 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
1 Year $ 14 $ 15
3 Years $ 45 $ 46
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Government
Nations Disciplined Equity Index Nations Balanced Short- Intermediate Securities
Equity Fund Fund Assets Fund Government Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 9 $ 15 $ 9 $ 12
3 Years $ 47 $ 29 $ 46 $ 30 $ 37
</TABLE>
<TABLE>
<CAPTION>
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 12
3 Years $ 28 $ 37
</TABLE>
<TABLE>
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 17
3 Years $ 32 $ 52
</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 B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above tables are based on estimated amounts for each Fund's
current fiscal year and reflect anticipated fee waivers and reimbursements.
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.
("NASD"). For more complete descriptions of the Funds' operating expenses, see
"How the Funds are Managed."
Absent fee waivers and reimbursements, "Management Fees," "Other Expenses" and
"Total Operating Expenses" for Trust B Shares of the indicated Fund would have
been as follows: Nations Value Fund -- .75%, .75% and 1.52%, respectively;
Nations Equity Income Fund -- .70%, .85% and 1.55%, respectively; Nations
International Equity Fund -- .90%, .80% and 1.70%, respectively; Nations
Emerging Markets Fund -- 1.10%, 1.40% and 2.50%, respectively; Nations Pacific
Growth Fund -- 0.90%, 1.40% and 2.30%, respectively; Nations Capital Growth
Fund -- .75%, .77% and 1.52%, respectively; Nations Emerging Growth
Fund -- .75%, 80% and 1.55%, respectively; Nations Disciplined Equity
Fund -- .75%, .80% and 1.60%, respectively; Nations Equity Index Fund -- .50%,
.90% and 1.00%, respectively; Nations Balanced Assets Fund -- .75%, .80% and
1.55%, respectively; Nations Short-Intermediate Government Fund -- .60%, .78%
and 1.18%, respectively; Nations Government Securities Fund -- .64%, 90% and
1.40%, respectively; Nations Short-Term Income Fund -- .60%, .82% and 1.12%,
respectively; Nations Diversified Income Fund -- .60%, .92% and 1.42%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .77% and 1.27%,
respectively; and Nations Global Government Income Fund -- 0.70%, 1.20% and
1.90%, 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.
4
<PAGE>
Objectives
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's objective is to
seek 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 the Adviser
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.
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 the Adviser, 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 the Adviser 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" 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.
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 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 prima-
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.
5
<PAGE>
rily 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 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 the 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
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by the Adviser, which 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 the Adviser to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. The Adviser 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 the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser 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. The Adviser 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. The Adviser 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
6
<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. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
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, the Adviser 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 Standard & Poor's 500 Stock
Index ("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, the Adviser
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 the Adviser. 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 the Adviser). 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 the Adviser.
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
the Adviser 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 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 the
Adviser believes 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;
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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 or S&P or, if unrated, determined by
the 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, the
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. The Adviser seeks 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. The Adviser believes 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 the 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.
8
<PAGE>
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, the
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, the Adviser 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 the Adviser. 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
9
<PAGE>
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 the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser 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 the 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, the Adviser 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. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser 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
the Adviser). 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, the
Adviser will attempt to allocate the Fund's portfolio
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<PAGE>
among common stock 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.
The Adviser 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, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser 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, the Adviser 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 the Adviser 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. 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 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 (except the Nations Equity
Index Fund) also may invest in restricted, private placement and other illiquid
securities, real estate investment trust securities and 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, the Adviser 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, the Adviser 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, the
Adviser believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with
11
<PAGE>
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 the Adviser'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 the Adviser 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. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
Unrated obligations may be acquired by the Fund if they are determined by the
Adviser to be of comparable quality at the time of purchase to rated obligations
that may be acquired. 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."
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 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 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 Fed-
12
<PAGE>
eral 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 the Adviser 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 the Adviser's opinion, existing
circumstances warrant.
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 six NRSROs, or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments (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 the Adviser 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 the Adviser 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. The
Adviser 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 the Adviser 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 the Adviser'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 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 NRSRO's, or if not so rated, determined by the Adviser 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
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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 the Adviser 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 the Adviser 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. The Adviser 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 the Adviser 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 the Adviser'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 the Adviser 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 the Adviser 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 the
Adviser 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. The Adviser 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 the Adviser 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 the Adviser'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
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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 the 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 the 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 the 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. The
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. The Adviser expects 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
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 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. Each of
those Funds 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
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investing. In addition, each of these 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 it's 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 an 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 Equity Funds, the Balanced Fund and the Bond
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. The portfolio turnover rates of the
indicated Funds for the fiscal years ended November 30, 1994 and 1993 were as
follows: Nations Value Fund -- 75% and 64%, respectively; Nations Capital Growth
Fund -- 56% and 81%, respectively; Nations Balanced Assets -- 156% and 50%,
respectively; Nations Short-Intermediate Government Fund -- 133% and 92%,
respectively; Nations Short-Term Income Fund -- 293% and 121%, respectively;
Nations Diversified Income Fund -- 144% and 86%, respectively; and Nations
Strategic Fixed Income Fund -- 307% and 161%, respectively. The portfolio
turnover rates for the Nations Disciplined Equity Fund for the periods ended
November 30, 1995 and April 30, 1994 were 177% and 475%, respectively. The
portfolio
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turnover rates of the Nations Emerging Growth Fund for the fiscal year ended
November 30, 1994 and the period from commencement of operations to November 30,
1993 were 129% and 159%, respectively. The portfolio turnover rate of the
Nations Equity Index Fund for the period from commencement of operations to
November 30, 1994 was 14%. The portfolio turnover rates for the indicated Fund
for the fiscal years ended May 31, 1995 and 1994 were as follows: Nations Equity
Income Fund -- 158% and 116%, respectively; Nations International Equity
Fund -- 92% and 39%, respectively; and Nations Government Securities Fund --
413% and 56%, respectively. If a Fund's portfolio turnover exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders.
RISK CONSIDERATIONS: Although the Adviser of 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. 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, i.e.,
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 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 Investment Company Act of 1940, as amended (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 then current position
and needs.
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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 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.
"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 B Shares, the Money Market Funds offer Trust A, Investor A,
Investor B, Investor C and Investor D Shares. In addition to Trust B Shares, the
Non-Money Market Funds offer Trust A, 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 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 Institution, as defined below.
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 Board 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. and Nations Portfolio's SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios, respectively.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking 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.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser.
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TradeStreet is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation.
TradeStreet 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").
Seventy-five percent of the equity of Gartmore plc is owned by Banque Indosuez
S.A., a leading French bank. 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, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. With
respect to the Non-Money Market Funds, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. 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, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 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 and Nations Strategic Fixed Income 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 the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay to TradeStreet sub-advisory fees, computed daily and
paid monthly, at the annual rates of: 0.15% of the average daily net assets of
each of Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income Fund; 0.20% of the average daily net assets
of each of Nations Equity Income Fund and Nations Equity Index Fund; 0.25% 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.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NBAI 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. For the fiscal year ended May 31,
1994, Nations International Equity Fund paid its prior sub-adviser fees at the
rate of 0.41% of the Fund's average
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daily net assets. Although the advisory fees for the 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, NBAI, TradeStreet and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory or
sub-advisory fees payable by a Fund. For the fiscal year ended November 30,
1994, after waivers, Nations Fund Trust paid NationsBank, under a prior Advisory
Agreement advisory fees at the indicated rate of the following Funds' average
daily net assets: 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%; and
Nations Strategic Fixed Income Fund -- 0.52%. 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, under a prior Advisory Agreement fees at the indicated rate of the
following Funds' average daily net assets: 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 International Equity Fund paid its prior sub-adviser fees at the rate of
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 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.
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.
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 at 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 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
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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 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.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Strategic Fixed
Income Fund since 1995. 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 at Chapel Hill.
David M. Hetherington is Senior Vice President, Director of Fixed Income
Management and a member of the Investment Policy Committee. Mr. Hetherington has
been the principal portfolio manager of the Nations Short-Term Income Fund since
1995. Mr. Hetherington has over 16 years of investment experience including
security analysis and portfolio management. Mr. Hetherington received a B.A.
from Duke University and holds the Chartered Financial Analyst designation.
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. 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 and Nations Government
Securities 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 the Institute of Investment Management
and Research.
Philip Ehrmann is the principal portfolio manager of the Nations Emerging
Markets Fund and is the head of the Nations Gartmore Emerging Markets Team.
Prior to joining Nations Gartmore, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. Mr. Ehrmann has over 15 years of investment
management experience.
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 LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank, that subsidiaries of
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
such subsidiaries of NationsBank from continuing to perform, in whole or in
part, such services. If such subsidiaries of NationsBank were prohibited from
performing any 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
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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 following Funds' average daily
net assets: 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. 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 Equity Income Fund, Nations
International Equity Fund and Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists 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", 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 also serves as the sub-transfer agent for each Fund's Trust Shares and 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. 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 accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Trust B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, 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 the Adviser, NationsBank, Stephens
or TSSG under their respective agreements with Nations Fund; and any
extraordinary expenses. Trust B Shares also bear certain shareholder servicing
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
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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 B Shares
of the following funds of Nations Fund Trust: 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 and Nations Strategic Fixed Income 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 January , 1996, 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 B Shares of the following
funds of Nations Fund, Inc.: 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
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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 January , 1996, 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 50,000,000,000 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 B Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income 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 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 January , 1996, 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 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.
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About Your Investment
How To Buy Shares
Trust B Shares are sold primarily to qualified plans and other financial
institutions (including NationsBank and its affiliated and correspondent banks)
("Institutions") that have entered into shareholder administration agreements
("Administration Agreements") with Nations Fund and that are acting on behalf of
their customers ("Customers") having a qualified trust account at or
relationship with the Institution.
Trust B 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 Funds may
be effected on days on which the New York Stock Exchange (the "Exchange") is
open for business ("NYSE Business Day"). A NYSE Business Day is a "Business Day"
as that term is used in this Prospectus.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Administration Agreements whereby they will
provide various shareholder services for their Customers that own Trust B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Trust B Shares is recorded on the books of the Funds, and share certificates are
not issued.
Purchase orders for Trust B 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 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 B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
Shareholder Administration Arrangements
The Funds have adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administration
services to their Customers who from time to time beneficially own Trust B
Shares. Payments under the Administration 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 0.60% of the average daily net asset value of the
Trust B Shares beneficially owned by Customers with whom the Institutions have a
servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of such Trust B Shares
of a Fund. Holders of Trust B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, TSSG and
the Transfer Agent to shareholders of record. The shareholder services provided
by Institutions may include: (i) aggregating and processing purchase and
redemption requests for Trust B Shares from Customers and transmitting promptly
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
Trust B Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from the Funds on behalf of
Customers; (iv) providing information periodically to Customers
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showing their positions in Trust B Shares; (v) arranging for bank wires; (vi)
responding to Customers' 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
Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services; and (xii) providing such other similar services as may be reasonably
requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreement between
Institutions and Nations Fund. See the SAIs for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Trust B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Trust B Shares. Customers of Institutions should read this Prospectus
in light of the terms governing their accounts with their Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Trust B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Trust B Shares.
How To Redeem Shares
Customers may redeem all or part of their Trust B 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 that 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 B 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 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 B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her 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 B 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 To Exchange Shares
The exchange feature enables a shareholder of Trust B Shares of a Fund to
acquire Trust B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision.
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An exchange of Trust B Shares for Trust B Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Funds and each of the other funds of Nations 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 sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for 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 ninety days after the shares are purchased.
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.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Institution through which the original shares were
purchased. Investors should consult their Institution or Stephens for further
information regarding exchanges.
Trust B Shares may be exchanged by directing a request directly to the
Institution through which the original Trust B Shares were purchased or in some
cases Stephens or the Transfer Agent. Investors should consult their Institution
or Stephens for further information regarding exchanges. Your exchange feature
may be governed by your account agreement with your Institution.
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 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 Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The 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
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 B 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 B 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
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including the day before the redemption order is executed.
The net asset value of Trust B Shares in the 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 B 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
B Shares in a Fund. Each Fund's net investment income available for distribution
to the holders of Trust B Shares will be reduced by the amount of shareholder
servicing fees payable to Institutions under the Servicing Agreements.
TAX INFORMATION
Each Fund 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 Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund 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.
Portions of the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and 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 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 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
nonres-
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ident 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 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.
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 the 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
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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 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 the Adviser 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
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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. 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 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 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
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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 the Adviser 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 the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
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 the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
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
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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 the Adviser believes 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. The
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 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 the Adviser 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 as seperate 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
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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, and
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less. 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.
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
the Adviser, 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. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
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, the Adviser will
try to minimize the risks inherent
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in investing in lower-rated debt securities by engaging in credit analysis,
diversification, and attention to current developments and trends affecting
interest rates and economic conditions. The Adviser will attempt to 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 the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," 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, the Adviser 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 the Adviser. To the extent that more than 25%
of a Fund's
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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
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 the Adviser to be of 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.
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
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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 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.
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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, 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.
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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.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
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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.
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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 21, 1995
as supplemented on
January 29, 1996
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 for all shares except the Trust B
Shares, and March 26, 1996 for the Trust B Shares (each a "Prospectus"). All
terms used in this SAI that are defined in the Prospectuses will have the same
meanings assigned in the Prospectuses. Copies of these Prospectuses may be
obtained by writing Nations Fund c/o Stephens Inc., One NationsBank Plaza, 33rd
Floor, Charlotte, North Carolina 28255, or by calling Nations Fund 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
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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, SHAREHOLDER ADMINISTRATION AND DISTRIBUTION
AGREEMENTS 46
The Company and Its Common Stock............................................... 46
Investment Adviser............................................................. 47
Investment Styles.............................................................. 49
Administrator and Co-Administrator............................................. 50
Distributor.................................................................... 51
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares............................................. 51
Investor A Shares..................................................... 51
Investor C Shares..................................................... 52
Investor N Shares..................................................... 54
Information Applicable to Investor A,
Investor C and Investor N Shares............................................. 55
Shareholder Administration Plan
(Trust B Shares)............................................................. 56
Expenses....................................................................... 57
Transfer Agents and Custodians................................................. 58
INDEPENDENT ACCOUNTANTS AND REPORTS..................................................... 59
COUNSEL................................................................................. 59
ADDITIONAL INFORMATION ON PERFORMANCE................................................... 59
Yield Calculations............................................................. 59
Total Return Calculations...................................................... 60
MISCELLANEOUS........................................................................... 62
Certain Record Holders......................................................... 62
SCHEDULE A - Description of Ratings..................................................... A-1
SCHEDULE B - Additional Information Concerning
Options & Futures.............................................................. B-1
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SCHEDULE C - Additional Information Concerning
Mortgage Backed Securities..................................................... C-1
iii
<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." NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Funds. Nations Gartmore Investment Management ("Nations Gartmore"or the
"Sub-Adviser") is sub-investment adviser. Prospectuses relating to the 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, NBAI 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. NBAI's primary consideration in effecting a security
transaction is to obtain the best net price and the most favorable execution of
the order. While NBAI 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, NBAI 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 NBAI and the Sub-Adviser generally seek
reasonably competitive commission rates, a Fund will not necessarily pay the
lowest commission or spread available.
NBAI 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
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traded in over-the-counter markets, and in the transactions, a Fund deals
directly 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.
NBAI 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 NBAI 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 NBAI and Sub-Adviser.
Subject to the overall objective of obtaining best price and execution
for the Funds, NBAI and the Sub-Adviser may also consider sales of shares of the
Funds and of the other mutual funds managed or advised by NBAI and the
Sub-Adviser as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds.
NBAI 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 NBAI 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 NBAI and the
Sub-Adviser under their agreements with each Fund and the expenses of NBAI 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 NBAI 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.
NBAI 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
NBAI and the Sub-Adviser. NBAI and the Sub-Adviser may combine such
transactions, in accordance with applicable laws and regulations, in order to
2
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obtain the best net price and most favorable 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 NBAI 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 NBAI 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 NBAI 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, NBAI 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 NBAI and the Sub-Adviser may furnish
statistical, research and other information or services which are deemed by NBAI
and the Sub-Adviser to be beneficial to the Funds' investment programs. Research
services received from brokers supplement NBAI'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 NBAI 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.
3
<PAGE>
Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to NBAI and the Sub-Adviser
since the brokers utilized by NBAI and the Sub-Adviser as a group tend to follow
a broader universe of securities and other matters than NBAI's and the
Sub-Adviser's staff can follow. In addition, this research provides NBAI and the
Sub-Adviser with a diverse perspective on financial markets. Research services
which are provided to NBAI and the Sub-Adviser by brokers are available for the
benefit of all accounts managed or advised by NBAI. 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. NBAI 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 NBAI
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 NBAI and
the Sub-Adviser could be considered to have been reduced accordingly. Certain
research services furnished by broker-dealers may be useful to NBAI and the
Sub-Adviser with clients other than the Funds. Similarly, any research services
received by NBAI through the placement of fund transactions of other clients may
be of value to NBAI and the Sub-Adviser in fulfilling their obligations to the
Funds. NBAI 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 NBAI's and the Sub-Adviser's
investment advice. The advisory fees paid by the Company are not reduced because
NBAI 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 NBAI'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 estimation of short-
4
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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
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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 NBAI 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 NBAI 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 NBAI 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
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position or an anticipated portfolio position. Although these transactions tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase. The precise matching
of the forward contract amount and the value of the securities involved will not
generally be possible because the future value of these securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and date
it matures.
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 indices of municipal, corporate and government bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are 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
7
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standard for the contract. In some (but not many) cases, securities called for
by a futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
Futures Contracts on Fixed Income Securities and Related Indices. As
noted in their respective Prospectuses, 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 indices 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 indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short
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maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of these futures
contracts as an investment technique allows a Fund to act in anticipation of
such an interest rate decline without having to sell its portfolio securities.
To the extent a Fund enters into futures contracts for this purpose, the 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 indices, 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
Indices. 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
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interest rate decline when they are not fully invested. A Fund would write
options on these futures contracts primarily for the purpose of terminating
existing positions.
Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. As described in the Prospectuses, the Funds may
purchase put options on stock index futures contracts, stock indices 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 indices
will be employed in lieu of options on stock index futures contracts only where
they present an opportunity to hedge at lower cost. With respect to options on
equity securities, a Fund may, under certain circumstances, purchase a
combination of call options on such securities and U.S. Treasury bills. NBAI
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. NBAI 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, NBAI 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 indices,
foreign government securities and foreign currencies are relatively
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new and still developing. It is impossible to predict the amount of trading
interest that may exist in various types of options or futures. Therefore, no
assurance can be given that a Fund will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, a Fund's ability to
engage in options and futures transactions may be limited by tax considerations.
Although a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
Writing Covered Options on Securities. 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 NBAI 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
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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.
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 Indices. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If NBAI 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, NBAI 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.
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A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Fund's short position in the futures contracts will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of a
Fund's investments that are being hedged. While a Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures 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.
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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 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. NBAI 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.
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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 NBAI and/or the Sub-Adviser deem it desirable to do so. Although
a Fund will not enter into an option or futures position unless NBAI 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 indices and stock index futures,
is imperfect, and such risk increases as the composition of a Fund diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of NBAI 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 portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
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The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
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
NBAI'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 NBAI'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.
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Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if NBAI's investment judgment concerning the general direction of interest rates
is incorrect, a Fund's overall performance may be poorer than if it had not
entered into any such contract. For example, if a Fund has been hedged against
the possibility of an increase in interest rates which would adversely affect
the price of bonds held in its portfolio and interest rates decrease instead,
the Fund will lose part or all of the benefit of the increased value of its
bonds which have been hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell bonds from its portfolio to meet daily variation
margin requirements, possibly at a time when it may be disadvantageous to do so.
Such sale of bonds may be, but will not necessarily be, at increased prices
which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. NBAI 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
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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 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, NBAI 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
NBAI. 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
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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. 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.
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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
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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 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 NBAI 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
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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, NBAI, 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 NBAI 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
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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.
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.
NBAI 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
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker-dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when NBAI 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.
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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 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 NBAI 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 NBAI. 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.
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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.
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 NBAI 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 NBAI. 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 NBAI deems the investment to involve minimal
credit risk. If such instruments are not rated, NBAI 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
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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 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 NBAI 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 NBAI 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, NBAI 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
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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 NBAI. 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, Shareholder
Administration 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
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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.
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 Fund'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
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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).
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
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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.
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.
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Exchanges
By use of the exchange privilege, the holder of Investor Shares and/or
Trust B 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 and/or Trust B 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 and Trust B Shares of each
Fund describe the exchange privileges available to holders of such Investor
Shares and Trust B Shares, respectively.
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
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dividends received by the Fund from domestic corporations for the taxable year.
A 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.
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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 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
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failure to report the receipt of interest or dividend income properly, or (3)
who has 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, Shareholder Servicing Plan and/or
Shareholder Administration 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, Shareholder Servicing Plan and Shareholder Administration
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 its investment company taxable income (i.e., net investment income
and the excess of short-term capital gain over
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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 things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants
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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 indices 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.
Capital losses in
37
<PAGE>
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>
<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, 58 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, 53 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, 63 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, 64 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, 73* President, Director and Chairman of Financial consultant; Director and
6215 Riverwood Drive, N.W. the Board Chairman of the Board, Hatteras
Atlanta, GA 30328 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, 57 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., 57* 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., 39 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, 43 Assistant Secretary Corporate Syndicate
Stephens Inc. Associate, Stephens Inc.
James E. Banks, 39 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, 40 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 and Nations Institutional Reserves, 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., Nations
Fund Trust and Nations Institutional Reserves.
42
<PAGE>
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.
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 NBAI. 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
43
<PAGE>
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 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.
<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
Carl E. Mundy, Jr., $7,000 N/A N/A N/A
Director
</TABLE>
44
<PAGE>
(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, Mundy 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.
46
<PAGE>
Investment Adviser
Effective January 1, 1996, NBAI began serving as investment adviser to
the Funds, pursuant to an Investment Advisory Agreement dated January 1, 1996.
NBAI is a wholly owned banking subsidiary of NationsBank, N.A. ("NationsBank"),
which in turn is a wholly owned banking subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation.
NBAI 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, NBAI 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.
Prior to January 1, 1996, NationsBank, through its Investment
Management Division, served 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 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).
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.
NationsBank restructured its investment management division as of
January 1, 1996 by reorganizing the division into two separate, wholly owned
advisory subsidiaries, NBAI and TradeStreet Investment Associates, Inc. The
restructuring resulted in the transfer of the division's investment management
and advisory functions to NBAI. The investment professionals who performed
investment company management functions as employees of NationsBank continue to
perform such services as employees of NBAI. The restructuring did not change the
scope and nature of investment advisory services provided to the Funds.
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.
47
<PAGE>
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"), NBAI 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. NBAI and the Sub-Adviser obtain and evaluate economic, statistical and
financial information to formulate and implement investment policies for the
Funds. The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI, or any of its officers, directors,
employees or agents, NBAI shall not be subject to liability to the Company or to
any shareholder of the Company for any act or omission in the course of, or
connected with, rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security. The Sub-Advisory
Agreement provides that the Sub-Adviser shall not be liable to the Company or to
its shareholders for any act or omission by NBAI or the Sub-Adviser or for any
loss sustained by the Company or by its shareholders except in the case of
NBAI'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 Investment Advisory Agreement was approved by the Company's Board of
Directors at the October 12-13 Meeting of the Board of Directors. The Investment
Advisory Agreement shall become effective with respect to a Fund if and when
approved by the Directors of the Company, and if so approved, shall thereafter
continue from year to year, provided that such continuation of the Agreement is
specifically approved at least annually by (a) (i) the Company's Board of
Directors or (ii) the vote of "a majority of the outstanding voting securities"
of a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Company's Directors who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Directors of the Company), by votes cast in
person at a meeting specifically called for such purpose. The Investment
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable with respect to a Fund at any time without penalty by the
Company (by vote of the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement was approved by the Company's Board of
Directors on January 26, 1995 and by the initial shareholder on June 30, 1995.
The Sub-Advisory Agreement will continue in effect for an initial term of two
years from its effective date and continues 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 Sub-Advisory Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The respective Funds, NBAI or Nations Gartmore may terminate the
Sub-Advisory Agreement, on 60 days' written notice without penalty. The Advisory
Agreement terminates automatically in the event of its "assignment," as defined
in the 1940 Act.
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.
NBAI pays the Sub-Adviser a fee determined at the annual rate of 0.85% of the
Fund's average daily net assets. The advisory fee for the Pacific Growth Fund is
calculated daily and paid monthly at the annual rate of 0.90% of the
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Fund's average daily net assets. NBAI 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 NBAI an advisory fee determined at the annual rate
of 0.70% of the Fund's average daily net assets. NBAI pays the Sub-Adviser a fee
determined at the annual rate of 0.54% of the Fund's average daily net assets.
NBAI 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," NBAI 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 NBAI,
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.
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.
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.
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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.
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
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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 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
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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.
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,
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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 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
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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 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
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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. 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
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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 Administration Plan (Trust B Shares)
As stated in the Prospectus describing the Trust B Shares, the Company has
a separate Shareholder Administration Plan (the "Administration Plan") with
respect to such shares. Pursuant to the Administration Plan, the Company may
enter into agreements ("Administration Agreements") with broker/dealers, banks
and other financial institutions that are dealers of record or holders of record
or which have a servicing relationship with the beneficial owners of Trust B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their customers who may from time to
time own of record or beneficially Trust B Shares ("Customers") in consideration
for the payment of up to 0.60% (on an annualized basis) of the net asset value
of such shares. Such services may include: (i) aggregating and processing
purchase, exchange and redemption requests for 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; (iv) 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
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(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
The Administration Plan also provides that in no event may the portion of
the shareholder administration fee that constitutes a "service fee," as the term
is defined in the NASD Servicing Plan Rule, exceed 0.25% of the average daily
net asset value of the Trust B Shares a Fund. In addition, to the extent any
portion of the fees payable under the Plan is deemed to be for services
primarily intended to result in the sale of Fund Trust B Shares, such fees are
deemed approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated 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 NBAI 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 NBAI, 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
matter relative to the Company;
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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 NBAI (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 NBAI, 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
NBAI, the Sub-Adviser or the Administrator shall be deducted from the monthly
investment advisory and administration fees otherwise payable to NBAI, the
Sub-Adviser and the Administrator during such fiscal year. If required pursuant
to such state securities regulations, NBAI, 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
receives all dividends and other distributions made on securities owned by the
Funds. The Custodian
58
<PAGE>
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 LLP 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
59
<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
60
<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.
61
<PAGE>
MISCELLANEOUS
Certain Record Holders
The following indicates those persons who owned 5% or more of the
indicated class of shares as of January 24, 1996. Unless otherwise indicated,
the address for each recordholder of Trust Shares is 1401 Elm Street, 11th
Floor, Dallas, Texas 75202.
<TABLE>
<CAPTION>
Percentage of Shares
Name and Address Held of Record Only
<S> <C>
Nations Emerging Markets Fund
Trust A Shares
PT NationsBank Corp.-Equity 45.50%
Susan Waldkirch
NCI-007-21-02
101 South Tryon Street
Charlotte, NC 28255
ST NationsBank-Equity 11.10%
Susan Waldkirch
NCI-007-21-02
101 South Tryon Street
Charlotte, NC 28255
ST NationsBank Balanced-Equity 7.00%
Susan Waldkirch
NCI-007-21-02
101 South Tryon Street
Charlotte, NC 28255
Investor A Shares
BSDT CUST 17.71%
Charles R. Egan IRA RO
410 Ridge Drive
Naples, FL 33963
Stephens Inc. 15.55%
Custodian for Theodore Otto Johnson
P.O. Box 34127
Little Rock, AR 72203
62
<PAGE>
Andrew M. Silton and Margaret Kanze Silton 6.97%
JTWROS
5314 Germaine Terrace
Charlotte, NC 28225
David E. Buchner 5.61%
110 Mohawk Drive
Claredon Hills, IL 60514-1128
Investor C Shares
Stephens Inc. 55.66%
111 Center Street
Little Rock, AR 72201
Dean Witter Reynolds Cust. For 17.03%
David G. Elmer
IRA Std/Rollover dta 7/18/95
191 Second Avenue
Dayton, TN 3733
Renee A. Kriz 13.75%
7734 Middle Valley Drive
Springfield, VA 22153
Youssef I A Talaat Cust For 6.74%
Adham Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153
Youssef I A Talaat Cust For 6.74%
Ashraf Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153
Nations Global Government Income Fund
Trust A Shares
Nations Funds Fixed Income
Susan Waldkirch 88.40%
NCI-007-21-02
Nations Bank N.A.
101 South Tryon Street
Charlotte, NC 28255
63
<PAGE>
Investor A Shares
William A. Bridges & 39.77%
Nancy P. Bridges JT TEN
112 Country Club Drive
Greenville, SC 29605-1117
Stephens Inc. 33.96%
111 Center Street
Little Rock, AR 72201
Winston Burt & 15.21%
Gweneth A. Burt JT TEN
306 Gresham Street
Baytown, TX 77520-2610
9.44%
J. Laing Bowles Jr. &
Maria Galvin Bowles
4000 Massachusetts Ave., N.W.
Apt. 1615
Washington, DC 20016
Investor C Shares
Stephens Inc. 99.88%
111 Center Street
Little Rock, AR 72201
Investor N Shares
Dixie Restaurant 65.90%
Equipment Co. Inc.
2734 Spring Garden Road
Winston Salem NC, 27106-5714
Dean Witter Reynolds Cust For 11.86%
Alex Thomson IRA SEP
c/o McGladrey & Pullen
P.O. Box 1730
Wilmington, NC 28402
Charlotte S. Copeland 9.49%
103 Quail Drive Meadowbrook
Summerville, SC 29485
Dean Witter Reynolds Cust For 6.39%
Sandra D. Riggs
1608 Summerwood Trail
Hixson, TN 37343
64
<PAGE>
Stephens Inc. 5.60%
111 Center Street
Little Rock, AR 72201
Nations Pacific Growth Fund
Trust A Shares
PT NationsBank Corp.-Equity 24.80%
Susan Waldkirch
NCI-007-21-02
Nations Bank N.A.
101 South Tryon Street
Charlotte, NC 28255
ST NationsBank-Equity 16.70%
Susan Waldkirch
NCI-007-21-02
Nations Bank N.A.
101 South Tryon Street
Charlotte, NC 28255
Investor A Shares
Mohammad Athari M.D. 38.83%
2802 Garth Road
Baytown, TX 77521-3900
Stephens Inc. 6.61%
P.O. Box 34127
Little Rock, AR 72203
Stephens Inc. 5.05%
65
<PAGE>
Attn: Customer Control
P.O. Box 34127
Little Rock, AR 72203
Investor C Shares
Carolyn Branan 51.40%
19209 Hidden Cove Lane
Huntersville, NC 28078
Stephens Inc. 17.36%
111 Center Street
Little Rock, AR 72201
Dean Witter Reynolds Cust For 10.56%
Jean M. De Ru IRA
2664 Sharondale Drive
Atlanta, GA 30305-3858
William D. Ratliff III 10.52%
801 Cherry Street, Suite 1300
Fort Worth, TX 76102
As of January 24, 1996, NationsBank Corporation and its affiliates owned
of record more than 25% of the outstanding shares of the Company acting as
agent, fiduciary, or custodian for its customers and may be deemed a controlling
person of the Company under the 1940 Act.
66
<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 be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude
A-1
<PAGE>
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.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding
A-4
<PAGE>
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"):
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
A-5
<PAGE>
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>
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.
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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.
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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 indices, 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 indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are
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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).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
</TABLE>
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-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
</TABLE>
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
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-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
</TABLE>
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
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-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
</TABLE>
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
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-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
</TABLE>
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
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does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying security or
index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as marking to the market. For example,
when a Fund has purchased a futures contract and the price of the contract has
risen in response to a rise in the underlying instruments, that position will
have increased in value and the Fund will be entitled to receive from the broker
a variation margin payment equal to that increase in value. Conversely, where a
Fund has purchased a futures contract and the price of the futures contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable, 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 decline or for
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<PAGE>
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 sell securities to meet
B-8
<PAGE>
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
B-9
<PAGE>
begin prior to termination of the straddle. 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.
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<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
B-11
<PAGE>
corporation within the Department of Housing and Urban Development. GNMA is
authorized to guarantee, with the full faith and credit of the U.S. Government,
the timely payment of principal and interest on securities issued by approved
institutions and backed by pools of FHA-insured or VA-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The 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) - Advisory Agreement between Nations Fund Portfolios, Inc. and NationsBank, N.A.
("NationsBank") is incorporated by reference to the Registration Statement on
Form N-1A filed on February 23, 1995.
(b) - 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 to the Registration Statement
on Form N-1A filed on February 23, 1995.
C-1
<PAGE>
(c) - Investment Advisory Agreement between NationsBanc Advisors, Inc. a North Carolina
corporation ("NBAI") and Registrant, filed herewith.
(d) - Sub-Investment Advisory Agreement between Registrant and Nations Gartmore
Investment Management ("Nations Gartmore") filed herewith.
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.
(d) - Shareholder Administration Agreement for Trust B Shares is filed herewith.
(e) - Shareholder Administration Agreement for Trust B Shares for Nations Fund Trust,
Nations Fund, Inc. and Nations Fund Portfolios, Inc. is filed herewith.
7 - Not applicable.
8 - 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) - Transfer Agency and Registrar Agreement to be filed by Amendment
(b) - 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) - 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.
C-2
<PAGE>
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.
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.
(g) - Shareholder Administration Plan for Trust B Shares is filed herewith.
16 - Schedule for Computation of Performance Quotations to be filed by Amendment.
17 - Not Applicable.
18 - 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.
Item 25. Persons Controlled by or under
Common Control with Registrant.
C-3
<PAGE>
No person is controlled by or under common control with Registrant.
</TABLE>
Item 26. Number of Holders of Securities.
As of January 25, 1996, the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
<S> <C>
Nations Global Government
Income Fund
Trust A Shares 61
Trust B Shares 0
Investor A Shares 11
Investor C Shares 2
Investor N Shares 7
Nations Pacific Growth Fund
Trust A Shares 1,079
Trust B Shares 0
Investor A Shares 206
Investor C Shares 8
Investor N Shares 291
Nations Emerging Markets Fund
Trust A Shares 438
Trust B Shares 0
Investor A Shares 142
Investor C Shares 6
Investor N Shares 152
</TABLE>
Item 27. Indemnification.
The Registrant has entered into a Cross Indemnification Agreement
with Nations Fund, Inc. (the "Company") and Nations Fund Trust (the "Trust"),
dated June 27, 1995. The Company and or Trust will indemnify and hold harmless
the Registrant against any losses, claims, damages or liabilities, to which the
Registrant may become subject, under the Securities Act of 1933 (the "Act") and
the Investment Company Act of 1940 (the "1940 Act") insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in any Prospectuses, any Preliminary Prospectuses, the
Registration Statements, any other Prospectuses relating to the securities, or
any amendments or supplements to the foregoing (hereinafter referred to
collectively as the "Offering Documents"), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Documents in
reliance
C-4
<PAGE>
upon and in conformity with written information furnished to the Registrant by
the Company and/or Trust expressly for use therein; and will reimburse the
Registrant for any legal or other expenses reasonably incurred by the Registrant
in connection with investigating or defending any such action or claim;
provided, however, that the Company and/or Trust shall not be liable in any such
case to the extent that any such loss, claim, damage, or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Offering Documents in reliance upon and in
conformity with written information furnished to the Company and/or Trust by the
Registrant expressly for use in the Offering Documents.
Promptly after receipt by an indemnified party above of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its trustees, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his/her willful misfeasance, bad faith, gross negligence
in the performance of his/her duties, or by reason of his reckless disregard of
the duties involved in the conduct of his/her office or arising under his/her
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the 1940 Act, as amended, in
connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in connection with the
securities being registered, 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-5
<PAGE>
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 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.;
C-6
<PAGE>
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
Item 28. Business and Other Connections
of Investment Adviser.
To the knowledge of the Registrant, none of the directors or
officers of NBAI, the adviser to the Registrant's portfolios or Nations
Gartmore 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 director's
qualifying shares) of NBAI or other subsidiaries of NationsBank
Corporation.
(a) NBAI performs investment advisory services for the
Registrant and certain other customers. NBAI is a wholly owned
subsidiary of "NationsBank", which in turn is a wholly owned banking
subsidiary of NationsBank Corporation. Information with respect to each
director and officer of the investment adviser is incorporated by
reference to Form ADV filed by NBAI with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 (file no.
801-49874).
(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
C-7
<PAGE>
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
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 & Annuity Trust and Master Investment Portfolio, all of which are
registered open-end management investment companies, and has acted as principal
underwriter for the Liberty Term Trust, Inc., 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.
(1) NBAI, 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)
C-8
<PAGE>
(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)
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(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.
C-9
<PAGE>
(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.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Little Rock,
State of Arkansas on the 26th day of January, 1996.
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 January 26, 1996
(A. Max Walker) of the Board of Directors
(Principal Executive Officer)
* Treasurer January 26, 1996
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Director January 26, 1996
(Edmund L. Benson, III)
* Director January 26, 1996
(James Ermer)
* Director January 26, 1996
(William H. Grigg)
* Director January 26, 1996
(Thomas F. Keller)
* Director January 26, 1996
(Carl E. Mundy, Jr.)
* Director January 26, 1996
(Charles B. Walker)
* Director January 26, 1996
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
EX-27.011 Financial Data Schedules - Emerging Markets Fund - Investor A
EX-27.012 Financial Data Schedules - Emerging Markets Fund - Investor C
EX-27.013 Financial Data Schedules - Emerging Markets Fund - Investor N
EX-27.014 Financial Data Schedules - Emerging Markets Fund - Trust A
EX-27.021 Financial Data Schedules - Global Government Income Fund -Investor A
EX-27.022 Financial Data Schedules - Global Government Income Fund -Investor C
EX-27.023 Financial Data Schedules - Global Government Income Fund -Investor N
EX-27.024 Financial Data Schedules - Global Government Income Fund -Trust A
EX-27.031 Financial Data Schedules - Pacific Growth Fund - Investor A
EX-27.032 Financial Data Schedules - Pacific Growth Fund - Investor C
EX-27.033 Financial Data Schedules - Pacific Growth Fund - Investor N
EX-27.034 Financial Data Schedules - Pacific Growth Fund - Trust A
EX-99.B5(a) Advisory Agreement -- NationsBanc Advisors, Inc.
EX-99.B5(d) Sub-Advisory Agreement -- Nations Gartmore
EX-99.B6(d) Shareholder Administration Agreement -- Trust B Shares
EX-99.B6(e) Shareholder Administration Agreement -- Trust B Shares
for Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc.
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Accountants' Consent
EX-99.B15(g) Shareholder Administration Plan -- Trust B Shares
<PAGE>
EX-99.B5(a)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of January, 1996, by
and between Nations Fund Portfolios, Inc., a Maryland corporation (the
"Company"), and NationsBanc Advisors, Inc., a North Carolina corporation
(the "Adviser"), on behalf of those portfolios of the Company now or
hereafter identified on Schedule I hereto (each a "Fund" and,
collectively, the "Funds").
RECITALS
WHEREAS, the Company is registered with the Securities and
Exchange Commission ("Commission") under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end, series management
investment company; and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser; and
WHEREAS, the Company and the Adviser desire to enter into an
agreement to provide for investment advisory services to the Company
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Company and the Adviser contemplate that certain
duties of the Adviser under this Agreement will be delegated to one or
more sub-investment adviser(s) (the "Sub-Adviser(s)") pursuant to
separate sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)");
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Advisory Services. The Adviser shall act as investment
adviser for the Funds and shall, in such capacity, manage and supervise
the investment and reinvestment of the cash, securities or other
properties comprising the Funds' assets, subject at all times to the
policies and control of the Company's Board of Directors. The Adviser
shall give the Funds the benefit of its best judgment, efforts and
facilities in rendering its services as investment adviser.
2. Investment Analysis and Implementation. In carrying out its
obligations under paragraph 1 hereof, the Adviser shall:
(a) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the
economy generally or the Funds specifically, and whether
concerning the individual issuers whose securities are included
in the Funds or
<PAGE>
the activities in which such issuers engage, or with respect to
securities which the Adviser considers desirable for inclusion in
the Funds;
(b) invest and reinvest, on an ongoing basis, assets
held in the Funds in strict accordance with the investment
policies of the Funds as set forth in the registration statement
of the Company with respect to the Funds, as the same may be
amended from time to time;
(c) in accordance with policies and procedures
established by the Company's Board of Directors, select brokers
and dealers to execute portfolio transactions for the Funds and
select the markets on or in which the transactions will be
executed;
(d) vote, either in person or by general or limited
proxy, or refrain from voting, any securities held in the Funds
for any purposes; exercise or sell any subscription or conversion
rights; consent to and join in or oppose any voting trusts,
reorganizations, consolidations, mergers, foreclosures and
liquidations and in connection therewith, deposit securities, and
accept and hold other property received therefor;
(e) determine on an ongoing basis the overall
investment strategy with respect to the Funds, and ensure on an
ongoing basis adherence to such strategy;
(f) use the same skill and care in providing services
to the Funds as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(g) furnish the Company's Board of Directors with such
periodic and special reports as the Board of Directors may
request; and
(h) take, on behalf of the Funds, all actions which
appear necessary to carry into effect such purchase and sale
programs and supervisory functions set forth in this Paragraph 2.
3. Delegation of Responsibilities. Subject to the
approval of the Company's Board of Directors and, if required, the
shareholders of the Funds, the Adviser may, pursuant to the Sub-Advisory
Agreement(s), delegate to the Sub-Adviser(s) those of its duties
hereunder identified in the Sub-Advisory Agreement(s), provided that the
Adviser shall continue to supervise and monitor the performance of the
duties delegated to the Sub-Adviser(s) and any such delegation shall not
relieve the Adviser of its duties and obligations under this Agreement.
The Adviser shall be solely responsible for compensating the
Sub-Adviser(s) for services rendered under the Sub-Advisory
Agreement(s).
4. Control by Board of Directors. Any investment activities
undertaken by the Adviser pursuant to this Agreement, as well as any
other activities undertaken by the Adviser on
2
<PAGE>
behalf of the Funds, shall at all times be subject to any directives of
the Company's Board of Directors.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Adviser shall at all times conform
to:
(a) all applicable provisions of the 1940 Act, the
Advisers Act and any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the
Company, as the same may be amended from time to time;
(c) the provisions of the Articles of Incorporation of
the Company, as the same may be amended from time to time;
(d) the provisions of the By-laws of the Company, as
the same may be amended from time to time; and
(e) any other applicable provisions of state or federal
law.
In addition, any code of ethics adopted by the Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies,
prohibitions and procedures which substantially conform to the
recommendations regarding personal investing approved by the Board of
Governors of the Investment Company Institute on June 30, 1994, as such
recommendations may be amended from time to time.
6. Broker-Dealer Relationships. The Adviser is responsible for
the purchase and sale of securities for the Funds, broker-dealer
selection, and negotiation of brokerage commission rates. The Adviser's
primary consideration in effecting a security transaction will be to
obtain the best price and execution. In selecting a broker-dealer to
execute each particular transaction for a Fund, the Adviser will take
the following into consideration: the best net price available, the
reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the
expected contribution of the broker-dealer to the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be
less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Company's
Board of Directors may from time to time determine, the Adviser shall
not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of having caused
a Fund to pay a broker or dealer that provides brokerage and research
services to the Adviser an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities of
the Adviser with respect to the Fund and to other clients of the
Adviser. The Adviser is further
3
<PAGE>
authorized to allocate the orders placed by it on behalf of the Funds to
brokers and dealers who also provide research or statistical material,
or other services to the Funds or to the Adviser. Such allocation shall
be in such amounts and proportions as the Adviser shall determine and
the Adviser will report on said allocations regularly to the Board of
Directors of the Company indicating the brokers to whom such allocations
have been made and the basis therefor.
7. Compensation. The Company shall pay the Adviser as
compensation for services rendered hereunder fees, payable monthly, at
the annual rates indicated on Schedule I hereto, as such Schedule may be
amended or supplemented from time to time.
The average daily net asset value of the Funds shall be
determined in the manner set forth in the Company's Articles of
Incorporation and registration statement, as amended from time to time.
8. Expenses of the Funds. All of the ordinary business expenses
incurred in the operations of the Funds and the offering of their shares
shall be borne by the Funds unless specifically provided otherwise in
this Agreement. These expenses borne by the Funds include, but are not
limited to, brokerage commissions, taxes, legal, auditing, or
governmental fees, the cost of preparing share certificates, custodian,
transfer agent and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors and
shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the
Funds in connection with membership in investment company organizations
and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
9. Expense Limitation. If, for any fiscal year, the total of
all ordinary business expenses of a Fund, including all investment
advisory fees, but excluding brokerage commissions, fees, taxes,
interest and extraordinary expenses, such as litigation costs, would
exceed the applicable expense limitations imposed by state securities
regulations in any state in which the Funds' shares are qualified for
sale, as such limitations may be raised or lowered from time to time,
the aggregate of all such investment advisory fees shall be reduced by
the amount of such excess. The amount of any such reduction to be borne
by the Adviser shall be deducted from the monthly investment advisory
fee otherwise payable to the Adviser during such fiscal year. If
required pursuant to such state securities regulations, the Adviser
will, not later than the last day of the first month of the next
succeeding fiscal year, reimburse the Fund for any such annual operating
expenses (after reduction of all investment advisory fees in excess of
such limitation). For the purposes of this paragraph, the term "fiscal
year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of
the current fiscal year which shall have elapsed at the date of
termination of this Agreement.
10. Non-Exclusivity. The services of the Adviser to the Funds
are not to be deemed to be exclusive, and the Adviser shall be free to
render investment advisory and administrative or other services to
others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers or directors of
the Adviser may serve as
4
<PAGE>
officers and directors of the Company, and that officers or directors of
the Company may serve as officers or directors of the Adviser, to the
extent that such services may be permitted by law, and that the officers
and directors of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person,
or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment advisory companies.
11. Records. The Adviser shall, with respect to orders the
Adviser places for the purchase and sale of portfolio securities of the
Funds, maintain or arrange for the maintenance of the documents and
records required pursuant to Rule 31a-1 under the 1940 Act as well as
such records as the Funds' administrator reasonably requests to be
maintained, including, but not limited to, trade tickets and
confirmations for portfolio trades. All such records shall be
maintained in a form acceptable to the Funds and in compliance with the
provisions of Rule 31a-1. All such records will be the property of the
Funds and will be available for inspection and use by the Funds. The
Adviser will promptly notify the Funds' administrator if it experiences
any difficulty in maintaining the records in an accurate and complete
manner.
12. Term and Approval. This Agreement shall become effective
with respect to a Fund if and when approved by the Directors of the
Company, and if so approved, this Agreement shall thereafter continue
from year to year, provided that the continuation of the Agreement is
specifically approved at least annually;
(a) (i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of a
Fund (as defined in Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Company's
Directors who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a party to this
Agreement (other than as Directors of the Company), by votes cast
in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated with
respect to a Fund at any time, without the payment of any penalty, by
vote of the Company's Board of Directors or by vote of a majority of a
Fund's outstanding voting securities, or by the Adviser, on sixty (60)
days' written notice to the other party. The notice provided for herein
may be waived by the party entitled to receipt thereof. This Agreement
shall automatically terminate in the event of its assignment, the term
"assignment" for purposes of this paragraph having the meaning defined
in Section 2(a)(4) of the 1940 Act.
14. Liability of Adviser. In the absence of willful misfeasance,
bad faith, negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser or any of its officers, directors,
employees or agents, the Adviser shall not be subject to liability to
the Company or to any shareholder of the Company for any act or omission
in the course of, or connected with, rendering services hereunder or for
any losses that may be sustained in the purchase, holding or sale of any
security.
5
<PAGE>
15. Indemnification. In the absence of willful misfeasance, bad
faith, negligence or reckless disregard of duties hereunder on the part
of the Adviser or any of its officers, directors, employees or agents,
the Company hereby agrees to indemnify and hold harmless the Adviser
against all claims, actions, suits or proceedings at law or in equity
whether brought by a private party or a governmental department,
commission, board, bureau, agency or instrumentality of any kind,
arising from the advertising, solicitation, sale, purchase or pledge of
securities, whether of the Funds or other securities, undertaken by the
Funds, their officers, directors, employees or affiliates, resulting
from any violations of the securities laws, rules, regulations, statutes
and codes, whether federal or of any state, by the Funds, their
officers, directors, employees or affiliates. Federal and state
securities laws impose liabilities under certain circumstances on
persons who act in good faith, and nothing herein shall constitute a
waiver or limitation of any rights which a Fund may have and which may
not be waived under any applicable federal and state securities laws.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other
party at such address as such other party may designate for the receipt
of such notice. Until further notice to the other party, it is agreed
that the address of the Company shall be c/o Stephens Inc., 111 Center
Street, Suite 300, Little Rock, Arkansas 72201 and that of the Adviser
shall be One NationsBank Plaza, Charlotte, North Carolina 28255.
17. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act or the
Advisers Act shall be resolved by reference to such terms or provision
of the 1940 Act or the Advisers Act and to interpretations thereof, if
any, by the United States Courts or in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
Commission issued pursuant to the 1940 Act or the Advisers Act. In
addition, where the effect of a requirement of the 1940 Act or the
Advisers Act reflected in any provision of this Agreement is revised by
rule, regulation or order of the Commission, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to
be executed in duplicate by their respective officers on the day and
year first written above.
NATIONS FUND PORTFOLIOS. INC.
on behalf of the Funds
By: /S/ A. Max Walker
----------------------------
A. Max Walker
President
NATIONSBANC ADVISORS, INC.
By: /S/ Mark H. Williamson
-----------------------------
Mark H. Williamson
President and Director
7
<PAGE>
SCHEDULE I
Fund Rate of Compensation
Nations Emerging Markets Fund 1.10%
Nations Global Government Fund 0.70%
Nations Pacific Growth Fund 0.90%
EX-99.B5(d)
SUB-ADVISORY AGREEMENT
NATIONS FUND PORTFOLIOS, INC.
THIS AGREEMENT is made this 1st day of January, 1996, by and
among NationsBanc Advisors, Inc., a North Carolina corporation (the
"Adviser"), Nations Gartmore Investment Management, a general
partnership organized under the laws of the State of Delaware (the
"Sub-Adviser"), and Nations Fund Portfolios, Inc. (the "Company"), on
behalf of the portfolios of the Company as now or hereafter may be
identified on Schedule I hereto (each a "Fund" and collectively, the
"Funds").
RECITALS
WHEREAS, the Company is a Maryland corporation registered under
the Investment Trust Act of 1940, as amended (the "1940 Act") as an
open-end, series management investment company; and
WHEREAS, the Adviser is a national bank that serves as investment
adviser to other registered investment companies and various investment
accounts; and
WHEREAS, the Sub-Adviser is registered under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), as an investment
adviser and engages in the business of acting as an investment adviser,
and is regulated by the Investment Management Regulatory Organization
Limited ("IMRO") of the United Kingdom in the conduct of its investment
business and is a member of IMRO; and
WHEREAS, the Adviser and the Company have entered into an
Investment Advisory Agreement of even date herewith (the "Investment
Advisory Agreement"), pursuant to which the Adviser shall act as
investment adviser with respect to the Funds; and
WHEREAS, pursuant such Investment Advisory Agreement, the
Adviser, with the approval of the Company, wishes to retain the
Sub-Adviser for purposes of rendering advisory services to the Adviser
and the Company in connection with the Funds upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof
is hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints,
and the Company hereby approves, the Sub-Adviser to render investment
research and advisory services to the Adviser and the Company with
respect to the Funds, under the supervision of the Adviser and subject
to the policies and control of the Company's Board of Directors, and the
Sub-Adviser hereby accepts such appointment, all subject to the terms
and conditions contained herein.
1
<PAGE>
2. Investment Services. The specific duties of the Adviser
delegated to the Sub-Adviser shall be the following:
(a) obtaining and evaluating pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the Funds specifically, and whether concerning the
individual issuers whose securities are included in the Funds or the
activities in which such issuers engage, or with respect to
securities which the Adviser or Sub-Adviser considers desirable for
inclusion in the Funds;
(b) investing and reinvesting, on an ongoing basis, assets
held in the Funds in strict accordance with the investment policies
of the Funds as set forth in the registration statement of the
Company with respect to the Funds, as the same may be amended from
time to time;
(c) in accordance with policies and procedures established
by the Board of Directors of the Company and the Adviser, selecting
brokers and dealers to execute portfolio transactions for the Funds
and selecting the markets on or in which the transactions will be
executed;
(d) voting, either in person or by general or limited proxy,
or refraining from voting, any securities held in the Funds for any
purposes; exercising or selling any subscription or conversion
rights; consenting to and joining in or opposing any voting trusts,
reorganizations, consolidations, mergers, foreclosures and
liquidations and in connection therewith, depositing securities, and
accepting and holding other property received therefor; and
(e) performing other acts necessary or appropriate in
connection with the proper management of the Funds, consistent with
its obligations hereunder, and as may be directed by the Adviser
and/or the Company's Board of Directors.
3. Control by Board of Directors. As is the case with
respect to the Adviser under the Investment Advisory Agreement, any
investment activities undertaken by the Sub-Adviser pursuant to this
Agreement, as well as any other activities undertaken by the Sub-Adviser
with respect to the Funds, shall at all times be subject to any
directives of the Board of Directors of the Company.
4. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times
conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder;
2
<PAGE>
(b) the provisions of the registration statement of the
Company applicable to the Funds, as the same may be amended from
time to time, under the Securities Act of 1933 and the 1940 Act;
(c) the provisions of the Articles of Incorporation of the
Company, as the same may be amended from time to time;
(d) the provisions of the By-Laws of the Company, as the
same may be amended from time to time;
(e) any other applicable provisions of state or federal law;
and
(f) the Conduct of Business Rules of IMRO ("IMRO Rules") to
the extent that the IMRO Rules are not inconsistent with any
applicable requirements under the 1940 Act, the Advisers Act or
other United States federal or state law.
In addition, any code of ethics adopted by the Sub-Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies,
prohibitions and procedures which substantially conform to the
recommendations regarding personal investing approved by the Board of
Governors of the Investment Company Institute on June 30, 1994, as such
recommendations may amended from time to time.
5. Compensation. The Adviser shall pay the Sub-Adviser, as
compensation for services rendered hereunder, fees, payable monthly, at
the annual rates indicated on Schedule I hereto, as such Schedule may be
supplemented and amended from time to time. It is understood that the
Adviser shall be responsible for the Sub-Adviser's fee for its services
hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Company or the Fund with respect to compensation under this
Agreement.
The average daily net asset value of the Funds shall be
determined in the manner set forth in the Articles of Incorporation and
registration statement of the Company, as amended from time to time.
6. Expenses of the Funds. All of the ordinary business expenses
incurred by the Sub-Adviser in the operations of the Funds and the
offering of their shares shall be borne by the Funds unless specifically
provided otherwise in this Agreement. These expenses borne by the Funds
include but are not limited to brokerage commissions, taxes, legal,
auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer agent and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares,
directors and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other
expenses incurred by the Funds in connection with membership in
investment company organizations and the cost of printing copies of
prospectuses and statements of additional information distributed to the
Funds' shareholders.
3
<PAGE>
7. Expense Limitation. If, for any fiscal year a Fund, the
amount of the aggregate advisory fee which the Company would otherwise
be obligated to pay with respect to the Fund is reduced pursuant to
expense limitation provisions of the Investment Advisory Agreement, the
fee which the Sub-Adviser would otherwise receive pursuant to this
Agreement shall be reduced proportionately.
8. Non-Exclusivity. The services of the Sub-Adviser to the
Adviser and the Company with respect to the Fund are not to be deemed to
be exclusive, and the Sub-Adviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities. It is
understood and agreed that the officers and directors of the Sub-Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any the person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including
other investment advisory companies.
9. Records. The Sub-Adviser shall provide to the Adviser, with
respect to the orders the Sub-Adviser places for the purchases and sales
of portfolio securities of the Funds, the documents and records required
pursuant to Rule 31a-1 under the 1940 Act as well as such records as the
Funds' administrator reasonably requests to be maintained, including,
but not limited to, trade tickets and confirmations for portfolio
trades. All such records shall be maintained in a form acceptable to
the Funds and in compliance with the provisions of Rule 31a-1. All such
records will be the property of the Funds and will be available for
inspection and use by the Funds. The Sub-Adviser will promptly notify
the Adviser and the Fund's administrator if it experiences any
difficulty in providing the records in an accurate and complete manner.
10. Term and Approval. This Agreement shall become effective
with respect to each Fund as of the date first set forth above and shall
thereafter continue in force and effect for two years, and may be
continued from year to year with respect to each Fund thereafter,
provided that the continuation of the Agreement is specifically approved
at least annually:
(a)(i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors
of the Company who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a party to this Agreement
(other than as Directors of the Company), by votes cast in person at
a meeting specifically called for such purpose.
11. Termination. This Agreement may be terminated at any
time with respect to a Fund, without the payment of any penalty, by vote
of the Company's Board of Directors or by vote of a majority of the
Fund's outstanding voting securities, or by the Adviser, or by the
Sub-Adviser on sixty (60) days' written notice to the other parties to
this Agreement. Any party entitled to notice may waive the notice
provided for herein. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for purposes of this
paragraph
4
<PAGE>
having the meaning defined in Section 2(a)(4) of the 1940 Act.
12. Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Sub-Adviser or any of
its officers, directors, employees or agents, the Sub-Adviser shall not
be subject to liability to the Adviser or to the Company for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
13. Indemnification. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties hereunder on the
part of the Sub-Adviser, or any officers, directors, employees or agents
thereof, the Company hereby agrees to indemnify and hold harmless the
Sub-Adviser against all claims, actions, suits or proceedings at law or
in equity whether brought by a private party or a governmental
department, commission, board, bureau, agency or instrumentality of any
kind, arising from the advertising, solicitation, sale, purchase or
pledge of securities, whether of the Funds or other securities,
undertaken by the Funds, their officers, directors, employees, agents or
affiliates, resulting from any violations of the securities laws, rules,
regulations, statutes and codes, whether federal or of any state, by the
Funds, their officers, directors, employees or affiliates.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to such address
as may be designated for the receipt of such notice, with a copy to the
Company. Until further notice, it is agreed that the address of the
Company shall be 111 Center Street, Little Rock, Arkansas 72201; that of
the Sub-Adviser shall be One NationsBank Plaza, Charlotte, North
Carolina 28255; and that of the Adviser shall be One NationsBank Plaza,
Charlotte, North Carolina 28255.
15. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the
absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement
is revised by rule, regulation or order of the Securities and Exchange
Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
16. IMRO Rules. Addendum A attached hereto sets forth certain
requirements under the IMRO Rules which are applicable to the
Sub-Adviser, that are expressly incorporated herein and made a part
hereof, but only to the extent that such requirements are not
inconsistent with any applicable requirements under the 1940 Act, the
Advisers Act or other United States federal or state law.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in triplicate by their respective officers on the day and
year first written above.
NATIONS FUND PORTFOLIOS, INC.,
on behalf of the Funds
Attest:
By: /S/ A. Max Walker
Name:
A. Max Walker
President
NATIONSBANC ADVISORS, INC.
Attest:
By: /S/ Mark H. Williamson
Name:
Mark H. Williamson
President and Director
NATIONS GARTMORE INVESTMENT
MANAGEMENT
Attest:
By: /S/ Charles G. Smith IV
Name:
Charles G. Smith IV
President
6
<PAGE>
SCHEDULE I
Fund Rate of Compensation
1. Nations Emerging Markets Fund 0.85% of average daily net assets
2. Nations Pacific Growth Fund 0.70% of average daily net assets
3. Nations Global Government Income 0.54% of average daily net assets
Fund
7
<PAGE>
ADDENDUM A
1. To the extent that the Sub-Adviser receives any commissions or other
forms of remuneration, directly or indirectly, in connection with
Fund transactions, no portion of the Sub-Adviser's accrued investment
advisory fee shall be abated thereby.
2. Subject to the supervision of the Adviser and the policies and
ultimate control of the Company's Board of Directors, the Sub-Adviser
shall advise the Company and the Adviser on the management of the
Funds' investments in accordance with the terms of this Agreement and
in accordance with the investment parameters (including, inter alia,
percentage limitations, quality standards, investment selection
criteria and types of permissible investments and investment
techniques, such as borrowing, options and futures transactions,
portfolio securities lending, etc.) established pursuant to the
investment objectives, policies and restrictions specifically
embodied in the Company's Registration Statement on Form N-1A, and
any amendments thereto, under the Securities Act of 1933 and the 1940
Act (the "Fund's Registration Statement").
3. The Sub-Adviser shall not have or maintain custody of any securities,
cash or other assets of the Funds. Custody of the Funds' assets will
be maintained by the custodian bank pursuant to an agreement approved
by the Funds' Board of Directors. It is expected that such
custodian, or any successor thereto, will not be an "Associate" of
the Sub-Adviser as that term is defined under IMRO Rules.
4. In the event the Funds or the Adviser has a significant complaint
regarding the services provided by the Sub-Adviser under the
Sub-Advisory Agreement by and among the Company, the Adviser and the
Sub-Adviser, a Fund officer should communicate such complaint to the
Sub-Adviser, whereupon such complaint will be recorded on a standard
form prepared by the Sub-Adviser for such purposes. The
Sub-Adviser's complaints procedure requires that if a complaint has
not been cleared within twenty-one (21) days, the Sub-Adviser must so
advise IMRO and the Fund also must be advised that it has the right
to issue its complaint directly with a referee appointed by IMRO.
5. The Sub-Adviser will provide to the Funds' Board of Directors written
financial reports and analyses on the Funds' securities transactions
and the operations of comparable investment companies on a quarterly
basis or more frequently as requested by the Board of Directors.
Such reports and analyses shall include information as at the last
day of an applicable reporting period.
6. The Funds may from time to time request or instruct the Sub-Adviser,
directly or through the Adviser, to act or not to act regarding
certain Fund-related investment and/or operational matters. Such
request or instructions will be communicated orally or in writing to
the Sub-Adviser, directly or through the Adviser and will be
acknowledged in the same manner in which they are communicated. To
the extent that a particular request or instruction is, or may be,
refused (i.e., because it (a) is in contravention of (i) a law or
regulation, (ii) an investment policy of the Fund, or (iii) a
provision of this Agreement or (b) is not operationally feasible),
such refusal shall be communicated by the Sub-Adviser, including
through the Adviser, and the Fund
8
<PAGE>
and the Sub-Adviser, upon advice of counsel, shall discuss
alternatives and determine an appropriate course of action which will
be reported to the full Board at the next meeting of the Fund's Board
of Directors for its approval.
7. Notwithstanding that all required disclosure concerning the risks
associated with the Funds' permissible investments and investment
techniques is included in the Funds' Registration Statement, which
Statement is intended for review by the investors in the Funds and to
be retained by them for future reference, with respect to the Funds'
specified use of options and futures transactions, the following
shall be specifically noted herein:
"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."
Further, in managing the Funds' assets, the Sub-Adviser shall
consider the risks associated with the Fund's permissible investments
and investment techniques.
8. The Sub-Adviser or its representatives may from time to time
recommend to the Funds or effect on behalf of the Funds with respect
to Fund transactions in securities the subject of a recent new issue,
the price of which transactions may have been influenced by bids made
or transactions effected for the purpose of stabilizing the price of
those securities. Such transactions would at all times be effected
in accordance with the provisions of IMRO Rule 14 and, in particular,
with the conditions of the IMRO Rule 14.02, including the requirement
that the Sub-Adviser, with respect to any specific transaction,
communicate to the Fund orally or in writing a statement in a form
substantially similar to that which is set forth in IMRO Rule
14.02(c). In addition, with respect to these transactions, it is
understood when executing this Agreement and thereafter when
approving the continuance of this Agreement in accordance with its
terms, that management of the Fund has carefully read the following
paragraphs in order to enable Fund management to judge whether it
wishes a Fund's assets to be invested at all in such securities or,
if so, whether it wishes to authorize the Sub-Adviser generally to
effect transactions in such securities on behalf of the Fund without
further reference to Fund management or whether Fund management
wishes to be consulted before any particular transaction is effected
on behalf of the Fund.
Stabilization is a process whereby the market price of a security is
pegged or fixed during the period in which a new issue of securities
is sold to the public. Stabilization may take place in the new issue
or in other securities related to the new issue in such a way that
the price of the other securities may affect the price of the new
issue or vice versa.
The reason stabilization is permitted is that when a new issue is
brought to market the sudden glut will sometimes force the price
lower for a period of time before buyers are found for the securities
on offer. As long as it obeys a strict set of rules, the
"stabilizing manager," normally the issuing house chiefly responsible
for bringing a new issue to market, is entitled to buy securities in
the market that it has previously sold to investors or allotted to
institutions who were included in the new issue but who have decided
not to continue participating. The effect of this
9
<PAGE>
may be to keep the price at a higher level than would otherwise be
the case during the period of stabilizing. The rules referred to
above in the immediately preceding paragraph limit the period in
which the stabilizing manager may stabilize, fix the price at which
it may stabilize (in the case of shares and warrants but not bonds),
and require the stabilizing manager to disclose that it may be (but
not that it is) stabilizing. The fact that a new issue or a related
security is being stabilized does not in itself mean that investors
are not interested in the issue, but neither should the existence of
transactions in an issue where the stabilizing may take place be
relied upon as an indication that investors are interested in the new
issue or interested in purchasing at the price at which transactions
are taking place.
9. A report containing the Funds' financial statements (including the
contents and valuation of the Funds) shall be submitted to
shareholders and to the Securities and Exchange Commission at least
semi-annually. Such reports shall include information as at the last
day of any semi-annual period for which such reports relate. To the
extent that any performance information is included in such report,
it shall conform to the standards set forth in the Funds'
Registration Statement.
10. Except as permitted by or pursuant to Section 17 of the 1940 Act and
the Rules promulgated thereunder, the Sub-Adviser, or an "affiliate"
thereof (as that term is defined in the 1940 Act), may not effect
transactions: (i) with or for the Funds in which the Sub-Adviser or
such affiliate has directly or indirectly a material interest or a
relationship of any kind with another party which may involve a
conflict with the Sub-Adviser's responsibilities to the Funds as a
sub-investment adviser; or (ii) with or through the agency or
another person with whom the Sub-Adviser or such affiliate maintains
an arrangement as described in Rule 6.01 of Chapter IV of the IMRO
Rules.
11. Upon termination of the Sub-Advisory Agreement by and among the
Company, the Adviser and the Sub-Adviser, unless otherwise directed
by the Fund's Board of Directors, all securities positions and other
portfolio transactions then in progress shall be transferred to the
successor investment adviser selected by the Board of Directors.
12. The Sub-Adviser shall be entitled at its discretion to disclose any
information known to it relating to the Fund's business or affairs
to the Securities and Investment Board or to IMRO on the terms that
the information so disclosed shall not without its consent be
further disclosed otherwise than is permitted in respect of
Restricted Information under the provisions of Part VIII of the
Financial Services Act of 1986.
10
<PAGE>
EX-99.B6(d)
SHAREHOLDER ADMINISTRATION AGREEMENT
NATIONS FUND PORTFOLIOS, INC.
TRUST B SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Administration Agreement
("Agreement") with you concerning the provision of administrative
support services to your clients ("Customers") who may from time to time
beneficially own Trust B Shares in certain portfolios (as listed on
Exhibit I) (the "Funds") of Nations Fund Portfolios, Inc. (the
"Company").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative
support services to your Customers who may from time to time
beneficially own Trust B Shares: (i) aggregating and processing purchase
and redemption requests for Trust B Shares from Customers and
transmitting promptly net purchase and redemption orders to our
distributor or transfer agent; (ii) providing Customers with a service
that invests the assets of their accounts in Trust B Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend and
distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions
in Trust B Shares; (v) arranging for bank wires; (vi) responding to
Customers' inquiries concerning their investment in Trust B Shares;
(vii) providing subaccounting with respect to Trust B Shares
beneficially owned by Customers or the information to us necessary for
subaccounting; (viii) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and
proxies containing any proposals regarding this Agreement; (x) employee
benefit plan recordkeeping, administration, custody and trustee
services; (xi) general shareholder liaison services; and (xii) providing
such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or
regulations. All services rendered hereunder by you shall be performed
in a professional, competent and timely manner.
Section 2. You will perform only those activities which are
consistent with statutes and regulations applicable to you. You will
act solely as agent or, upon the order of, and for the account of, your
Customers.
Section 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your
- ----------------------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
business, or any personnel employed by you) as may be reasonably
necessary or beneficial in order to provide the administrative support
services contemplated hereby.
Section 4. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or the
Trust B Shares except those contained in our then current prospectuses
and statements of additional information, as amended or supplemented
from time to time, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by the
Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect, except as provided herein.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all
direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of Trust B Shares (or
orders relating to the same) by or on behalf of Customers. You and your
employees will, upon request, be available during normal business hours
to consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 6. In consideration of the services and facilities
provided by you hereunder, we will pay to you, and you will accept as
full payments therefor, a fee as described in the applicable then
current prospectuses. The fee rate payable to you may be prospectively
increased or decreased by us, in our sole discretion, at any time upon
notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Trust B Shares of any and all Funds,
including the sale of Trust B Shares to you for the account of any
Customer or Customers. Compensation payable under this Agreement is
subject to, among other things, the National Association of Securities
Dealers, Inc. ("NASD") Rules of Fair Practice governing receipt by NASD
members of service fees from registered investment companies. In this
regard, in no event may the portion of any fee payable hereunder that
constitutes a "service fee," as that term is defined in Article III,
Section 26(b)(9) of the NASD's Rules of Fair Practice, exceed 0.25% of
the average daily net asset value of the Trust B Shares of a Fund.
Section 7. You agree to provide to us at least quarterly, a
written report of the amounts expended by you in connection with the
provision of administrative support services hereunder and the purposes
for which such expenditures were made. In addition, you will furnish us
or our designees with such information as we or they may reasonably
request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein),
and will otherwise cooperate with us and our designees (including,
without limitation, any auditors or legal counsel designated by us), in
connection with the preparation of reports to our Board of Directors
concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by
law.
Section 8. We may enter into other similar Agreements with any
other person or persons without your consent.
2
<PAGE>
Section 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the
services provided by you hereunder be primarily intended to result in
the sale of any shares issued by us; (ii) the compensation payable to
you hereunder, together with any other compensation you receive in
connection with the investment of your Customers' assets in Trust B
Shares of the Funds, will be disclosed by you to your Customers to the
extent required by applicable laws or regulations, will be authorized by
your Customers and will not result in an excessive or unreasonable fee
to you and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any Trust B Shares held for your own
account in the same proportion as the vote of the Trust B Shares held
for your Customers' benefit.
Section 10. You agree to conform to compliance standards adopted
by the Company or its distributor as to when a class of shares in a Fund
may be appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee
and continues in effect until terminated. This Agreement is terminable
with respect to any series of Trust B Shares, without penalty, at any
time by us (which termination may be by a vote of a majority of the
disinterested Directors of the Company) or by you upon written notice to
the other party hereto.
Section 12. All notices and other communications to either you or
us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address or number
stated herein (with a confirming copy by mail), or to such other address
as either party shall so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with
the internal laws of The State of Maryland without giving effect to
principles of conflict of laws, and is nonassignable by the parties
hereto.
3
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and
promptly return it to us, at the following address: 111 Center Street,
Little Rock, Arkansas 72201; Fax No. (501) 377-2331; Attention: Mr.
Richard H. Blank, Jr.
Very truly yours,
NATIONS FUND PORTFOLIOS, INC.
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
Accepted and Agreed to:
Servicing Agent
---------------------------------
(Firm Name)
---------------------------------
(Address)
---------------------------------
(City) (State) (County)
Fax No.__________________________
Attention:________________________
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
4
<PAGE>
EXHIBIT I
NATIONS FUND PORTFOLIOS, INC.
Nations Global Government Income Fund
Nations Pacific Growth Fund
Nations Emerging Markets Fund
5
EX-99.B6(e)
SHAREHOLDER ADMINISTRATION AGREEMENT
NATIONS FUND
TRUST B SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Administration Agreement
("Agreement") with you concerning the provision of administrative
support services to your clients ("Customers") who may from time to time
beneficially own Trust B Shares in one or more of the portfolios
(collectively, the "Funds") listed on Schedule I of Nations Fund Trust,
Nations Fund, Inc. and Nations Fund Portfolios, Inc. (collectively,
"Nations Fund"). The shares listed on Schedule I are collectively
referred to herein as "Shares." The terms and conditions of this
Agreement are as follows:
1. Provision of Shareholder Services.
(a) You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own
Shares: (i) aggregating and processing purchase and redemption requests
for Shares from Customers and transmitting promptly net purchase and
redemption orders to our distributor or transfer agent; (ii) providing
Customers with a service that invests the assets of their accounts in
Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from Nations Fund on
behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their
investment in Shares; (vii) providing subaccounting with respect to
Shares beneficially owned by Customers or the information to us
necessary for subaccounting; (viii) if required by law, forwarding
shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers
proxy statements and proxies containing any proposals regarding this
Agreement; (x) employee benefit plan recordkeeping, administration,
custody and trustee services; (xi) general shareholder liaison services;
and (xii) providing such other similar services as we may reasonably
request to the extent you are permitted to do so under applicable
statutes, rules or regulations.
(b) All services rendered hereunder by you shall be performed in
a professional, competent and timely manner.
(c) You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment
and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order
- -----------------------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
to provide the administrative support services contemplated hereby. You
and your employees will, upon request, be available during normal
business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
(d) By your written acceptance of this Agreement, you represent,
warrant and agree that in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares
issued by us.
2. Adherence to Applicable Law.
You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as
agent or, upon the order of, and for the account of, your Customers.
3. Representations Regarding Nations Fund and Shares.
Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Shares
except those contained in our then current prospectuses and statements
of additional information, as amended or supplemented from time to time,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by our distributor or us
in writing.
4. Status of Servicing Agent.
(a) For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent
for us in any matter or in any respect, except as expressly provided
herein.
(b) We may, in our discretion and without notice, suspend or
withdraw the sale of Shares of any and all Funds, including the sale of
Shares to you for the account of any Customer or Customers.
5. Indemnification.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all
direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of Shares (or orders
relating to the same) by or on behalf of Customers.
6. Compensation.
(a) In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment
therefor, a fee as described in the applicable then
2
<PAGE>
current prospectuses for the Shares. The fee rate payable to you may be
prospectively increased or decreased by us, in our sole discretion, at
any time upon notice to you.
(b) Compensation payable under this Agreement is subject to,
among other things, the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice governing receipt by NASD members of
service fees from registered investment companies. In this regard, in
no event may the portion of any fee payable hereunder that constitutes a
"service fee," as that term is defined in Article III, Section 26(b)(9)
of the NASD's Rules of Fair Practice, exceed 0.25% of the average daily
net asset value of the Shares of a Fund.
7. Reports.
You agree to provide to us at least quarterly, a written report of
the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which
such expenditures were made. In addition, you will furnish us or our
designees with such information as we or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and will
otherwise cooperate with us and our designees (including, without
limitation, any auditors or legal counsel designated by us), in
connection with the preparation of reports to our Boards of
Trustees/Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
8. Agreement Not Exclusive.
We may enter into other similar Agreements with any other person or
persons without your consent.
9. Disclosure of Compensation.
You agree that the compensation payable to you hereunder, together
with any other compensation you receive in connection with the
investment of your Customers' assets in Shares of the Funds, will be
disclosed by you to your Customers to the extent required by applicable
laws or regulations, will be authorized by your Customers and will not
result in an excessive or unreasonable fee to you.
10. Voting of Shares.
You agree that in the event an issue pertaining to this Agreement
is submitted for shareholder approval, and you have the authority from
your Customers to do so, you will vote any Shares held for your own
account in the same proportion as the vote of the Shares held for your
Customers' benefit.
11. Compliance Standards.
3
<PAGE>
You agree to conform to compliance standards adopted by Nations
Fund or its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
12. Effective Date and Termination.
(a) This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and
continues in effect until terminated.
(b) This Agreement is terminable with respect to any series of
Shares, without penalty, at any time by us (which termination may be by
a vote of a majority of the disinterested Trustees of Nations Fund
Trust, the disinterested Directors of Nations Fund, Inc., or
disinterested Directors of Nations Fund Portfolios, Inc., as
appropriate) or by you upon written notice to the other party hereto.
13. Communications.
All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated
herein (with a confirming copy by mail), or to such other address as
either party shall so provide in writing to the other.
14. Governing Law.
This Agreement will be construed in accordance with the internal
laws of the State of Maryland without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
15. Actions by Nations Fund Trust and Trustees.
The names "Nations Fund Trust" and "Trustees" refer respectively to
the trust created and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated
May 6, 1985 which is hereby referred to and a copy of which is on file
at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of Nations Fund Trust. The
obligations of "Nations Fund Trust" entered into in the name or on
behalf thereof by any of the Trustees, officers, representatives or
agents are made not individually, but in such capacities, and are not
binding upon any of the Trustees, Shareholders, officers,
representatives or agents of the Trust personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of Nations Fund Trust must look solely
to the Trust Property belonging to such class for the enforcement of any
claims against Nations Fund Trust.
4
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly
return it to us, at the following address: 111 Center Street, Little
Rock, AR; Fax No. (501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS FUND TRUST
Date: ____________________ By: ____________________
Name: __________________
Title: ___________________
NATIONS FUND, INC.
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
NATIONS FUND PORTFOLIOS, INC.
By: ______________________________
Name: _____________________________
Title: ____________________________
Accepted and Agreed to:
Servicing Agent
_________________________________
(Firm Name)
_________________________________
(Address)
_________________________________
(City) (State) (County)
5
<PAGE>
Fax No. _________________________
Attention: .________________________
Date: ____________________ By: ______________________________
Name: ____________________________
Title: _____________________________
6
<PAGE>
SCHEDULE I
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
Nations Tax Managed Equity 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 Global Government Income Fund
7
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
January 25, 1996
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. 3 and Amendment No. 5 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.
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 Funds' 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.
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 LLP
MORRISON & FOERSTER LLP
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated June 28, 1995,
relating to the financial statements of 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
January 24, 1996
EX-99.B15(g)
NATIONS FUND PORTFOLIOS, INC.
SHAREHOLDER ADMINISTRATION
PLAN ("PLAN") FOR TRUST B SHARES
Section 1. Each of the proper officers of Nations Fund Portfolios, Inc.
(the "Company") is authorized to execute and deliver, in the name and on behalf
of the Company, written agreements based substantially on the form attached
hereto as Appendix A or any other form duly approved by the Company's Board of
Directors ("Agreements") with broker/dealers, banks and other financial
institutions that are dealers of record or holders of record or which have a
servicing relationship with the beneficial owners of Trust B Shares ("Servicing
Agents") in any of the Company's Funds (as listed on Exhibit I) offering such
shares provided that any material modifications of services listed in the
Agreement shall be presented for approval or ratification by the Directors at
the next regularly scheduled Board Meeting. Pursuant to such Agreements,
Servicing Agents shall provide shareholder support services as set forth therein
to their clients who beneficially own Trust B Shares of the Funds in
consideration of a fee, computed monthly in the manner set forth in the
applicable Fund's then current prospectus, at an annual rate of up to 0.60% of
the average daily net asset value of the Trust B Shares beneficially owned by or
attributable to such clients, provided that in no event may the portion of such
fee that constitutes a "service fee," as that term is defined in Article III,
Section 26(b)(9) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., exceed 0.25% of the average daily net asset value of
such Trust B Shares of a Fund. Affiliates of the Company's distributor,
administrator, co-administrator and adviser are eligible to become Servicing
Agents and to receive fees under this Plan. All expenses incurred by a Fund in
connection with the Agreements and the implementation of this Plan shall be
borne entirely by the holders of the Trust B Shares of the particular Fund
involved. If more than one Fund is involved and these expenses are not directly
attributable to Trust B Shares of a particular Fund, then the expenses may be
allocated between or among the Trust B Shares of the Funds in a fair and
equitable manner.
Section 2. The Company's administrator and/or co-administrator shall
monitor the arrangements pertaining to the Company's Agreements with Servicing
Agents. The Company's administrator and co-administrator shall not, however, be
obligated by this Plan to recommend, and the Company shall not be obligated to
execute, any Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, the Company's distributor
shall provide to the Company's Board of Directors, and the Directors shall
review, at least quarterly, a written report of the amounts expended pursuant to
this Plan and the purposes for which such expenditures were made.
Section 4. Unless sooner terminated, this Plan shall continue in effect
for a period of one year from its date of execution and shall continue
thereafter for successive annual periods, provided that such continuance is
specifically approved by a majority of the Board of Directors, including a
majority of the Directors who are not "interested persons," as defined in the
1
<PAGE>
Investment Company Act of 1940 (the "Act"), of the Company and have no direct or
indirect financial interest in the operation of this Plan or in any Agreement
related to this Plan (the "Disinterested Directors") cast in person at a meeting
called for the purpose of voting on this Plan.
Section 5. This Plan may be amended at any time with respect to any
Fund by the Company's Board of Directors, provided that any material amendment
of the terms of this Plan (including a material increase of the fee payable
hereunder) shall become effective only upon the approvals set forth in Section
4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Directors.
Section 7. While this Plan is in effect, the selection and nomination
of the Disinterested Directors shall be committed to the discretion of such
Disinterested Directors.
Section 8. To the extent that any portion of the fees payable under the
Agreements is deemed to be for services primarily intended to result in the sale
of Fund shares, such fees are deemed approved and may be paid pursuant to the
Plan and in accordance with Rule 12b-1 under the Act, provided that the
Agreements, to the extent they are deemed to relate to services primarily
intended to result in the sale of Fund shares, are approved and otherwise
treated in all respects as agreements related to the Plan.
Section 9. The Company will preserve copies of this Plan, Agreements,
and any written reports regarding this Plan presented to the Board of Directors
for a period of not less than six years.
2
<PAGE>
EXHIBIT I
NATIONS FUND PORTFOLIOS, INC.
Nations Global Income Fund
Nations Pacific Growth Fund
Nations Emerging Markets Fund
3
<PAGE>
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<NAME> Nations Fund Port Emerg Mrkts Inv-A
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<NAME> Nations Fund Port Emerg Mrkts Inv-C
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<NAME> Nations Fund Port Emerg Mrkts Inv-N
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<NAME> Nations Fund Port Emerg Mkts Tr-A
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</TABLE>
<TABLE> <S> <C>
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<NAME> Nations Fund Port Glob Govt Inco Inv-A
<S> <C>
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</TABLE>
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<NAME> Nations Fund Port Glob Govt Inco Inv-C
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
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<NUMBER> 023
<NAME> Nations Fund Port Glob Govt Inco Inv-N
<S> <C>
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<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
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<EXPENSES-NET> 60,017
<NET-INVESTMENT-INCOME> 259,139
<REALIZED-GAINS-CURRENT> (115,135)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,082
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<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> 20,510,147
<ACCUMULATED-NII-PRIOR> 0
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