As filed with the Securities and Exchange Commission
on May 31, 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. 5 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [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 LLP & 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 (date), pursuant
to Rule 485(b), or to Rule 485(b), or
[X] 60 days after filing pursuant [ ] on (date) 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 has registered 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. The Registrant
filed the notice required by Rule 24f-2 for its most recent fiscal period ended
March 31, 1996 on May 28, 1996.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 5 to the Registration Statement of
Nations Fund Portfolios, Inc. is being filed in order to change the investment
objectives of the Funds of Nations Fund Portfolios, Inc. and to effect certain
related, non-material changes.
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
<S> <C> <C>
1. Cover Page ................................................ Cover Page
2. Synopsis .................................................. Expenses Summary
3. Condensed Financial
Information ................................................ Financial Highlights;
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..................................................... Introduction
<PAGE>
13. Investment Objectives and
Policies.................................................... Additional Information On Fund
Investments
14. Management of the Registrant................................ Directors And Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous -- Certain Record
Holders
16. Investment Advisory and Other
Services.................................................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions And Brokerage
-- General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares;
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 Accountant 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
</TABLE>
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
Nations Tax Exempt Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government
Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income
Fund
Nations Intermediate Municipal
Bond Fund
Nations Florida Intermediate Municipal
Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal
Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate
Municipal Bond Fund
Nations North Carolina Municipal Bond
Fund
Nations South Carolina Intermediate
Municipal Bond Fund
Nations South Carolina Municipal Bond
Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal
Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal
Bond Fund
Nations Virginia Municipal Bond Fund
INVESTMENT ADVISER: NationsBanc Advisors, Inc. (Nations Fund logo
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc. appears here)
SUB-INVESTMENT ADVISER: Nations Gartmore Investment Management
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 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 -- Primary A Shares
(formerly called Trust A Shares). Nations
Disciplined Equity Fund was formerly called "Nations
Special Equity Fund."
NATIONS PRIME FUND, NATIONS TREASURY FUND, NATIONS
GOVERNMENT MONEY MARKET FUND AND NATIONS TAX EXEMPT
FUND (THE "MONEY MARKET FUNDS") SEEK TO MAINTAIN A
NET ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN
THESE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company, is
contained in separate Statements of Additional
Information (the "SAIs"), that 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, each dated August 1, 1996, 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.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
For purchase, redemption and
performance information
call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo appears here)
Table Of Contents
About The Prospectus Summary 3
Funds Expenses Summary 7
Financial Highlights 12
Objectives 35
How Objectives Are Pursued 38
How Performance Is Shown 53
How The Funds Are Managed 54
Organization And History 60
About Your How To Buy Shares 62
Investment How To Redeem Shares 63
How To Exchange Shares 63
How The Funds Value Their Shares 64
How Dividends And Distributions Are Made;
Tax Information 64
Appendix A -- Portfolio Securities 67
Appendix B -- Description Of Ratings 76
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's
investment objective is to seek as high a level of
current income as is consistent with liquidity and
stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt
from Federal income taxes as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of non-United
States companies in Europe, Australia, the Far East and
other areas, including some developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is
to seek long-term capital growth by investing primarily
in equity securities of companies in emerging markets
countries such as those in Latin America, eastern
Europe, the Pacific Basin, the Far East, Africa and
India.
(Bullet) Nations Pacific Growth Fund's investment objective is
to seek long-term capital growth by investing primarily
in equity securities of companies in the Pacific Basin
and the Far East (excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
3
<PAGE>
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek current income consistent with minimal
fluctuation of principal. The Fund invests primarily in
short-term investment grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective
is to seek current income consistent with total return
by investing primarily in a diversified portfolio of
fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income securities.
The Fund may invest in long-term, intermediate-term and
short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) Nations Municipal Income Fund's investment objective is
to seek current income exempt from Federal income tax
as is consistent with prudent investment risk. Such
Fund invests primarily in investment grade obligations
issued by or on behalf of states, territories and
possessions of the United States, the District of
Columbia, and their political subdivisions, agencies,
instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond
counsel, is exempt from Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of
principal. Such Fund invests primarily in investment
grade obligations issued by or on behalf of states,
territories and possessions of the United States, the
District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the
issuer or bond counsel, is exempt from Federal income
tax.
(Bullet) Nations Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax consistent with moderate fluctuation of
principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Florida state
intangibles tax consistent with moderate fluctuation of
principal by investing primarily in intermediate-term,
investment grade municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax and the Florida state intangibles tax as is
consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Georgia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Georgia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Maryland state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
4
<PAGE>
(Bullet) Nations Maryland Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Maryland state income taxes as is consistent with
prudent investment risk by investing primarily in long-
term, investment grade municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond
Fund's investment objective is to seek current income
exempt from Federal and North Carolina state income
taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and North Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond
Fund's investment objective is to seek current income
exempt from Federal and South Carolina state income
taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and South Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Tennessee Hall income
tax on unearned income consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax and the Tennessee Hall income tax on unearned
income consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income tax
as is consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Virginia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Virginia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. 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 which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Fund's investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. Since the State Intermediate Municipal Bond Funds and
State Municipal Bond Funds invest primarily in securities issued by
entities located in a single state, such Funds are more susceptible to
changes in value due to political or economic changes affecting such
states or their subdivisions. For a discussion of these factors, see
"How Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who
5
<PAGE>
are willing to bear the risks associated with international investing,
such as foreign currency fluctuations and economic and political risks.
For a discussion of these factors, see "How Objectives Are
Pursued -- Special Risk Considerations Relevant to an Investment in the
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. TradeStreet Investment Associates, Inc. provides
sub-advisory services to certain of the Funds and Nations Gartmore
Investment Management provides sub-advisory services to the other
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains, are distributed at least
annually.
6
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Government
Nations Prime Nations Money Market
Fund Treasury Fund Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Tax
Exempt
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Government
Nations Prime Nations Money Market
Fund Treasury Fund Fund
Management Fees (After Fee Waivers)1 .14% .14% .12%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30% .30%
Nations
Tax
Exempt
Fund
Management Fees (After Fee Waivers)1 .13%
All Other Expenses (After Expense Reimbursements)1 .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Equity Nations Nations
Value Income International Emerging
Fund Fund Equity Fund Markets Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
Nations
Pacific Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Equity Nations Nations
Value Income International Emerging
Fund Fund Equity Fund Markets Fund
Management Fees .75% .70% .90% 1.10%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .19% .21% .25% .80%
Total Operating Expenses (After Expense Reimbursements)1 .94% .91% 1.15% 1.90%
<CAPTION>
Nations
Pacific Growth
Fund
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .80%
Total Operating Expenses (After Expense Reimbursements)1 1.70%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such expense
reimbursements.
7
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
<S> <C> <C> <C> <C>
All Other Expenses .23% .23% .25% .27%
Total Operating Expenses (After Fee Waivers)1 .98% .98% 1.00% .37%
Nations
Balanced
Assets
Management Fees (After Fee Waivers)1 .75%
All Other Expenses .24%
Total Operating Expenses (After Fee Waivers)1 .99%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations Nations Nations
Intermediate Government Short-Term Nations Strategic
Government Securities Income Diversified Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations Nations Nations
Intermediate Government Short-Term Nations Strategic
Government Securities Income Diversified Fixed
Fund Fund Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense Reimbursements)1 .20% .30% .26% .30% .21%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .80% .56% .80% .71%
Nations
Global
Government
Income
Fund
Management Fees (After Fee Waivers)1 .70%
All Other Expenses (After Expense Reimbursements)1 .60%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 1.30%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C>
Nations Nations
Nations Short-Term Nations Florida
Municipal Municipal Intermediate Intermediate
Income Income Municipal Municipal
Fund Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Florida
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Short-Term Nations Florida
Municipal Municipal Intermediate Intermediate
Income Income Municipal Municipal
Fund Fund Bond Fund Bond Fund
Management Fees (After Fee Waivers)1 .40% .30% .30% .30%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .20% .15% .15% .25%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .45% .45% .55%
Nations
Florida
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .40%
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
8
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Management Fees (After Fee Waivers)1 .30% .40% .30% .40%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .25% .20% .25% .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .55% .60% .55% .60%
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .30%
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Tennessee
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Management Fees (After Fee Waivers)1 .40% .30% .40% .30%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .20% .27% .20% .27%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .57% .60% .57%
Nations
Tennessee
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .40%
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Virginia
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
Management Fees (After Fee Waivers)1 .30% .40% .30%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .27% .20% .26%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .57% .60% .56%
Nations
Virginia
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .40%
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
9
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Tax Nations Equity International
Prime Treasury Market Exempt Value Income Equity
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 3 $ 3 $ 3 $ 3 $ 10 $ 9 $ 12
3 Years $10 $10 $10 $10 $ 30 $ 29 $ 37
5 Years $17 $17 $17 $17 $ 52 $ 50 $ 63
10 Years $38 $38 $38 $38 $115 $112 $140
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
1 Year $19 $17
3 Years $60 $54
5 Years N/A N/A
10 Years N/A N/A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Short- Nations
Nations Emerging Disciplined Equity Balanced Intermediate Government
Capital Growth Growth Equity Index Assets Government Securities
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 10 $ 10 $ 4 $ 10 $ 6 $ 8
3 Years $ 31 $ 31 $ 32 $12 $ 32 $19 $26
5 Years $ 54 $ 54 $ 55 $21 $ 55 $33 $44
10 Years $120 $120 $122 $47 $121 $75 $99
<CAPTION>
Nations Nations
Short-Term Diversified
Income Income
Fund Fund
1 Year $ 6 $ 8
3 Years $18 $26
5 Years $31 $44
10 Years $70 $99
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Florida Nations
Strategic Global Nations Short-Term Intermediate Intermediate Florida
Fixed Government Municipal Municipal Municipal Municipal Municipal
Income Income Income Income Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 7 $13 $ 6 $ 5 $ 5 $ 6 $ 6
3 Years $23 $41 $19 $14 $14 $18 $19
5 Years $40 N/A $33 $25 $25 $31 $33
10 Years $88 N/A $75 $57 $57 $69 $75
<CAPTION>
Nations Nations
Georgia Georgia
Intermediate Municipal
Municipal Bond
Bond Fund Fund
1 Year $ 6 $ 6
3 Years $18 $19
5 Years $31 $33
10 Years $69 $75
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations North Nations South Nations Nations
Maryland Carolina North Carolina South Tennessee
Intermediate Nations Intermediate Carolina Intermediate Carolina Intermediate
Municipal Maryland Municipal Municipal Municipal Municipal Municipal
Bond Municipal Bond Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 6 $ 6 $ 5 $ 6 $ 6 $ 6 $ 6
3 Years $18 $19 $16 $19 $18 $19 $18
5 Years $31 $33 $28 $33 $32 $33 $32
10 Years $69 $75 $63 $75 $71 $75 $71
<CAPTION>
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Bond
Fund Fund
1 Year $ 6 $ 6
3 Years $19 $18
5 Years $33 $32
10 Years $75 $71
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Bond Bond
Fund Fund Fund
1 Year $ 6 $ 6 $ 6
3 Years $19 $18 $19
5 Years $33 $31 $33
10 Years $75 $70 $75
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees", "Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .17% and .37%,
respectively; Nations Treasury Fund -- .20%, 17% and .37%, respectively; Nations
Government Money Market Fund -- .40%, .21% and .61%, respectively; Nations Tax
Exempt Fund -- .40%, .20% and .60%, respectively; Nations Government Securities
Fund -- .64%, .31% and .95%, respectively; Nations Diversified Income
Fund -- .60%, .33% and .93%, respectively; Nations Intermediate Municipal Bond
Fund -- .50%, .18% and .68%, respectively; Nations Florida Intermediate
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Maryland Intermediate Municipal Bond Fund and Nations South Carolina
Intermediate Municipal Bond Fund -- .50%, .28% and .78%, respectively; Nations
Municipal Income Fund -- .60%, .23% and .83%; respectively; Nations Short-Term
Municipal Income Fund -- .50%, .20% and .70%, respectively; Nations Florida
Municipal Bond Fund -- .60%, .25% and .85%, respectively; Nations Georgia
Municipal Bond Fund, .60%, .30%, and .90%, respectively; Nations Maryland
Municipal Bond Fund -- .60%, .46% and 1.06%, respectively; Nations North
Carolina Municipal Bond Fund -- .60%, .26% and .86%, respectively; Nations South
Carolina Municipal Bond Fund -- .60%, .29% and .89%, respectively; Nations
Tennessee Municipal Bond Fund -- .60%, .48% and 1.08%, respectively; Nations
Texas Municipal Bond Fund and Nations Virginia Municipal Bond Fund -- .60%, .27%
and .87%, respectively; Nations Virginia Intermediate Municipal Bond
Fund -- .50%, .27% and .77%, respectively; Nations North Carolina Intermediate
Municipal Bond Fund -- .50%, .23% and .73%, respectively; Nations Tennessee
Intermediate Municipal Bond Fund and Nations Texas Intermediate Municipal Bond
Fund -- .50%, .30% and .80%, respectively. Absent expense reimbursements, "Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Equity Income Fund -- .22% and .92%,
respectively; and Nations International Equity Fund -- .26% and 1.16%,
respectively. Absent fee waivers, "Management Fees" and "Total Operating
Expenses" for Primary A Shares of the indicated Fund would have been as follows:
Nations Equity Index Fund -- .50% and .77%, respectively; Nations Short-Term
Income Fund -- .60% and .86%, respectively; Nations Short-Intermediate
Government Fund -- .60% and .80%, respectively; and Nations Strategic Fixed
Income Fund -- .60% and .81%, 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.
11
<PAGE>
Financial Highlights
The audited, and where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios. Price Waterhouse LLP is the
independent accountant to Nations Fund Trust and Nations Fund, Inc. The reports
of Price Waterhouse LLP for the most recent fiscal years of Nations Fund Trust
and Nations Fund, Inc. accompany the financial statements for such periods and
are incorporated by reference in the SAIs, which are available upon request. The
financial information for Nations Portfolios have not been audited by Price
Waterhouse LLP. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0288 0.0519 0.0318 0.0328 0.0506
Dividends from net investment
income (0.0288) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.93% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 2,751,290 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to
average net assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to
average net assets 5.75%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share
without waivers and/or
reimbursements $ 0.0285 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of
period $ 1.00
Net investment income 0.0749
Dividends from net investment
income (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 574,993
Ratio of operating expenses to
average net assets 0.30%
Ratio of net investment income to
average net assets 7.47%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.44%
Net investment income per share
without waivers and/or
reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.65%+++
Net investment income per share without waivers and/or reimbursements $ 0.0247+++
</TABLE>
* The Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 5/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0282 0.0494 0.0297 0.0307 0.0483
Dividends from net investment
income (0.0282) (0.0494) (0.0297) (0.0307) (0.0483)
Distributions from net realized
capital gains -- (0.0000)** -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.85% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 2,725,471 $ 2,896,868 $ 2,679,992 $ 2,956,796 $ 1,094,741
Ratio of operating expenses to
average net assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to
average net assets 5.63%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.36%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share
without waivers and/or
reimbursements $ 0.0279 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of
period $ 1.00
Net investment income 0.0721
Dividends from net investment
income (0.0721)
Distributions from net realized
capital gains --
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 955,186
Ratio of operating expenses to
average net assets 0.25%
Ratio of net investment income to
average net assets 7.04%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.43%
Net investment income per share
without waivers and/or
reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and/or reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.75%+++
Net investment income per share without waivers and/or reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
** Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0558) (0.0375) (0.0294) (0.0358)
Distributions from net realized gains -- (0.0000)# -- --
Total distributions (0.0558) (0.0375) (0.0294) (0.0358)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.72% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 332,895 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net assets 0.30% 0.30% 0.30% 0.42%
Ratio of net investment income to average net assets 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses to average net assets without
waivers 0.57% 0.59% 0.56% 0.58%
Net investment income per share without waivers $ 0.0531 $ 0.0347 $ 0.0269 $ 0.0341
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of year $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Distributions from net realized gains --
Total distributions (0.0571)
Net asset value, end of year $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 333,979
Ratio of operating expenses to average net assets 0.43%+
Ratio of net investment income to average net assets 5.49%+
Ratio of operating expenses to average net assets without
waivers 0.62%+
Net investment income per share without waivers $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
Operating performance:
Net asset value, beginning
of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0361 0.0257 0.0223 0.0267 0.0422 0.0550
Dividends from net
investment income (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Net asset value, end of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 3.68% 2.60% 2.27% 2.70%+++ 4.31%+++ 5.63%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year
(000's) $ 905,125 $ 820,677 $ 701,403 $ 329,265 $ 168,829 $ 173,834
Ratio of operating expenses
to average net assets 0.30% 0.27% 0.23% 0.40% 0.42% 0.40%
Ratio of net investment
income to average net
assets 3.62% 2.59% 2.23% 2.65% 4.23% 5.51%
Ratio of operating expenses
to average net assets
without waivers. 0.57% 0.59% 0.59% 0.57% 0.60% 0.75%
Net investment income per
share without waivers $ 0.0335 $ 0.0226 $ 0.0187 $ 0.0250 $ 0.0404 $ 0.0515
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/89 11/30/88*
Operating performance:
Net asset value, beginning
of year $ 1.00 $ 1.00
Net investment income 0.0600 0.0350
Dividends from net
investment income (0.0600) (0.0350)
Net asset value, end of
year $ 1.00 $ 1.00
Total return++ 6.17%+++ 3.55%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year
(000's) $ 145,109 $ 143,245
Ratio of operating expenses
to average net assets 0.40% 0.40%+
Ratio of net investment
income to average net
assets 6.00% 4.97%+
Ratio of operating expenses
to average net assets
without waivers. 0.74% 0.75%+
Net investment income per
share without waivers $ 0.0566 $ 0.0325
</TABLE>
* Nations Tax Exempt Fund Primary A Shares commenced operations on March 14,
1988.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
+++ Unaudited.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of
year $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.27 0.24 0.24 0.28 0.34
Net realized and unrealized
gain/(loss) on investments 3.91 (0.23) 1.38 1.57 1.47
Net increase/(decrease) in net
assets resulting from
investment operations 4.18 0.01 1.62 1.85 1.81
Distributions:
Dividends from net investment
income (0.28) (0.23) (0.24) (0.27) (0.36)
Distributions from net
realized capital gains (0.67) (0.54) (0.09) (0.29) --
Total distributions (0.95) (0.77) (0.33) (0.56) (0.36)
Net asset value, end of year $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16
Total return++ 34.53% (0.08)% 13.19% 17.00%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year
(000's) $ 956,669 $ 799,743 $ 707,185 $ 282,138 $ 82,360
Ratio of operating expenses to
average net assets 0.94% 0.93% 0.96% 0.90% 0.53%
Ratio of net investment income
to average net assets 1.90% 1.85% 1.98% 2.31% 3.33%
Portfolio turnover rate 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or
reimbursements 0.94% 0.93% 0.97% 0.97% 0.99%
Net investment income per
share without waivers and/or
reimbursements $ 0.27 $ 0.24 $ 0.24 $ 0.27 $ 0.30
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*#
Operating performance:
Net asset value, beginning of
year $ 10.04 $ 10.00
Net investment income 0.35 0.08
Net realized and unrealized
gain/(loss) on investments (0.36) (0.04)
Net increase/(decrease) in net
assets resulting from
investment operations (0.01) 0.04
Distributions:
Dividends from net investment
income (0.32) --
Distributions from net
realized capital gains -- --
Total distributions (0.32) --
Net asset value, end of year $ 9.71 $ 10.04
Total return++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year
(000's) $ 19,769 $ 5,161
Ratio of operating expenses to
average net assets 0.21% 0.49%+
Ratio of net investment income
to average net assets 4.19% 4.41%+
Portfolio turnover rate 24% --
Ratio of operating expenses to
average net assets without
waivers and/or
reimbursements 1.11% 1.41%+
Net investment income per
share without waivers and/or
reimbursements $ 0.26 $ 0.06
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95# 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.19 0.42 0.38 0.37 0.34
Net realized and unrealized gain
on investments 0.84 1.11 0.22 1.08 1.25
Net increase in net assets
resulting from investment
operations 1.03 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment
income (0.20) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized
capital gains -- (0.73) (0.81) (0.45) (0.07)
Total distributions (0.20) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 12.64 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 8.80% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 275,586 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to
average net assets 0.91%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to
average net assets 3.15%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 33% 158% 116% 55% 84%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.91%+ 0.93% 0.95% 1.04% 2.21%
Net investment income per share
without waivers and/or
reimbursements $ 0.18 $ 0.42 $ 0.38 $ 0.36 $ 0.22
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.05
Net realized and unrealized gain
on investments 0.14
Net increase in net assets
resulting from investment
operations 0.19
Distributions:
Dividends from net investment
income --
Distributions from net realized
capital gains --
Total distributions 0.00
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 10,194
Ratio of operating expenses to
average net assets 1.12%+
Ratio of net investment income to
average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 1.80%+
Net investment income per share
without waivers and/or
reimbursements $ (0.06)
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on
investments 0.70 (0.20) 1.44 0.21
Net increase/(decrease) in net assets resulting
from investment operations 0.77 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income -- (0.03) (0.05) (0.08)
Distributions from net realized capital gains -- (0.12) (0.02) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) -- --
Total distributions -- (0.25) (0.07) (0.10)
Net asset value, end of period $ 12.52 $ 11.75 $ 12.06 $ 10.60
Total return++ 6.64% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 674,179 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.15%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average
net assets 0.83%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 16% 92% 39% 41%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.24%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.06 $ 0.14 $ 0.08 $ 0.10
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on
investments 0.36
Net increase/(decrease) in net assets resulting
from investment operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average
net assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.43%+
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.03
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
9/30/95*#
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.00)**
Net realized and unrealized gain/(loss) on investments (0.12)
Net increase/(decrease) in net assets resulting from investment operations (0.12)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.88
Total return++ (1.20)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14,529
Ratio of operating expenses to average net assets 1.90%+
Ratio of net investment income/(loss) to average net assets (0.03)%+
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of 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.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
9/30/95*#
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments (0.30)
Net increase/(decrease) in net assets resulting from investment operations (0.29)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.71
Total return++ (2.90)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,727
Ratio of operating expenses to average net assets 1.70%+
Ratio of net investment income/(loss) to average net assets 0.15%+
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of 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.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.09 0.09 0.09
Net realized and unrealized gain on investments 3.28 0.14 0.42
Net increase in net assets resulting from investment operations 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.10) (0.08) (0.10)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.36) (0.08) (0.11)
Net asset value, end of year $ 14.24 $ 11.23 $ 11.08
Total return++ 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net assets 0.71% 0.85% 0.84%
Portfolio turnover rate 80% 56% 81%
Ratio of operating expenses to average net assets without waivers 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers $ 0.09 $ 0.09 $ 0.08
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net assets resulting from investment operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of year $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without waivers 1.05%+
Net investment income/(loss) per share without waivers $ 0.01
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Amount represents less than $0.01 per share.
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of year $ 11.41 $ 10.87
Net investment income/(loss) 0.01 (0.03)
Net realized and unrealized gain on investments 3.26 0.71
Net increase in net assets resulting from investment operations 3.27 0.68
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of year $ 14.28 $ 11.41
Total return++ 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets 0.08% (0.29)%
Portfolio turnover rate 139% 129%
Ratio of operating expenses to average net assets without waivers 0.98% 1.01%
Net investment income/(loss) per share without waivers $ 0.01 $ (0.03)
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net assets resulting from investment operations 0.88
Distributions:
Distributions from net realized gains (0.01)
Total distributions (0.01)
Net asset value, end of year $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers 1.01%+
Net investment income/(loss) per share without waivers $ (0.03)
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of year $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 3.96 (0.23)# 2.66
Net increase/(decrease) in net assets resulting from investment operations 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.08) (0.01) --
Distributions from net realized gains -- -- (2.95)
Return of capital -- (0.00)(a) --
Total distributions (0.08) (0.01) (2.95)
Net asset value, end of year $ 17.06 $ 13.08 $ 13.31
Total return++ 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net assets 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 124% 177% 475%
Ratio of operating expenses to average net assets without waivers 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers $ 0.10 $ (0.03) $ (0.08)
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net assets resulting from investment operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized gains (0.06)
Return of capital --
Total distributions (0.06)
Net asset value, end of year $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without waivers 1.31%+
Net investment income/(loss) per share without waivers $ (0.03)
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of year $ 9.84 $ 10.00
Net investment income 0.28 0.24
Net realized and unrealized gain/(loss) on investments 3.20 (0.21)
Net increase in net assets resulting from investment operations 3.48 0.03
Distributions:
Dividends from net investment income (0.28) (0.19)
Distributions from net realized gains (0.13) --
Total distributions (0.41) (0.19)
Net asset value, end of year $ 12.91 $ 9.84
Total return++ 36.35% 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 145,021 $ 123,147
Ratio of operating expenses to average net assets 0.37% 0.35%+
Ratio of operating expenses to average net assets including interest expense 0.38% --
Ratio of net investment income to average net assets 2.44% 2.64%+
Portfolio turnover rate 18% 14%
Ratio of operating expenses to average net assets without waivers 0.78% 0.79%+
Net investment income per share without waivers $ 0.23 $ 0.20
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 10.44 $ 10.87 $ 10.24
Net investment income 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 2.21 (0.43) 0.64
Net increase/(decrease) in net assets resulting from investment
operations 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.33) (0.25) (0.30)
Distributions from net realized gains (0.02) -- --
Total distributions (0.35) (0.25) (0.30)
Net asset value, end of year $ 12.68 $ 10.44 $ 10.87
Total return++ 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 0.99% 0.98 % 0.90%
Ratio of net investment income to average net assets 3.25% 2.31 % 2.82%
Portfolio turnover rate 174% 156 % 50%
Ratio of operating expenses to average net assets without waivers 0.99% 0.99 % 0.97%
Net investment income per share without waivers $ 0.38 $ 0.25 $ 0.29
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net assets resulting from investment
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of year $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without waivers 1.05%+
Net investment income per share without waivers $ 0.05
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of year $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on investments 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net assets resulting from
investment operations 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment income (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- (0.02) (0.02) --
Total distributions (0.24) (0.25) (0.25) (0.28)
Net asset value, end of year $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average net assets 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 328% 133% 92% 25%
Ratio of operating expenses to average net assets without
waivers and/or reimbursements 0.80% 0.80% 0.79% 0.77%
Net investment income per share without waivers and/or
reimbursements $ 0.23 $ 0.22 $ 0.22 $ 0.26
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of year $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments 0.17
Net increase/(decrease) in net assets resulting from
investment operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of year $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or reimbursements 0.82%+
Net investment income per share without waivers and/or
reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Amount represents less than $0.01.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95# 05/31/94 05/31/93
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.32 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments 0.10 0.06 (0.61) 0.13
Net increase/(decrease) in net assets resulting
from investment operations 0.42 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.32) (0.60) (0.58) (0.70)
Dividends in excess of net investment income -- -- (0.02) --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total distributions (0.32) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.96 $ 9.86 $ 9.80 $ 10.46
Total return++ 4.32% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 58,267 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.45%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 25% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.94%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or reimbursements $ 0.31 $ 0.62 $ 0.61 $ 0.60
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net assets resulting
from investment operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.48 $ 10.01 $ 9.75
Net investment income 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments 0.36 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment operations 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.61) (0.52) (0.53)
Net asset value, end of year $ 9.84 $ 9.48 $ 10.01
Total return++ 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.56% 0.50% 0.37%
Ratio of net investment income to average net assets 6.32% 5.23% 5.27%
Portfolio turnover rate 224% 293% 121%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.86% 0.82% 0.79%
Net investment income per share without waivers and/or reimbursements $ 0.58 $ 0.47 $ 0.48
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net assets resulting from investment operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.09)
Net asset value, end of year $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.90%+
Net investment income per share without waivers and/or reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR
ENDED ENDED YEAR
PRIMARY A SHARES 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of year $ 9.67 $ 10.88 $ 9.97
Net investment income 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments 1.15 (1.06) 0.91
Net increase/(decrease) in net assets resulting from investment operations 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- (0.00)(a) --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.73) (0.89) (0.78)
Net asset value, end of year $ 10.82 $ 9.67 $ 10.88
Total return++ 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 7.03% 7.31% 7.02%
Portfolio turnover rate 96% 144% 86%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or reimbursements $ 0.72 $ 0.72 $ 0.70
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.06)
Net asset value, end of year $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.85%+
Net investment income per share without waivers and/or reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
(a) Value represents less than $0.01 per share.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.32 $ 10.55 $ 9.94
Net investment income 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments 0.90 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment operations 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.59) (0.87) (0.57)
Net asset value, end of year $ 10.22 $ 9.32 $ 10.55
Total return++ 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.71% 0.68% 0.61%
Ratio of net investment income to average net assets 6.05% 5.43% 5.40%
Portfolio turnover rate 228% 307% 161%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.81% 0.76% 0.77%
Net investment income per share without waivers and/or reimbursements $ 0.58 $ 0.52 $ 0.55
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.05)
Net asset value, end of year $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.86%+
Net investment income per share without waivers and/or reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
9/30/95*
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.13
Net realized and unrealized gain/(loss) on investments 0.04
Net increase/(decrease) in net assets resulting from investment operations 0.17
Distributions:
Dividends from net investment income (0.13)
Total Distributions (0.13)
Net asset value, end of period $ 10.04
Total return++ 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,402
Ratio of operating expenses to average net assets 1.30%
+
Ratio of net investment income/(loss) to average net assets 5.61%
+
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of year $ 9.64 $ 11.33 $ 10.65 $ 10.25
Net investment income 0.59 0.57 0.59 0.59
Net realized and unrealized gain/(loss) on investments 1.44 (1.44) 0.72 0.41
Net increase/(decrease) in net assets resulting from
investment operations 2.03 (0.87) 1.31 1.00
Distributions:
Dividends from net investment income (0.59) (0.57) (0.59) (0.59)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.25) (0.04) (0.01)
Total distributions (0.59) (0.82) (0.63) (0.60)
Net asset value, end of year $ 11.08 $ 9.64 $ 11.33 $ 10.65
Total return++ 21.55% (8.17)% 12.54% 9.97%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 68,836 $ 59,279 $ 88,386 $ 62,387
Ratio of operating expenses to average net assets 0.60% 0.61% 0.52% 0.43%
Ratio of operating expenses to average net asset including
interest expense --(a) 0.62% -- --
Ratio of net investment income to average net assets 5.63% 5.42% 5.24% 5.51%
Portfolio turnover rate 49% 63% 48% 19%
Ratio of operating expenses to average net assets without
waivers 0.88% 0.90% 0.84% 0.90%
Net investment income per share without waivers $ 0.56 $ 0.54 $ 0.55 $ 0.54
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.52
Net realized and unrealized gain/(loss) on investments 0.25
Net increase/(decrease) in net assets resulting from
investment operations 0.77
Distributions:
Dividends from net investment income (0.52)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.52)
Net asset value, end of year $ 10.25
Total return++ 7.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 23,631
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net asset including
interest expense --
Ratio of net investment income to average net assets 6.07%+
Portfolio turnover rate 54%
Ratio of operating expenses to average net assets without
waivers 0.88%+
Net investment income per share without waivers $ 0.45
</TABLE>
* Nations Municipal Income Fund Primary A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.69 $ 9.96
Net investment income 0.44 0.38
Net realized and unrealized gain/(loss) on investments 0.34 (0.27)
Net increase in net assets resulting from investment operations 0.78 0.11
Distributions:
Dividends from net investment income (0.44) (0.38)
Distributions from net realized capital gains -- (0.00)#
Total distributions (0.44) (0.38)
Net asset value, end of year $ 10.03 $ 9.69
Total return++ 8.16% 1.09%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 49,961 $ 33,488
Ratio of operating expenses to average net assets 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.38% 3.83%
Portfolio turnover rate 82% 57%
Ratio of operating expenses to average net assets without waivers 0.93% 0.80%
Net investment income per share without waivers $ 0.39 $ 0.33
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase in net assets resulting from investment operations 0.01
Distributions:
Dividends from net investment income (0.05)
Distributions from net realized capital gains --
Total distributions (0.05)
Net asset value, end of year $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 5,999
Ratio of operating expenses to average net assets 0.09%+
Ratio of net investment income to average net assets 3.16%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers 1.04%+
Net investment income per share without waivers $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund Primary A Shares commenced
operations on October 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.24 $ 10.11
Net investment income 0.48 0.45
Net realized and unrealized gain/(loss) on investments 0.93 (0.86)
Net increase/(decrease) in net assets resulting from investment operations 1.41 (0.41)
Distributions:
Dividends from net investment income (0.48) (0.45)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized capital gains -- (0.01)
Total distributions (0.48) (0.46)
Net asset value, end of year $ 10.17 $ 9.24
Total return++ 15.60% (4.25)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 73,897 $ 38,055
Ratio of operating expenses to average net assets 0.45%(a) 0.35%(a)
Ratio of net investment income to average net assets 4.91% 4.59%
Portfolio turnover rate 31% 51%
Ratio of operating expenses to average net assets without waivers 0.84% 0.88%
Net investment income per share without waivers $ 0.45 $ 0.40
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 0.11
Net increase/(decrease) in net assets resulting from investment operations 0.25
Distributions:
Dividends from net investment income (0.14)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.14)
Net asset value, end of year $ 10.11
Total return++ 2.46%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 28,335
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 4.07%+
Portfolio turnover rate 23%
Ratio of operating expenses to average net assets without waivers 0.96%+
Net investment income per share without waivers $ 0.12
</TABLE>
* Nations Intermediate Municipal Bond Fund Primary A Shares commenced
operations on July 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.61 $ 10.50
Net investment income 0.48 0.45
Net realized and unrealized gain/(loss) on investments 1.02 (0.88)
Net increase/(decrease) in net assets resulting from investment operations 1.50 (0.43)
Distributions:
Dividends from net investment income (0.48) (0.45)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized gains -- (0.01)
Total distributions (0.48) (0.46)
Net asset value, end of year $ 10.63 $ 9.61
Total return++ 15.92% (4.26)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 44,038 $ 42,717
Ratio of operating expenses to average net assets 0.55%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.70% 4.44%
Portfolio turnover rate 27% 34%
Ratio of operating expenses to average net assets without waivers 0.81% 0.76%
Net investment income per share without waivers $ 0.46 $ 0.43
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.44
Net realized and unrealized gain/(loss) on investments 0.50
Net increase/(decrease) in net assets resulting from investment operations 0.94
Distributions:
Dividends from net investment income (0.44)
Distributions in excess of net investment income --
Distributions from net realized gains --
Total distributions (0.44)
Net asset value, end of year $ 10.50
Total return++ 9.50%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 41,489
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.28%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net assets without waivers 0.80%+
Net investment income per share without waivers $ 0.40
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Primary A Shares commenced
operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of year $ 8.40 $ 9.93
Net investment income 0.51 0.49
Net realized and unrealized gain/(loss) on investments 1.36 (1.53)
Net increase/(decrease) in net assets resulting from investment operations 1.87 (1.04)
Dividends from net investment income (0.51) (0.49)
Net asset value, end of year $ 9.76 $ 8.40
Total return++ 22.69% (10.70)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 11,219 $ 4,258
Ratio of operating expenses to average net assets 0.39%(a) 0.21%+(a)
Ratio of net investment income to average net assets 5.44% 5.55%+
Portfolio turnover rate 13% 46%
Ratio of operating expenses to average net assets without waivers 0.95% 0.91%+
Net investment income per share without waivers $ 0.46 $ 0.43
</TABLE>
* Nations Florida Municipal Bond Fund Primary A Shares commenced operations on
December 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.82 $ 10.82 $ 10.29
Net investment income 0.50 0.49 0.50
Net realized and unrealized gain/(loss) on investments 0.99 (0.98) 0.56
Net increase/(decrease) in net assets resulting from investment operations 1.49 (0.49) 1.06
Distributions:
Dividends from net investment income (0.50) (0.49) (0.50)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.02) (0.03)
Total distributions (0.50) (0.51) (0.53)
Net asset value, end of year $ 10.81 $ 9.82 $ 10.82
Total return++ 15.42% (4.70)% 10.43%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 40,383 $ 33,111 $ 30,738
Ratio of operating expenses to average net assets 0.55% 0.54% 0.46%
Ratio of operating expenses to average net assets including interest
expense --(a) 0.55% --
Ratio of net investment income to average net assets 4.76% 4.74% 4.57%
Portfolio turnover rate 17% 22% 6%
Ratio of operating expenses to average net assets without waivers 0.80% 0.75% 0.77%
Net investment income per share without waivers $ 0.47 $ 0.47 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net assets resulting from investment operations 0.70
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.41)
Net asset value, end of year $ 10.29
Total return++ 7.07%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 20,584
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including interest
expense --
Ratio of net investment income to average net assets 5.25%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without waivers 0.77%+
Net investment income per share without waivers $ 0.37
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on March 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of year $ 8.38 $ 10.02
Net investment income 0.51 0.46
Net realized and unrealized gain/(loss) on investments 1.34 (1.64)
Net increase/(decrease) in net assets resulting from investment operations 1.85 (1.18)
Dividends from net investment income (0.51) (0.46)
Net asset value, end of year $ 9.72 $ 8.38
Total return++ 22.48% (12.07)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,628 $ 232
Ratio of operating expenses to average net assets 0.40%(a) 0.21%+(a)
Ratio of net investment income to average net assets 5.42% 5.60%+
Portfolio turnover rate 26% 35%
Ratio of operating expenses to average net assets without waivers 1.09% 1.04%+
Net investment income per share without waivers $ 0.44 $ 0.39
</TABLE>
* Nations Georgia Municipal Bond Fund Primary A Shares commenced operations on
January 13, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of year $ 10.00 $ 11.09 $ 10.72 $ 10.44 $ 10.21
Net investment income 0.51 0.50 0.52 0.55 0.60
Net realized and unrealized gain/(loss) on
investments 0.98 (0.99) 0.44 0.31 0.24
Net increase/(decrease) in net assets
resulting from investment operations 1.49 (0.49) 0.96 0.86 0.84
Distributions:
Dividends from net investment income (0.51) (0.50) (0.52) (0.55) (0.60)
Distributions from net realized capital
gains (0.03) (0.10) (0.07) (0.03) (0.01)
Distributions in excess of net realized
capital gains -- (0.00)# -- -- --
Total distributions (0.54) (0.60) (0.59) (0.58) (0.61)
Net asset value, end of year $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44
Total return++ 15.16% (4.64)% 9.11% 8.41%+++ 8.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $ 62,460 $ 61,349 $ 61,552 $ 48,192 $ 31,088
Ratio of operating expenses to average net
assets 0.55%(a) 0.53%(a) 0.49% 0.39% 0.20%
Ratio of net investment income to average
net assets 4.76% 4.73% 4.73% 5.12% 5.76%
Portfolio turnover rate 11% 22% 26% 38% 26%
Ratio of operating expenses to average net
assets without waivers 0.80% 0.73% 0.73% 0.78% 0.71%
Net investment income per share without
waivers $ 0.48 $ 0.48 $ 0.49 $ 0.51 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/90*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.16
Net realized and unrealized gain/(loss) on
investments 0.21
Net increase/(decrease) in net assets
resulting from investment operations 0.37
Distributions:
Dividends from net investment income (0.16)
Distributions from net realized capital
gains --
Distributions in excess of net realized
capital gains --
Total distributions (0.16)
Net asset value, end of year $ 10.21
Total return++ 3.72%+++
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $ 11,087
Ratio of operating expenses to average net
assets 0.21%+
Ratio of net investment income to average
net assets 6.12%+
Portfolio turnover rate 49%
Ratio of operating expenses to average net
assets without waivers 0.84%+
Net investment income per share without
waivers $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of year $ 8.37 $ 8.90
Net investment income 0.48 0.11
Net realized and unrealized gain/(loss) on investments 1.26 (0.53)
Net increase/(decrease) in net assets resulting from investment operations 1.74 (0.42)
Dividends from net investment income (0.48) (0.11)
Net asset value, end of year $ 9.63 $ 8.37
Total return++ 21.23% (4.89)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,595 $ 39
Ratio of operating expenses to average net assets 0.40% 0.21%+(a)
Ratio of net investment income to average net assets 5.14% 5.48%+
Portfolio turnover rate 11% 39%
Ratio of operating expenses to average net assets without waivers 1.26% 1.30%+
Net investment income per share without waivers $ 0.40 $ 0.09
</TABLE>
* Nations Maryland Municipal Bond Fund Primary A Shares commenced operations
on September 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.53 $ 10.46
Net investment income 0.45 0.44
Net realized and unrealized gain/(loss) on investments 0.99 (0.88)
Net increase/(decrease) in net assets resulting from investment operations 1.44 (0.44)
Distributions:
Dividends from net investment income (0.45) (0.44)
Distributions in excess of net investment income (0.00)# --
Distributions from net realized capital gains (0.01) (0.05)
Total distributions (0.46) (0.49)
Net asset value, end of year $ 10.51 $ 9.53
Total return++ 15.41% (4.34)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 20,916 $ 14,148
Ratio of operating expenses to average net assets 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.47% 4.38%
Portfolio turnover rate 57% 37%
Ratio of operating expenses to average net assets without waivers 0.84% 0.82%
Net investment income per share without waivers $ 0.43 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.43
Net realized and unrealized gain/(loss) on investments 0.46
Net increase/(decrease) in net assets resulting from investment operations 0.89
Distributions:
Dividends from net investment income (0.43)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.43)
Net asset value, end of year $ 10.46
Total return++ 9.03%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 11,814
Ratio of operating expenses to average net assets 0.42%+
Ratio of net investment income to average net assets 4.23%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers 0.85%+
Net investment income per share without waivers $ 0.39
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 11/30/95
Operating performance:
Net asset value, beginning of year $ 8.36
Net investment income 0.50
Net realized and unrealized gain/(loss) on investments 1.37
Net increase/(decrease) in net assets resulting from investment operations 1.87
Dividends from net investment income (0.50)
Net asset value, end of year $ 9.73
Total return++ 22.87%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 1,293
Ratio of operating expenses to average net assets 0.38%(a)
Ratio of net investment income to average net assets 5.43%
Portfolio turnover rate 40%
Ratio of operating expenses to average net assets without waivers 0.96%
Net investment income per share without waivers $ 0.45
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 10.06
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.70)
Net increase/(decrease) in net assets resulting from investment operations (1.25)
Dividends from net investment income (0.45)
Net asset value, end of year $ 8.36
Total return++ (12.65)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 531
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.53%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers 0.92%+
Net investment income per share without waivers $ 0.40
</TABLE>
* Nations North Carolina Municipal Bond Fund Primary A Shares commenced
operations on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.76 $ 10.61 $ 10.18
Net investment income 0.51 0.50 0.50
Net realized and unrealized gain/(loss) on investments 0.93 (0.84) 0.43
Net increase/(decrease) in net assets resulting from investment
operations 1.44 (0.34) 0.93
Distributions:
Dividends from net investment income (0.51) (0.50) (0.50)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) --
Total distributions (0.51) (0.51) (0.50)
Net asset value, end of year $ 10.69 $ 9.76 $ 10.61
Total return++ 15.02% (3.37)% 9.32 %
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 45,255 $ 49,030 $ 56,995
Ratio of operating expenses to average net assets 0.55%(a) 0.54%(a) 0.45 %
Ratio of net investment income to average net assets 4.92% 4.82% 4.68 %
Portfolio turnover rate 11% 30% 11 %
Ratio of operating expenses to average net assets without waivers 0.75% 0.75% 0.75 %
Net investment income per share without waivers $ 0.49 $ 0.48 $ 0.47
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments 0.18
Net increase/(decrease) in net assets resulting from investment
operations 0.65
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.47)
Net asset value, end of year $ 10.18
Total return++ 6.62%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 39,535
Ratio of operating expenses to average net assets 0.20%+
Ratio of net investment income to average net assets 4.11%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without waivers 0.74%+
Net investment income per share without waivers $ 0.42
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on January 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 11/30/95
Operating performance:
Net asset value, beginning of year $ 8.65
Net investment income 0.52
Net realized and unrealized gain/(loss) on investments 1.34
Net increase/(decrease) in net assets resulting from investment operations 1.86
Dividends from net investment income (0.52)
Net asset value, end of year $ 9.99
Total return++ 21.99%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 1,782
Ratio of operating expenses to average net assets 0.40%(a)
Ratio of net investment income to average net assets 5.44%
Portfolio turnover rate 13%
Ratio of operating expenses to average net assets without waivers 1.08%
Net investment income per share without waivers $ 0.46
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 10.02
Net investment income 0.48
Net realized and unrealized gain/(loss) on investments (1.37)
Net increase/(decrease) in net assets resulting from investment operations (0.89)
Dividends from net investment income (0.48)
Net asset value, end of year $ 8.65
Total return++ (9.12)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 400
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers 1.12%+
Net investment income per share without waivers $ 0.41
</TABLE>
* Nations South Carolina Municipal Bond Fund Primary A Shares commenced
operations on December 27, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.30 $ 10.18
Net investment income 0.46 0.45
Net realized and unrealized gain/(loss) on investments 0.93 (0.87)
Net increase/(decrease) in net assets resulting from investment operations 1.39 (0.42)
Distributions:
Dividends from net investment income (0.46) (0.45)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized capital gains -- (0.01)
Total distributions (0.46) (0.46)
Net asset value, end of year $ 10.23 $ 9.30
Total return++ 15.22% (4.24)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 7,160 $ 4,116
Ratio of operating expenses to average net assets 0.57% 0.52%
Ratio of operating expenses including interest expense -- (a) 0.53%
Ratio of net investment income to average net assets 4.65% 4.56%
Portfolio turnover rate 34% 41%
Ratio of operating expenses to average net assets without waivers 0.92% 0.89%
Net investment income per share without waivers $ 0.43 $ 0.41
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.06
Net investment income 0.29
Net realized and unrealized gain/(loss) on investments 0.12
Net increase/(decrease) in net assets resulting from investment operations 0.41
Distributions:
Dividends from net investment income (0.29)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.29)
Net asset value, end of year $ 10.18
Total return++ 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,123
Ratio of operating expenses to average net assets 0.27%+
Ratio of operating expenses including interest expense --
Ratio of net investment income to average net assets 4.31%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets without waivers 0.94%+
Net investment income per share without waivers $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Primary A Shares
commenced operations on April 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 11/30/95
Operating performance:
Net asset value, beginning of year $ 8.58
Net investment income 0.52
Net realized and unrealized gain/(loss) on investments 1.29
Net increase/(decrease) in net assets resulting from investment operations 1.81
Dividends from net investment income (0.52)
Net asset value, end of year $ 9.87
Total return++ 21.52%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 768
Ratio of operating expenses to average net assets 0.40%(a)
Ratio of net investment income to average net assets 5.49%
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers 1.27%
Net investment income per share without waivers $ 0.44
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 9.59
Net investment income 0.39
Net realized and unrealized gain/(loss) on investments (1.01)
Net increase/(decrease) in net assets resulting from investment operations (0.62)
Dividends from net investment income (0.39)
Net asset value, end of year $ 8.58
Total return++ (6.66)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 311
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.56%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets without waivers 1.20%+
Net investment income per share without waivers $ 0.32
</TABLE>
* Nations Tennessee Municipal Bond Fund Primary A Shares commenced operations
on March 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
32
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of year $ 9.53 $ 10.35
Net investment income 0.46 0.44
Net realized and unrealized gain/(loss) on investments 0.83 (0.79)
Net increase/(decrease) in net assets resulting from investment operations 1.29 (0.35)
Distributions:
Dividends from net investment income (0.46) (0.44)
Distributions in excess of net investment income -- (0.00)#
Distributions from net realized capital gains -- (0.03)
Total distributions (0.46) (0.47)
Net asset value, end of year $ 10.36 $ 9.53
Total return++ 13.83% (3.48)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 26,382 $ 24,066
Ratio of operating expenses to average net assets 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.62% 4.40%
Portfolio turnover rate 64% 61%
Ratio of operating expenses to average net assets without waivers 0.83% 0.78%
Net investment income per share without waivers $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net assets resulting from investment operations 0.76
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.41)
Net asset value, end of year $ 10.35
Total return++ 7.72%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 31,875
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.43%+
Portfolio turnover rate 63%
Ratio of operating expenses to average net assets without waivers 0.82%+
Net investment income per share without waivers $ 0.38
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Primary A Shares commenced
operations on January 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 11/30/95
Operating performance:
Net asset value, beginning of year $ 8.39
Net investment income 0.50
Net realized and unrealized gain/(loss) on investments 1.31
Net increase/(decrease) in net assets resulting from investment operations 1.81
Dividends from net investment income (0.50)
Net asset value, end of year $ 9.70
Total return++ 22.09%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 4,613
Ratio of operating expenses to average net assets 0.39%(a)
Ratio of net investment income to average net assets 5.45%
Portfolio turnover rate 50%
Ratio of operating expenses to average net assets without waivers 1.05%
Net investment income per share without waivers $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on investments (1.62)
Net increase/(decrease) in net assets resulting from investment operations (1.20)
Dividends from net investment income (0.42)
Net asset value, end of year $ 8.39
Total return++ (12.21)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,285
Ratio of operating expenses to average net assets 0.22%+(a)
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 107%
Ratio of operating expenses to average net assets without waivers 1.06%+
Net investment income per share without waivers $ 0.35
</TABLE>
* Nations Texas Municipal Bond Fund Primary A Shares commenced operations on
February 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
33
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of
year $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.51 0.50 0.48 0.54 0.58
Net realized and unrealized
gain/(loss) on investments 0.89 (0.96) 0.42 0.29 0.21
Net increase/(decrease) in net
assets resulting from
investment operations 1.40 (0.46) 0.90 0.83 0.79
Distributions:
Dividends from net investment
income (0.51) (0.50) (0.48) (0.54) (0.58)
Distributions from net
realized capital gains (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in excess of net
realized capital gains -- (0.00)# -- -- --
Total distributions (0.51) (0.59) (0.50) (0.58) (0.59)
Net asset value, end of year 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 14.39% (4.35)% 9.08% 8.28%+++ 8.04%+++
Ratios to average net assets/
supplemental data:
Net assets, end of year (in
000's) $ 157,252 $ 167,405 $ 193,084 $ 157,773 $ 119,757
Ratio of operating expenses to
average net assets 0.56%(a) 0.61%(a) 0.57% 0.56% 0.45%
Ratio of net investment income
to average net assets 4.87% 4.76% 4.80% 5.17% 5.67%
Portfolio turnover rate 22% 14% 26% 13% 24%
Ratio of operating expenses to
average net assets without
waivers 0.74% 0.73% 0.69% 0.68% 0.73%
Net investment income per
share without waivers $ 0.49 $ 0.49 $ 0.47 $ 0.53 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*
Operating performance:
Net asset value, beginning of
year $ 10.08 $ 10.00
Net investment income 0.61 0.12
Net realized and unrealized
gain/(loss) on investments 0.11 0.03
Net increase/(decrease) in net
assets resulting from
investment operations 0.72 0.15
Distributions:
Dividends from net investment
income (0.66) (0.07)
Distributions from net
realized capital gains -- --
Distributions in excess of net
realized capital gains -- --
Total distributions (0.66) (0.07)
Net asset value, end of year $ 10.14 $ 10.08
Total return++ 7.41%+++ 1.46%+++
Ratios to average net assets/
supplemental data:
Net assets, end of year (in
000's) $ 75,962 $ 46,560
Ratio of operating expenses to
average net assets 0.26% 0.16%+
Ratio of net investment income
to average net assets 6.09% 6.09%+
Portfolio turnover rate 19% 12%
Ratio of operating expenses to
average net assets without
waivers 0.80% 0.81%+
Net investment income per
share without waivers $ 0.55 $ 0.08
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 20, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
34
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 11/30/95
Operating performance:
Net asset value, beginning of year $ 8.29
Net investment income 0.51
Net realized and unrealized gain/(loss) on investments 1.33
Net increase/(decrease) in net assets resulting from investment operations 1.84
Dividends from net investment income (0.51)
Net asset value, end of year $ 9.62
Total return++ 22.63%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 3,527
Ratio of operating expenses to average net assets 0.39%(a)
Ratio of net investment income to average net assets 5.51%
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets without waivers 1.04%
Net investment income per share without waivers $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.71)
Net increase/(decrease) in net assets resulting from investment operations (1.26)
Dividends from net investment income (0.45)
Net asset value, end of year $ 8.29
Total return++ (12.86)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 432
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 61%
Ratio of operating expenses to average net assets without waivers 0.99%+
Net investment income per share without waivers $ 0.38
</TABLE>
* Nations Virginia Municipal Bond Fund Primary A Shares commenced operations
on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund, described below, endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of
35
<PAGE>
capital by investing in companies that are believed to have superior earnings
growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1) The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a "passive" or "indexing" investment
approach, attempts to duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Under normal market conditions, it is expected that the average weighted
maturity of the Fund's portfolio will be between two and seven years.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek cur-
(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.
rent income consistent with minimal fluctuation of principal. The Fund invests
primarily in short-term investment grade fixed income securities. Under normal
market conditions, it is expected that the average weighted maturity of the
Fund's portfolio will not exceed three years. 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: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities. Under normal
market conditions, it is expected that the average weighted maturity of the
Fund's portfolio will be greater than seven years.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities. Under normal market conditions, it
is expected that the average weighted maturity of the Fund's portfolio will be
10 years or less.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: The investment objective of Nations
Municipal Income Fund is to seek current income exempt from Federal income tax
as is consistent with prudent investment risk. The investment objective of
Nations Short-Term Municipal Income Fund is to seek current income exempt from
Federal income tax consistent with minimal fluctuation of principal. Such Funds
invest primarily in investment grade obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from Federal income tax ("Municipal Securities").
Nations Intermediate Municipal Bond Fund's investment objective is to seek
current income exempt from Federal income tax, consistent with moderate
fluctuation of principal.
36
<PAGE>
During normal market conditions, at least 80% of the total assets of Nations
Municipal Income Fund and Nations Intermediate Municipal Bond Fund will be
invested in Municipal Securities with remaining maturities of 40 years or less.
Under normal market conditions, it is expected that the average weighted
maturity of Nations Municipal Income Fund's portfolio will be greater than 10
years. Under normal market conditions, it is expected that the average weighted
maturity of Nations Intermediate Municipal Bond Fund's portfolio will be between
three and ten years. Under normal market conditions, it is expected that the
average weighted maturity of Nations Short-Term Municipal Income Fund's
portfolio will not exceed three years.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND, NATIONS GEORGIA INTERMEDIATE
MUNICIPAL BOND FUND, NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND, NATIONS
NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND, NATIONS SOUTH CAROLINA
INTERMEDIATE MUNICIPAL BOND FUND, NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND
FUND, NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND AND NATIONS VIRGINIA
INTERMEDIATE MUNICIPAL BOND FUND, SOMETIMES COLLECTIVELY REFERRED TO AS THE
"STATE INTERMEDIATE MUNICIPAL BOND FUNDS," AND NATIONS FLORIDA MUNICIPAL BOND
FUND, NATIONS GEORGIA MUNICIPAL BOND FUND, NATIONS MARYLAND MUNICIPAL BOND FUND,
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND, NATIONS SOUTH CAROLINA MUNICIPAL
BOND FUND, NATIONS TENNESSEE MUNICIPAL BOND FUND, NATIONS TEXAS MUNICIPAL BOND
FUND AND NATIONS VIRGINIA MUNICIPAL BOND FUND, SOMETIMES COLLECTIVELY REFERRED
TO AS THE "STATE MUNICIPAL BOND FUNDS": As described below, each of these Funds
seeks to provide investors with as high a level of income exempt from Federal
income tax as is consistent with prudent investing, while seeking preservation
of shareholders' capital. Each Fund also seeks to provide a maximum level of
income which is exempt from the personal income taxes, if any, for resident
shareholders of the Fund's respective state.
Nations Florida Intermediate Municipal Bond Fund's investment objective is to
seek current income exempt from Federal income tax and the Florida state
intangibles tax consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities. Nations
Florida Municipal Bond Fund's investment objective is to seek current income
exempt from Federal income tax and the Florida state intangibles tax as is
consistent with prudent investment risk by investing primarily in long-term,
investment grade municipal securities. Nations Georgia Intermediate Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and Georgia state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade municipal
securities. Nations Georgia Municipal Bond Fund's investment objective is to
seek current income exempt from Federal and Georgia state income taxes as is
consistent with prudent investment risk by investing primarily in long-term,
investment grade municipal securities. Nations Maryland Intermediate Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities. Nations Maryland Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Maryland state
income taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities. Nations North
Carolina Intermediate Municipal Bond Fund's investment objective is to seek
current income exempt from Federal and North Carolina state income taxes
consistent with moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities. Nations North Carolina
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and North Carolina state income taxes as is consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities. Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and South Carolina state
income taxes consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities. Nations
South Carolina Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes as is
consistent with prudent investment risk by investing primarily in long-term,
investment grade municipal securities. Nations Tennessee Intermediate Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
income tax and the Tennessee Hall income tax on unearned income consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities. Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall income tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities. Nations Texas Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal income tax consistent
with moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities. Nations Texas
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities. Nations Virginia
Intermediate Municipal
37
<PAGE>
Bond Fund's investment objective is to seek current income exempt from Federal
and Virginia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities. Nations Virginia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Virginia state
income taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities.
Each of the above State Intermediate Municipal Bond Funds and State Municipal
Bond Funds operates as a non-diversified fund (except to the extent
diversification is required for Federal income tax purposes). For these tax
purposes, with respect to 50% of the value of its assets, each Fund invests no
more than 5% of such assets in securities of a single issuer (except the U.S.
Government or its agencies or instrumentalities). Each Fund may not invest more
than 25% of its assets in the securities of a single issuer. The average dollar
weighted effective maturity of each of the State Intermediate Municipal Bond
Funds will be between three and ten years, except during temporary defensive
periods. The average dollar weighted effective maturity of the State Municipal
Bond Funds will be at least five years, except during temporary defensive
periods. The value of the Funds' portfolios can be expected to vary inversely
with changes in prevailing interest rates.
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations 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 are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and times of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund also may
invest in guaranteed investment contracts and in instruments issued by trusts,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such trusts. In
addition, the Fund may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may lend its portfolio securities
to qualified institutional investors. For more information concerning these
instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund also may
lend its portfolio securities to qualified institutional investors. For more
information concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at
38
<PAGE>
the time of purchase are considered to be of "high quality" -- E.G., rated "AA"
or higher by Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA Limited or its
affiliate IBCA Inc. (collectively "IBCA"), or Thomson BankWatch, Inc.
("BankWatch"), or "Aa" or higher by Moody's Investors Service, Inc. ("Moody's"),
in the case of bonds; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. For more information concerning the Fund's investments, see "Appendix
A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser 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-to-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.
The Fund invests under normal market conditions 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 stock and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest in securities of foreign issuers. See "Appendix A -- Foreign
Securities." The Fund also may hold up to 20% of its total assets in U.S.
Government Obligations, and investment grade bonds and other debt securities of
domestic companies. Obligations with the lowest investment grade rating (E.G.
rated "BBB" by S&P or "Baa" by Moody's) have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade debt obligations. Subsequent to its purchase by the Fund, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. 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
39
<PAGE>
time of purchase to rated obligations that may be acquired.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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 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 objective, 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 also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
40
<PAGE>
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 in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% 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 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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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
41
<PAGE>
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 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 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
42
<PAGE>
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 more information concerning these
instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that 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 an NRSRO 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 up to 10% of its total assets 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 among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
much as possible, but may
43
<PAGE>
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.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. Government Securities.
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. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
ABOUT THE INDEX. The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The 500 securities, most of which trade on the New York Stock Exchange,
represented, as of February 13, 1996, approximately 81% 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 46% 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 13, 1996, the five
largest companies in the Index were: General Electric (2.7%), American Telephone
& Telegraph (2.2%), Exxon Corporation (2.1%), Coca-Cola (2.1%) and Merck (1.7%).
The largest industry categories were: consumer non-durables (32.7%), finance
(14.1%), utilities (12.5%), materials and services (11.3%) and technology
(10.8%).
GENERAL: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies.
44
<PAGE>
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 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.
High quality companies with strong long term fundamentals and earnings growth
potential, trading at reasonable market valuations, offer the best total return
potential 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 favorable industry positioning and strong management teams. No
industry will represent 25% or more of the Fund's portfolio at the time of
purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA
or BankWatch, or, if unrated, determined by the Adviser to be comparable in
quality to instruments so rated. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See "Appendix B"
for a description of these ratings designations. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. 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 defense measure if market
conditions warrant. For additional information concerning these instruments, see
"Appendix A."
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund also may invest in restricted, private placement and other illiquid
securities, and also may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies. See
"Appendix A" below for additional information concerning the investment
practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: 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.
The Fund also 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; 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 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-
45
<PAGE>
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. 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. The Fund also 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; 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 a more detailed description of the investment practices of this
Fund, see "Appendix A".
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, 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 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 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 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
46
<PAGE>
additional information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, 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; U.S.
Government Obligations; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by 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 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,
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
47
<PAGE>
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 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 assets in securities of foreign issuers. The value of
the Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in 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.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Under normal
mar-
48
<PAGE>
ket conditions, Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund will invest at least
65% of the total value of their assets in Municipal Securities which will be
rated investment grade at the time of purchase by at least one of the following:
D&P, Fitch, S&P, Moody's, IBCA or BankWatch or, if unrated, determined by the
Adviser to be of comparable quality at the time of purchase to rated obligations
that may be acquired by a Fund. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" for a
description of these rating designations.
Up to 35% of the assets of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund and Nations Intermediate Municipal Bond Fund may be
invested in lower-quality Municipal Securities rated "B" or better by Moody's or
S&P, or if not so rated, determined by 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 small. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
During temporary defensive periods, the Funds may invest in short-term taxable
obligations in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Taxable obligations that may be acquired
by a Fund include short-term U.S. Government Obligations; repurchase agreements;
and short-term debt securities. Under normal market conditions, each Fund's
investments in taxable obligations and private activity bonds (see "Appendix
A -- Municipal Securities"), the interest on which may be treated as a specific
tax preference item under the Federal alternative minimum tax, will not exceed
20% of its total assets at the time of purchase. The Funds may hold uninvested
cash reserves pending investment or during defensive periods. The value of a
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. For additional information concerning the Funds' investment
practices, see "Appendix A."
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 65% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in municipal bonds, and substantially all of each Fund's assets will
be invested in debt instruments issued by or on behalf of the pertinent state
and its political subdivisions, agencies, instrumentalities and authorities
("Municipal Securities"). Dividends paid by each of these Funds which are
derived from interest attributable to tax-exempt obligations of the pertinent
state and that state's political subdivisions, agencies, instrumentalities and
authorities, as well as certain other governmental issuers such as Puerto Rico,
will be exempt from regular Federal income tax and (with the exception of Texas
and Florida) the income tax of the pertinent state. Texas and Florida do not
impose a state income tax; however, Florida and Georgia do impose a state
intangibles tax. Dividends derived from interest on obligations of other
governmental issuers will be exempt from regular Federal income tax, but
generally will be subject to state income tax (with the exception of Texas and
Florida). (See "How Dividends And Distributions are Made; Tax Information.")
During normal market conditions and as a matter of fundamental investment
policy, each of these Funds will invest at least 80% of its total net assets in
obligations the interest on which will be exempt from regular Federal income tax
and (with the exception of Texas and Florida) the income tax of the pertinent
state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch or, if unrated,
determined by the Adviser to be of comparable quality at the time of purchase to
rated obligations that may be acquired by the Funds. Obligations rated in the
lowest of the top four investment grade rating categories (E.G. rated "BBB" by
S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" below for a description of these rating
designations.
The Funds also may invest in Municipal Securities with stated maturities of less
than one year, which are determined to present minimal credit risks and which at
the time of purchase are considered to be of high quality, issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia, and their political subdivisions, agencies, instrumentalities and
authorities, and the interest on which, in the
opin-
49
<PAGE>
ion of counsel to the issuer or bond counsel, is exempt from regular Federal
income tax.
During temporary defensive periods, the Funds may invest in short-term taxable
obligations in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Taxable obligations that may be acquired
by the Funds include short-term U.S. Government Obligations; repurchase
agreements; options; and futures contracts. Under normal market conditions, each
Fund's investments in taxable obligations and private activity bonds (see
"Appendix A -- Municipal Securities"), the interest on which may be treated as a
specific tax preference item under the Federal alternative minimum tax, will not
exceed 20% of its total assets at the time of purchase. The Funds also may hold
uninvested cash reserves pending investment or during defensive periods. For
additional information concerning the Funds' investment practices, see "Appendix
A."
GENERAL: Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income
Fund, Nations Strategic Fixed Income Fund, Nations Municipal Income Fund,
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds 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. 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
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 NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each
Fund presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
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.
50
<PAGE>
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser 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, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Since each of the State Intermediate Municipal Bond Funds and State Municipal
Bond Funds invests primarily in securities issued by entities located in a
single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives and do not unduly increase the Funds' exposure to market
or other risks. For additional risk information regarding the Funds' investments
in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Prime Fund, Nations Treasury Fund, Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations
51
<PAGE>
Emerging Markets Fund, Nations Pacific Growth Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity
Index Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Government Securities Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Municipal Income Fund and Nations
Short-Term Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The Nations Global Government Income Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
Also, as a matter of fundamental policy, except during defensive periods, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
invest at least 80% of their respective total net assets in Municipal Securities
the interest on which is exempt from Federal income tax and the pertinent
state's income taxes (with the exception of Texas and Florida). Similarly, as a
matter of fundamental policy, except during defensive periods, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income taxes. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
In order for the Money Market Funds to value their investments on the basis of
amortized cost, investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. These include
maturity, quality and diversification requirements. Maturity is limited to a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar-denominated instruments
determined to present minimal credit risks and that at the time of acquisition
are rated in the top two rating categories by the required number of NRSROs (at
least two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a Money Market Fund
(except Nations Tax Exempt Fund) may not at the time of acquisition invest more
than 5% of its assets in securities of any one issuer or invest more than 5% of
its assets in securities (and no more than 1% in any one issuer) that have not
been rated in the highest category by the required number of NRSROs or, if
unrated, are described in (i) or (ii) above. Securities issued by the U.S.
Government, its agencies, authorities or instrumentalities, and
fully-collateralized repurchase agreements secured by such obligations, are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Money Market Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Money
Market Fund's own restrictions will govern.
52
<PAGE>
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares and Nations Tax Exempt Fund also
may advertise the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE
YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a
Fund refers to the income generated by an investment in such class over a
seven-day period identified in the advertisement. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares in the Fund is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" of each class of shares in
Nations Tax Exempt Fund shows the level of taxable yield needed to produce an
after-tax equivalent to such class's tax-free yield. This is done by increasing
the class's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds also may advertise the tax-equivalent yield of a class of
shares. TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" of a class of shares of Non-Money Market Fund may be calculated
on an average annual total return basis or an aggregate total return basis.
Average annual total return refers to the average annual compounded rates of
return over one-, five-, and ten-year periods or the life of the Fund (as stated
in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
assuming the reinvestment of all dividend and capital gains distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the reinvestment of all
dividends and capital gains distributions. Total return may also be presented
for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
The "tax-equivalent yield" of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds also may be
quoted from time to time, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's Institution, as defined below.
53
<PAGE>
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios.
Nations Fund and 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. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. 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 investment management services to individuals, corporations
and institutions.
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").
Compagnie de Suez and affiliated entities (collectively, "Compagnie de Suez")
own 75% of the equity of Gartmore plc. On February 19, 1996, it was announced
that National Westminster Bank plc ("NatWest"), one of the world's largest
commercial and investment banking firms, had agreed to acquire, subject to the
satisfaction or waiver of certain conditions, control of Gartmore plc from
Compagnie de Suez through a two-part transaction involving (1) the direct
purchase from Compagnie de Suez of its subsidiary that holds 75% of the
outstanding voting shares of Gartmore plc; and (2) a tender offer for the
remaining portion of Gartmore plc shares held by public shareholders
(collectively, the "Acquisition"). The Acquisition, if completed, will result in
a change in ownership of Nations Gartmore and will probably result in a change
in the name of Nations Gartmore. Based on representations made by Nations
Gartmore, it is not anticipated that the change in ownership will affect the
level of service provided to the Funds or result in a change to the personnel
assigned to handle advisory responsibilities. As of February 19, 1996, NatWest
had assets under management of approximately $47 billion.
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.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, 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 and Nations Tax Exempt Fund, 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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of
54
<PAGE>
both Nations Prime Fund and Nations Treasury Fund, plus 0.20% of the combined
average daily net assets of such Funds in excess of $250 million; 0.40% of the
average daily net assets of each of Nations Government Money Market Fund and
Nations Tax Exempt Fund; 0.50% of the average daily net assets of each of the
Nations Equity Index Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond
Funds; 0.60% of the average daily net assets of each of the Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations Municipal
Income Fund and the State Municipal Bond Funds; 0.75% of the average daily net
assets of each of Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Disciplined Equity Fund and Nations Balanced
Assets Fund; 0.65% of the first $100 million of 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 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 expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.055% of Nations Prime Fund's, Nations
Treasury Fund's, Nations Government Money Market Fund's and Nations Tax Exempt
Fund's average daily net assets; 0.20% of Nations Equity Income Fund's average
daily net assets; 0.10% of Nations Equity Index Fund's average daily net assets;
0.25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital
Growth Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity
Fund's average daily net assets; 0.15% of Nations Short-Intermediate Government
Fund's, Nation's Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Diversified Income Fund's and Nations Strategic Fixed Income Fund's
average daily net assets; and 0.07% of Nations Municipal Income Fund's, Nations
Short-Term Municipal Income Fund's, Nations Intermediate Municipal Bond Fund's,
Nations Florida Municipal Bond Fund's, Nations Georgia Municipal Bond Fund's,
Nations Maryland Municipal Bond Fund's, Nations North Carolina Municipal Bond
Fund's, Nations South Carolina Municipal Bond Fund's, Nations Tennessee
Municipal Bond Fund's, Nations Texas Municipal Bond Fund's, Nations Virginia
Municipal Bond Fund's, Nations Florida Intermediate Municipal Bond Fund's,
Nations Georgia Intermediate Municipal Bond Fund's, Nations Maryland
Intermediate Municipal Bond Fund's, Nations North Carolina Intermediate
Municipal Bond Fund's, Nations South Carolina Intermediate Municipal Bond
Fund's, Nations Tennessee Intermediate Municipal Bond Fund's, Nations Texas
Intermediate Municipal Bond Fund's and Nations Virginia Intermediate Municipal
Bond Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NBAI sub-advisory fees, computed
daily and paid monthly, at the annual rate of 0.70% of Nations International
Equity Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets; 0.70% of Nations Pacific Growth Fund's average daily
net assets and 0.54% of Nations Global Government Income Fund's average daily
net assets. Although the advisory fees for Nations Value Fund, Nations Equity
Income Fund, Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund, Nations Global Government Income Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund and Nations Balanced Assets Fund are higher than the advisory fees paid by
most other mutual funds, Nations Fund believes that the fees are comparable to
the advisory fees paid by many other funds with similar investment objectives
and policies. From time to time, NBAI (and/or TradeStreet and/or Nations
Gartmore) may waive or reimburse (either voluntarily or pursuant to applicable
state limitations) advisory fees or expenses payable by a Fund.
For the fiscal year ended November 30, 1995, after waivers, Nations Fund Trust
paid NationsBank under a prior Advisory Agreement advisory fees at the indicated
rates of the following Funds' average daily net assets: Nations Government Money
Market Fund -- 0.16%; Nations Tax Exempt Fund -- 0.17%; Nations Value
Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.70%; Nations Equity Index
Fund -- 0.10%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.40%; Nations Short-Term Income Fund -- 0.30%; Nations
Diversified Income Fund -- 0.50%; Nations Strategic Fixed Income Fund -- 0.50%;
Nations Municipal Income Fund -- 0.35%; Nations Short-Term Municipal Income
Fund -- 0.07%; Nations Intermediate Municipal Bond Fund -- .15%; Nations Florida
Intermediate Municipal Bond Fund -- 0.27%; Nations Florida Municipal Bond
Fund -- 0.09%; Nations Georgia Intermediate Municipal Bond Fund -- 0.28%;
Nations Georgia Municipal Bond Fund -- 0%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.28%; Nations Maryland Municipal Bond
55
<PAGE>
Fund -- 0%; Nations North Carolina Intermediate Municipal Bond Fund -- 0.26%;
Nations North Carolina Municipal Bond Fund -- .07%; Nations South Carolina
Intermediate Municipal Bond Fund -- 0.31%; Nations South Carolina Municipal Bond
Fund -- 0%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.18%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.27%; Nations Texas Municipal Bond Fund -- .01%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.33%; and Nations Virginia Municipal Bond
Fund -- .02%. For the fiscal year ended November 30, 1995, after waivers,
Nations Disciplined Equity Fund paid its prior sub-adviser fees at the rate of
0.05% of the Fund's average daily net assets.
For the fiscal year ended November 30, 1995, NationsBank reimbursed expenses at
the indicated rates of the following Funds' average daily net assets: Nations
Georgia Municipal Bond Fund -- 0.02%; Nations Maryland Municipal Bond
Fund -- 0.16%; Nations South Carolina Municipal Bond Fund -- 0.01%; Nations
Tennessee Municipal Bond Fund -- 0.19%.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank under a prior Advisory Agreement advisory fees at the indicated
rates of the following Funds' average daily net assets: Nations Prime
Fund -- 0.13%; Nations Treasury Fund -- 0.16%; Nations Government Securities
Fund -- 0.46%; Nations Equity Income Fund -- 0.68%; and Nations International
Equity Fund -- 0.40%. For the fiscal year ended May 31, 1995, after waivers,
Nations Fund, Inc. paid the prior sub-adviser for Nations International Equity
Fund 0.38% of the Fund's average daily net assets.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Previously
she was Vice President and Portfolio Manager for NationsBank. Ms. Duck has
worked in the investment community since 1980. Her past experience includes
product management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Previously he was
Vice President and Structured Products Manager for NationsBank. He has worked in
the investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime since 1988. Previously she was Vice
President and Senior Portfolio Manager for NationsBank. Ms. Sherman has worked
in the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager of Nations Value Fund since 1989. Previously she was Senior
Vice President and Portfolio Manager for NationsBank. Ms. Herrmann has worked
for NationsBank since 1981 where her responsibilities included fund management
and portfolio management. She attended Virginia Wesleyan College. Ms. Herrmann
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
56
<PAGE>
Stephen Watson has been Principal Portfolio Manager for 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 Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since 1995. She has
been associated with the Gartmore Group since 1990 as the London based manager
on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union Bank
Securities in Singapore where she was responsible for Singaporean and Malaysian
equity sales and then subsequently for Rothschild as a Fund Manager in Singapore
and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent in
Mandarin and Cantonese and received an Economics degree from the University of
Durham in 1985.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Sanders has worked in the financial investment community since
1981. His past experience includes portfolio management, equity research and
financial analysis for NationsBank and Duke Power Company. Mr. Sanders received
a B.A. in Economics from the University of Michigan and an M.B.A. from
University of North Carolina at Charlotte. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Development for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Previously he was Senior Vice President and Senior
Portfolio Manager for NationsBank. He has worked in the investment community
since 1968. His past experience includes management consulting and portfolio
management for Interfirst Investment Management, Merrill Lynch and Dean Witter.
Mr. Smiley received a B.B.A. in Management from Southern Methodist University.
He holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the Dallas
Association of Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Previously he was Senior Vice President and Senior Portfolio Manager
for NationsBank. Mr. Moser has worked for NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Previously she was Vice President and Senior Portfolio Manager for NationsBank.
She has worked in the investment community since 1981. Her past experience
includes research analysis and portfolio management for Mercantile Safe Deposit
and Trust, and National City Bank. Ms. Hale received a B.S. in Business and
Finance from St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Mark Rimmer is the Principal Portfolio Manager for Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He has been Portfolio Manager for Nations Global Government
Income Fund since 1995. 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
57
<PAGE>
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Previously he was Vice President and Senior Portfolio Manager
for NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Ahnrud has worked for NationsBank since 1985 where his
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Previously he was Vice President and
Senior Portfolio Manager for NationsBank. Mr. Swaim has worked in the investment
community since 1986. His past experience includes derivative products manager
for the NationsBank Texas Corporate Investment Division portfolio. Mr. Swaim
received a B.S. from University of North Texas and an M.B.A. from University of
Texas at Arlington.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Previously she was Senior
Vice President and Senior Portfolio Manager for NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Previously he was Vice President and Portfolio Manager
for NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management and Municipal
Fixed Income Management for TradeStreet. He is responsible for overseeing all
municipal product management and is the Senior Portfolio Manager for Nations
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations Maryland Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund and Nations Virginia Municipal Bond Fund. Mr. Kohl has been
Portfolio Manager for the Funds since 1994. Previously he was Senior Vice
President and Senior Portfolio Manager for NationsBank. Mr. Kohl has worked in
the investment community since 1979. His past experience includes serving as
Chief Investment Officer for London Pacific Life & Annuity, Team Leader and
Portfolio Manager for Harris Trust and Savings Bank, and Management Consultant
for asset-liability of Continental Bank. Mr. Kohl received a joint B.A. in
Economics and North American Studies from McGill University.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995.
58
<PAGE>
Previously he was Senior Vice President and Director of Fixed Income for
NationsBank. Mr. Hetherington has worked in the investment community since 1975.
His past experience includes working as a portfolio manager, a trust investment
officer and a securities analyst for First Citizens Bank and Deposit Guarantee
as well as working as an Economist for the U.S. Department of Labor in the
Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics from
Duke University. He holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data 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, 1995, after waivers, Nations Fund Trust
paid its administrators fees at the indicated rates of the following Funds'
average daily net assets: Nations Government Money Market Fund, Nations Tax
Exempt Fund, Nations Diversified Income Fund, Nations Municipal Income Fund,
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations Tennessee
Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations South Carolina Municipal Bond
Fund, Nations North Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
Fund -- 0.07%; 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 and Nations Strategic Fixed Income Fund -- 0.10%; Nations
South Carolina Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund -- 0.09%.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
its administrators fees at the rate of 0.09% of the average daily net assets of
the following Funds: Nations Prime Fund, Nations Treasury Fund, Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund.
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.
59
<PAGE>
Stephens may pay service fees or commissions to Institutions which assist
customers in purchasing Primary A Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Bank
of New York, called "Custodians") serves as custodian for the assets of each
Fund except Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund.
NationsBank of Texas, which also serves as the sub-transfer agent for each
Fund's Primary A Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and
is a wholly owned subsidiary of NationsBank Corporation. In return for providing
custodial services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has more than 45 distinct investment portfolios and total assets in excess of
$18 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 -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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
Primary A Shares of the following funds of Nations Fund Trust: Nations
Government Money Market Fund, Nations Tax Exempt Fund, Nations Value Fund,
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Maryland Intermediate
Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee
Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond
Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations North Carolina Municipal Bond Fund, Nations South
Carolina Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations
Texas Municipal Bond Fund and Nations Virginia Municipal Bond Fund. To obtain
additional information regarding the Funds' other classes of shares which may
60
<PAGE>
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 April 1, 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 Primary A Shares of the following
funds of Nations Fund, Inc.: Nations Prime Fund, Nations Treasury Fund, Nations
Equity Income Fund, Nations International Equity Fund and Nations Government
Securities Fund. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Institution (as
defined below) or Nations Fund at 1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters
61
<PAGE>
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 April 1, 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 disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund). A purchase order received by Stephens or
the Transfer Agent after such time will not be accepted; notice thereof will be
given to the Institution or investor placing the order, and any funds received
will be returned promptly to the sending Institution or investor. If federal
funds are not available by 4:00 p.m., Eastern time, the order will be canceled.
Primary A Shares are
62
<PAGE>
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in the Non-Money Market Funds which are received by Stephens or
by the Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Tax Exempt Fund and Nations Government Money Market Fund), and
payment will normally be wired the same day to the Institution or investor.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption orders if, in the judgment of the
Adviser, an earlier payment could adversely impact a Fund. However, redemption
proceeds for shares purchased by check may not be remitted until at least 15
days after the date of purchase to ensure that the check has cleared; a
certified check, however, is deemed to be cleared immediately. Redemption orders
will not be accepted by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund) for execution on that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A 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.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is 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.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A 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.
63
<PAGE>
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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens, or the Transfer Agent 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 Money Market Funds are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), each Bank Business Day. Shares of the
Non-Money Market Funds are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Federal Reserve Bank of New York is closed
(other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Thanksgiving Day and Christmas Day. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary A Shares begin
earning
64
<PAGE>
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in cash within five Business Days
after a shareholder's complete redemption of his Primary A Shares in a Fund. To
the extent that there are any net short-term capital gains, they will be paid at
least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar 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.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid within five
Business Days after the end of each month. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax 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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds 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 Nations International Equity,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such 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 tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number
65
<PAGE>
listed on a shareholder account is incorrect according to its records, or that
the shareholder is subject to backup withholding, the Fund is required by the
Internal Revenue Service to withhold 31% of any dividend (other than
exempt-interest dividends) and/or redemption (including exchange redemptions).
Amounts withheld are applied to the shareholder's Federal tax liability, and a
refund may be obtained from the Internal Revenue Service if withholding results
in overpayment of taxes. Federal law also requires the Funds to withhold 30% or
the applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income tax for such amount.
NATIONS TAX EXEMPT FUND, NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM
MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As regulated investment companies, each of these Funds is entitled to pass
through to their shareholders tax-exempt interest income ("exempt-interest
dividends") subject to certain conditions which these Funds intend to satisfy.
To the extent that any of these Funds earn taxable income or realize long-term
capital gains, distributions to shareholders from such sources will be subject
to Federal income tax. The policy of Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds is to
pay to their shareholders an amount equal to at least 90% of their
exempt-interest income net of certain deductions and 90% of their investment
company taxable income. Nations Tax Exempt Fund does not intend to earn
investment company taxable income or long-term capital gains. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund, Nations Municipal Income Fund, Nations Intermediate Municipal Bond Fund
and Nations Short-Term Municipal Income Fund may be taxable to investors under
state or local law even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
If any of these Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See Nations Fund Trust's SAI for further details about state tax
treatment relevant to shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations that 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 advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
66
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. For example, falling interest
rates generally result in an increase in the rate of prepayments of mortgage
loans while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE-BACKED SECURITIES represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Cer-
67
<PAGE>
tificate purchased at a premium may result in a loss to the Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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 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
68
<PAGE>
of its duty not to do so, there is a risk that such party could acquire an
interest in the obligations superior to that of the holders of the asset-backed
securities. Also, although most such obligations grant a security interest in
the motor vehicle being financed, in most states the security interest in a
motor vehicle must be noted on the certificate of title to perfect such security
interest against competing claims of other parties. Due to the larger number of
vehicles involved, however, the certificate of title to each vehicle financed,
pursuant to the obligations underlying the asset-backed securities, usually is
not amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the asset-backed securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related asset-backed securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and Federal consumer credit laws, many of which give such
holders the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other asset-backed securities, credit card receivables are unsecured
obligations of the card holder.
The development of non-mortgage-backed securities is at an early stage compared
to mortgage-backed securities. While the market for asset-backed securities is
becoming increasingly liquid, the market for mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage-backed securities issued by certain private organizations and
non-mortgage-backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, the Nations Treasury Fund
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements as discussed below. Generally, the effect of
such a transaction is that the Funds can recover all or most of
69
<PAGE>
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while they will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by 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 Funds' asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
The Nations Treasury Fund has entered into an arrangement whereby it reinvests
the proceeds of a reverse repurchase agreement in a tri-party repurchase
agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. The Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two NRSROs, are rated in the highest rating category for short-term debt
obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
The Nations Prime Fund also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and
companies meet the quality standards set forth above.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfo-
70
<PAGE>
lio will tend to decrease in value when interest rates rise and increase when
interest rates fall. A Fund's share price and yield depend, in part, on the
maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when 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. 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 United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If 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
71
<PAGE>
include: imperfect correlation between the price of futures, options and forward
contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess periodic
charges against a GIC for expense and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. The purchase price
paid for a GIC becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by 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 hold 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
hold 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, GICs and some commercial paper issued in reliance upon the exemption in
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") (other
than variable-amount master demand notes with maturities of nine months or
less), are subject to the limitation on illiquid securities. In addition,
interests in privately arranged loans acquired by the Nations Prime Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds may
be subject to this limitation.
If otherwise consistent with their investments objective and policies, certain
Funds may purchase securities that 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 their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
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
72
<PAGE>
than securities assigned a higher quality rating. These securities are
considered to have speculative characteristics and indicate an aggressive
approach to income investing. Each Fund that may invest in lower-rated debt
securities intends 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' Boards, 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 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 is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities 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."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by
73
<PAGE>
the lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the ability of the municipal borrower to meet an obligation for full repayment
of principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
For the past forty years, the economy of the State of Florida has consisted
primarily of tourism, retirement and agriculture. More recently, military and
defense spending have fueled economic diversification as well as the aerospace
industry, laser optics research, computer manufacturing and international trade
and commerce. Currently, Moody's rates Florida's general obligation bonds "Aa",
and S&P rates such bonds "AA".
The State of Georgia has a diversified economy, which has performed relatively
well in recent years. Important industries in the state include pulp and paper
products, agriculture and textiles. Currently, Moody's rates Georgia general
obligation bonds "Aaa" and S&P rates such bonds "AA+."
The State of Maryland's leading areas of employment are services (including
mining), wholesale and retail trade, government, and manufacturing (primarily
printing and publishing, food and kindred products, instruments and related
products, electronic equipment, industrial machinery, and transportation
equipment). Maryland has a higher than average number of people employed by the
Government. The Port of Baltimore is one of the larger international ports in
the United States and in the world. Currently, Moody's rates Maryland general
obligation bonds "Aaa" and S&P rates such bonds "AAA."
The State of North Carolina has an economic base consisting of a combination of
manufacturing, services, agriculture and tourism. During the period from 1980 to
1993, the per capita income in the State grew from $7,999 to $18,702, an
increase of 133.8%. During the same period, the state's labor force increased
24.5%. Currently, Moody's rates the state of North Carolina's general obligation
bonds "Aaa" and S&P rates such bonds "AAA."
The State of South Carolina's economy has been dominated since the early 1920's
by the textile industry, with over one-third of the manufacturing workers
directly or indirectly related to the textile industry. The economic base of the
state is gradually becoming more diversified as the trade and service sectors
and durable goods manufacturing industries have developed. Currently, Moody's
rates South Carolina general obligation bonds "Aaa" and S&P rates such bonds
"AA+."
The State of Tennessee has an economic base consisting primarily of
manufacturing, services, agriculture and
74
<PAGE>
tourism. Currently, Moody's rates the State of Tennessee's general obligation
bonds "Aaa" and S&P rates such bonds "AA+."
The State of Texas has long been identified with the oil and gas industry, but
the Texas economy recently has become more diversified. Oil and gas related
industries accounted for 27% of the state's total output of goods and services
in 1981, but currently account for only 12% of the state's economy. Servicing
sectors (which include transportation and public utilities; finance and
insurance; trade; services; and government) are the major sources of job growth
in Texas. Texas' location and transportation and accessibility have made it a
distribution center for the southwestern United States as well as an
international center for finance and distribution. The high-technology sector,
growth of exports and manufacturing job growth are expected to contribute to
Texas' future growth. Currently Moody's rates Texas general obligations bonds
"Aa" and S&P rates such bonds "AA".
The Commonwealth of Virginia has a diversified economy with government,
manufacturing, high technology (both manufacturing and non-manufacturing)
industries, agriculture, mining, construction, services, and tourism all
represented. Virginia also has benefited from its port facilities, a large
number of federal government and military installations, and its proximity to
Washington, D.C. Currently Moody's rates Virginia general obligation bonds "Aaa"
and S&P rates such bonds "AAA."
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in Nations Fund Trust's SAI.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
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 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.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may
75
<PAGE>
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Fund must satisfy the quality and
maturity requirements generally applicable to the Fund pursuant to Rule 2a-7
under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in
76
<PAGE>
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
77
<PAGE>
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
78
<PAGE>
related supporting institutions) are considered to have a superior capacity for
repayment of senior short-term obligations. Issuers rated Prime-2 (or related
supporting institutions) are considered to have a strong capacity for repayment
of senior short-term obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
When issues posses a particularly strong credit feature, a rating of A1+ is
assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
79
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income
Fund
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
SUB-INVESTMENT ADVISER: Nations Gartmore Investment Management
DISTRIBUTOR: Stephens Inc.
TR-96128-496
(Nations Fund logo appears here)
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 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 -- Primary A Shares
(formerly called Trust A Shares). Nations
Disciplined Equity Fund was formerly called "Nations
Special Equity Fund."
NATIONS PRIME FUND, NATIONS TREASURY FUND AND
NATIONS GOVERNMENT MONEY MARKET FUND (THE "MONEY
MARKET FUNDS") SEEK TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE. INVESTMENTS IN THESE FUNDS ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THESE
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end investment management company, is
contained in separate Statements of Additional
Information (the "SAIs"), that 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, each dated August 1, 1996, 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.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations International Equity Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
TR-96128-496
For purchase, redemption and
performance information
call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 21
How Objectives Are Pursued 22
How Performance Is Shown 35
How The Funds Are Managed 35
Organization And History 41
About Your
Investment
How To Buy Shares 42
How To Redeem Shares 43
How To Exchange Shares 44
How The Funds Value Their Shares 44
How Dividends And Distributions Are Made;
Tax Information 45
Appendix A -- Portfolio Securities 46
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective is
to seek as high a level of current income as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing
primarily in companies with above average dividend
yields.
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe, Australia,
the Far East and other areas, including some developing
countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as
those in Latin America, eastern Europe, the Pacific Basin, the
Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed
to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies
that are believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to
seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per
share.
(Bullet) Nations Equity Index Fund's investment objective is to seek
investment results that correspond, before fees and expenses,
to the total return of the Standard & Poor's 500 Composite
Stock Price Index.
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
3
<PAGE>
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to
seek current income by investing primarily in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment
grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income
securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is
to seek total return by investing primarily in investment grade
fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) Nations Global Government Income Fund's investment objective is
to maximize total return by investing primarily in high quality
debt securities issued by governments, banks and supranational
entities located throughout the world.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. 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 which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these factors, see "How Objectives
Are Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. TradeStreet Investment Associates, Inc. provides
sub-advisory services to certain of the Funds and Nations Gartmore
Investment Management provides sub-advisory services to the other
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains are distributed at least
annually.
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Prime Nations
Fund Treasury Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
<CAPTION>
Nations
Government
Money Market
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
ANNUAL FUND OPERATING EXPENSES Nations Nations
(as a percentage of average net assets) Prime Treasury
</TABLE>
<TABLE> Fund Fund
<S> <C> <C>
Management Fees (After Fee Waivers)1 .14% .14%
All Other Expenses (After Expense Reimbursements)1 .16% .16%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30%
Nations
Government
Money Market
Fund
<CAPTION>
Management Fees (After Fee Waivers)1 .12%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Equity Nations Emerging
Value Income International Markets
Fund Fund Equity Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific
Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
Nations Nations
Nations Equity Nations Emerging
Value Income International Markets
Fund Fund Equity Fund Fund
<S> <C> <C> <C> <C>
Management Fees .75% .70% .90% 1.10%
All Other Expenses (After Expense Reimbursements)1 .19% .21% .25% .80%
Total Operating Expenses (After Expense Reimbursements)1 .94% .91% 1.15% 1.90%
Nations
Pacific
Growth
Fund
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .80%
Total Operating Expenses (After Expense Reimbursements)1 1.70%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such expense
reimbursements.
5
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
All Other Expenses .23% .23% .25% .27%
Total Operating Expenses (After Fee Waivers)1 .98% .98% 1.00% .37%
Nations
Balanced
Assets
Fund
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses .24%
Total Operating Expenses (After Fee Waivers)1 .99%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations Short-
Intermediate Government Term Nations Nations
Government Securities Income Diversified Strategic Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
Nations Short- Nations Nations Short-
Intermediate Government Term Nations Nations
Government Securities Income Diversified Strategic Fixed
Fund Fund Fund Income Fund Income Fund
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense
Reimbursements)1 .20% .30% .26% .30% .21%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 .60% .80% .56% .80% .71%
Nations
Global
Government
Income Fund
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses (After Expense
Reimbursements)1 .60%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 1.30%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Nations Equity International Nations Pacific
Prime Treasury Market Value Income Equity Emerging Growth
Fund Fund Fund Fund Fund Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 10 $ 9 $ 12 $19 $17
3 Years $10 $10 $10 $ 30 $ 29 $ 37 $60 $54
5 Years $17 $17 $17 $ 52 $ 50 $ 63 N/A N/A
10 Years $38 $38 $38 $115 $112 $140 N/A N/A
<CAPTION>
Nations Nations
Capital Emerging
Growth Growth
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 10
3 Years $ 31 $ 31
5 Years $ 54 $ 54
10 Years $120 $120
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Short- Nations Nations Nations
Disciplined Equity Balanced Intermediate Government Short-Term Diversified
Equity Index Assets Government Securities Income Income
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 4 $ 10 $ 6 $ 8 $ 6 $ 8
3 Years $ 32 $12 $ 32 $19 $26 $18 $26
5 Years $ 55 $21 $ 55 $33 $44 $31 $44
10 Years $122 $47 $121 $75 $99 $70 $99
<CAPTION>
Nations Nations
Strategic Global
Fixed Government
Income Income
Fund Fund
1 Year $ 7 $13
3 Years $23 $41
5 Years $40 N/A
10 Years $88 N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "All Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .17% and .37%,
respectively; Nations Treasury Fund -- .20%, .17% and .37%, respectively;
Nations Government Money Market Fund -- .40%, .21% and .61%, respectively;
Nations Government Securities Fund -- .64%, .31% and .95%, respectively; and
Nations Diversified Income Fund -- .60%, .33% and .93%, respectively. Absent fee
waivers, "Management Fees" and "Total Operating Expenses" for Primary A Shares
of the indicated Fund would have been as follows: Nations Equity Index
Fund -- .50% and .77%, respectively; Nations Short-Intermediate Government
Fund -- .60% and .80%, respectively; Nations Strategic Fixed Income Fund -- .60%
and .81%, respectively; Nations Short-Term Income Fund -- .60% and .86%,
respectively. Absent expense reimbursements, "All Other Expenses" and "Total
Operating Expenses" for Primary A Shares of the indicated Fund would have been
as follows: Nations Equity Income Fund -- .22% and .92%, respectively; and
Nations International Equity Fund -- .26% and 1.16%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund
Trust and Nations Fund, Inc. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios. The reports of
Price Waterhouse LLP for the most recent fiscal years of Nations Fund Trust and
Nations Fund, Inc. accompany the financial statements for such periods and are
incorporated by reference in the SAIs, which are available upon request. The
financial information for Nations Portfolios have not been audited by Price
Waterhouse LLP. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by the
Funds' independent accountant.
7
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0288 0.0519 0.0318 0.0328 0.0506
Dividends from net investment
income (0.0288) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.93% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 2,751,290 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to
average net assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to
average net assets 5.75%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share
without waivers and/or
reimbursements $ 0.0285 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of
period $ 1.00
Net investment income 0.0749
Dividends from net investment
income (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 574,993
Ratio of operating expenses to
average net assets 0.30%
Ratio of net investment income to
average net assets 7.47%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.44%
Net investment income per share
without waivers and/or
reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.65%+++
Net investment income per share without waivers and/or reimbursements $ 0.0247+++
</TABLE>
* Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
8
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0282 0.0494 0.0297 0.0307 0.0483
Dividends from net investment
income (0.0282) (0.0494) (0.0297) (0.0307) (0.0483)
Distribution from net realized
capital gains -- (0.0000)** -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.85% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 2,725,471 $ 2,896,868 $ 2,679,992 $ 2,956,796 $ 1,094,741
Ratio of operating expenses to
average net assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to
average net assets 5.63%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.36%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share
without waivers and/or
reimbursements $ 0.0279 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of
period $ 1.00
Net investment income 0.0721
Dividends from net investment
income (0.0721)
Distribution from net realized
capital gains --
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 955,186
Ratio of operating expenses to
average net assets 0.25%
Ratio of net investment income to
average net assets 7.04%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.43%
Net investment income per share
without waivers and/or
reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and/or reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.75%+++
Net investment income per share without waivers and/or reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
** Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
9
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0558) (0.0375) (0.0294) (0.0358)
Dividends from net realized gains -- (0.0000)# -- --
Total distributions (0.0558) (0.0375) (0.0294) (0.0358)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.72% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 332,895 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net assets 0.30% 0.30% 0.30% 0.42%
Ratio of net investment income to average net assets 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses to average net assets without
waivers 0.57% 0.59% 0.56% 0.58%
Net investment income per share without waivers $ 0.0531 $ 0.0347 $ 0.0269 $ 0.0341
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Net asset value, beginning of year $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Dividends from net realized gains --
Total distributions (0.0571)
Net asset value, end of year $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 333,979
Ratio of operating expenses to average net assets 0.43%+
Ratio of net investment income to average net assets 5.49%+
Ratio of operating expenses to average net assets without
waivers 0.62%+
Net investment income per share without waivers $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated.
+++ Unaudited.
# Value represents less than $0.0001 per shares.
10
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
Operating performance:
Net asset value, beginning
of year $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71 $ 10.04
Net investment income 0.27 0.24 0.24 0.28 0.34 0.35
Net realized and unrealized
gain/(loss) on
investments 3.91 (0.23) 1.38 1.57 1.47 (0.36)
Net increase/(decrease) in
net assets resulting from
investment operations 4.18 0.01 1.62 1.85 1.81 (0.01)
Distributions:
Dividends from net
investment income (0.28) (0.23) (0.24) (0.27) (0.36) (0.32)
Distributions from net
realized capital gains (0.67) (0.54) (0.09) (0.29) -- --
Total distributions (0.95) (0.77) (0.33) (0.56) (0.36) (0.32)
Net asset value, end of
year $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Total return++ 34.53% (0.08)% 13.19% 17.00%+++ 18.79%+++ (0.16)%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year (in
000's) $ 956,669 $ 799,743 $ 707,185 $ 282,138 $ 82,360 $ 19,769
Ratio of operating expenses
to average net assets 0.94% 0.93% 0.96% 0.90% 0.53% 0.21%
Ratio of net investment
income to average net
assets 1.90% 1.85% 1.98% 2.31% 3.33% 4.19%
Portfolio turnover rate 63% 75% 64% 60% 51% 24%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.94% 0.93% 0.97% 0.97% 0.99% 1.11%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.27 $ 0.24 $ 0.24 $ 0.27 $ 0.30 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/89*#
Operating performance:
Net asset value, beginning
of year $ 10.00
Net investment income 0.08
Net realized and unrealized
gain/(loss) on
investments (0.04)
Net increase/(decrease) in
net assets resulting from
investment operations 0.04
Distributions:
Dividends from net
investment income --
Distributions from net
realized capital gains --
Total distributions --
Net asset value, end of
year $ 10.04
Total return++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of year (in
000's) $ 5,161
Ratio of operating expenses
to average net assets 0.49%+
Ratio of net investment
income to average net
assets 4.41%+
Portfolio turnover rate --
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 1.41%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.06
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
11
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95# 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of
period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.19 0.42 0.38 0.37 0.34
Net realized and unrealized gain
on investments 0.84 1.11 0.22 1.08 1.25
Net increase in net assets
resulting from investment
operations 1.03 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment
income (0.20) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized
capital gains -- (0.73) (0.81) (0.45) (0.07)
Total distributions (0.20) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 12.64 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 8.80% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 275,586 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to
average net assets 0.91%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to
average net assets 3.15%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 33% 158% 116% 55% 84%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 0.91%+ 0.93% 0.95% 1.04% 2.21%
Net investment income per share
without waivers and/or
reimbursements $ 0.18 $ 0.42 $ 0.38 $ 0.36 $ 0.22
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.05
Net realized and unrealized gain
on investments 0.14
Net increase in net assets
resulting from investment
operations 0.19
Distributions:
Dividends from net investment
income --
Distributions from net realized
capital gains --
Total distributions 0.00
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (000's) $ 10,194
Ratio of operating expenses to
average net assets 1.12%+
Ratio of net investment income to
average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to
average net assets without
waivers and/or reimbursements 1.80%+
Net investment income per share
without waivers and/or
reimbursements $ (0.06)
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on
investments 0.70 (0.20) 1.44 0.21
Net increase/(decrease) in net assets resulting
from investment operations 0.77 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income -- (0.03) (0.05) (0.08)
Distributions from net realized capital gains -- (0.12) (0.02) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) -- --
Total distributions -- (0.25) (0.07) (0.10)
Net asset value, end of period $ 12.52 $ 11.75 $ 12.06 $ 10.60
Total return++ 6.64% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 674,179 $ 572,940 $ 401,599 $ 118,873
Ratio of operating expenses to average net assets 1.15%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average
net assets 0.83%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 16% 92% 39% 41%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.24%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.06 $ 0.14 $ 0.08 $ 0.10
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on
investments 0.36
Net increase/(decrease) in net assets resulting
from investment operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average
net assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.43%+
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.03
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
9/30/95*#
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.00)**
Net realized and unrealized gain/(loss) on investments (0.12)
Net increase/(decrease) in net assets resulting from investment operations (0.12)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.88
Total return++ (1.20)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14,529
Ratio of operating expenses to average net assets 1.90%+
Ratio of net investment income/(loss) to average net assets (0.03)%+
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## 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.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
9/30/95*#
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments (0.30)
Net increase/(decrease) in net assets resulting from investment operations (0.29)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.71
Total return++ (2.90)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,727
Ratio of operating expenses to average net assets 1.70%+
Ratio of net investment income/(loss) to average net assets 0.15%+
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ 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.
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.09 0.09 0.09
Net realized and unrealized gain on investments 3.28 0.14 0.42
Net increase in net assets resulting from investment operations 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.10) (0.08) (0.10)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.36) (0.08) (0.11)
Net asset value, end of year $ 14.24 $ 11.23 $ 11.08
Total return++ 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net assets 0.71% 0.85% 0.84%
Portfolio turnover rate 80% 56% 81%
Ratio of operating expenses to average net assets without waivers 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers $ 0.09 $ 0.09 $ 0.08
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66##
Net increase in net assets resulting from investment operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of year $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without waivers 1.05%+
Net investment income/(loss) per share without waivers $ 0.01
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Value represents less than $0.01 per share.
14
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of year $ 11.41 $ 10.87
Net investment income/(loss) 0.01 (0.03)
Net realized and unrealized gain on investments 3.26 0.71
Net increase in net assets resulting from investment operations 3.27 0.68
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of year $ 14.28 $ 11.41
Total return++ 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets 0.08% (0.29)%
Portfolio turnover rate 139% 1.29%
Ratio of operating expenses to average net assets without waivers 0.98% 1.01%
Net investment income/(loss) per share without waivers $ 0.01 $ (0.03)
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net assets resulting from investment operations 0.88
Distributions:
Distributions from net realized gains (0.01)
Total distributions (0.01)
Net asset value, end of year $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers 1.01%+
Net investment income/(loss) per share without waivers $ (0.03)
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of year $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 3.96 (0.23)## 2.66
Net increase/(decrease) in net assets resulting from investment
operations 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.08) (0.01) --
Distributions from net realized gains -- -- (2.95)
Return of capital -- (0.00)(a) --
Total distributions (0.08) (0.01) (2.95)
Net asset value, end of year $ 17.06 $ 13.08 $ 13.31
Total return++ 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net assets 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 124% 177% 475%
Ratio of operating expenses to average net assets without waivers 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers $ 0.10 $ (0.03) $ (0.08)
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net assets resulting from investment
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized gains (0.06)
Return of capital --
Total distributions (0.06)
Net asset value, end of year $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net assets (0.58)##% +
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without waivers 1.31%+
Net investment income/(loss) per share without waivers $ (0.03)
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Amount represents less than $0.01 per share.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of year $ 9.84 $ 10.00
Net investment income 0.28 0.24
Net realized and unrealized gain/(loss) on investments 3.20 (0.21)
Net increase in net assets resulting from investment operations 3.48 0.03
Distributions:
Dividends from net investment income (0.28) (0.19)
Distributions from net realized gains (0.13) --
Total distributions (0.41) (0.19)
Net asset value, end of year $ 12.91 $ 9.84
Total return++ 36.35% 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 145,021 $ 123,147
Ratio of operating expenses to average net assets 0.37% 0.35%+
Ratio of operating expenses to average net assets including interest expense 0.38% --
Ratio of net investment income to average net assets 2.44% 2.64%+
Portfolio turnover rate 18% 14%
Ratio of operating expenses to average net assets without waivers 0.78% 0.79%+
Net investment income per share without waivers $ 0.23 $ 0.20
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 10.44 $ 10.87 $ 10.24
Net investment income 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 2.21 (0.43) 0.64
Net increase/(decrease) in net assets resulting from investment
operations 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.33) (0.25) (0.30)
Distributions from net realized gains (0.02) -- --
Total distributions (0.35) (0.25) (0.30)
Net asset value, end of year $ 12.68 $ 10.44 $ 10.87
Total return++ 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 0.99 % 0.98 % 0.90%
Ratio of net investment income to average net assets 3.25 % 2.31 % 2.82%
Portfolio turnover rate 174 % 156 % 50%
Ratio of operating expenses to average net assets without waivers 0.99 % 0.99 % 0.97%
Net investment income per share without waivers $ 0.38 $ 0.25 $ 0.29
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18##
Net increase/(decrease) in net assets resulting from investment
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of year $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without waivers 1.05%+
Net investment income per share without waivers $ 0.05
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of year $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on investments 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net assets resulting from
investment operations 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment income (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- (0.02) (0.02) --
Total distributions (0.24) (0.25) (0.25) (0.28)
Net asset value, end of year $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average net assets 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 328% 133% 92% 25%
Ratio of operating expenses to average net assets without
waivers and/or reimbursements 0.80% 0.80% 0.79% 0.77%
Net investment income per share without waivers and/or
reimbursements $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of year $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments 0.17
Net increase/(decrease) in net assets resulting from
investment operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of year $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or reimbursements 0.82%+
Net investment income per share without waivers and/or
reimbursements $ 0.00(a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Amount represents less than $0.01.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED) 05/31/95# 05/31/94 05/31/93 05/31/92
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.32 0.64 0.64 0.71 0.74
Net realized and unrealized gain/(loss) on
investments 0.10 0.06 (0.61) 0.13 0.37
Net increase/(decrease) in net assets
resulting from investment operations 0.42 0.70 0.03 0.84 1.11
Distributions:
Dividends from net investment income (0.32) (0.60) (0.58) (0.70) (0.77)
Dividends in excess of net investment
income -- -- (0.02) -- --
Distributions from net realized capital
gains -- -- (0.05) (0.04) (0.03)
Distributions from capital -- (0.04) (0.04) -- --
Total distributions (0.32) (0.64) (0.69) (0.74) (0.80)
Net asset value, end of period $ 9.96 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 4.32% 7.55% 0.06% 8.37% 11.43%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 58,267 $ 39,909 $ 44,536 $ 40,472 $ 42,256
Ratio of operating expenses to average net
assets 0.80%+ 0.76% 0.73% 0.85% 1.06%
Ratio of net investment income to average
net assets 6.45%+ 6.69% 6.08% 6.67% 7.15%
Portfolio turnover rate 25% 413% 56% 103% 130%
Ratio of operating expenses to average net
assets without waivers and/or
reimbursements 0.94%+ 0.94% 0.94% 1.00% 1.72%
Net investment income per share without
waivers and/or reimbursements $ 0.31 $ 0.62 $ 0.61 $ 0.60 $ 0.07
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net assets
resulting from investment operations 0.12
Distributions:
Dividends from net investment income (0.07)
Dividends in excess of net investment
income --
Distributions from net realized capital
gains --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 10.05
Total return++ 1.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 10,047
Ratio of operating expenses to average net
assets 1.10%+
Ratio of net investment income to average
net assets 7.18%+
Portfolio turnover rate 5%
Ratio of operating expenses to average net
assets without waivers and/or
reimbursements 1.69%+++
Net investment income per share without
waivers and/or reimbursements $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.48 $ 10.01 $ 9.75
Net investment income 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments 0.36 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment
operations 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.61) (0.52) (0.53)
Net asset value, end of year $ 9.84 $ 9.48 $ 10.01
Total return++ 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.56%+ 0.50% 0.37%
Ratio of net investment income to average net assets 6.32%+ 5.23% 5.27%
Portfolio turnover rate 224% 293% 121%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.86%+ 0.82% 0.79%
Net investment income per share without waivers and/or
reimbursements $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net assets resulting from investment
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.09)
Net asset value, end of year $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.90%+
Net investment income per share without waivers and/or
reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR
ENDED ENDED YEAR
PRIMARY A SHARES 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of year $ 9.67 $ 10.88 $ 9.97
Net investment income 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments 1.15 (1.06) 0.91
Net increase/(decrease) in net assets resulting from investment
operations 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- (0.00)(a) --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.73) (0.89) (0.78)
Net asset value, end of year $ 10.82 $ 9.67 $ 10.88
Total return++ 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 7.03% 7.31% 7.02%
Portfolio turnover rate 96% 144% 86%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or reimbursements $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.06)
Net asset value, end of year $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.85%+
Net investment income per share without waivers and/or reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average share method, which
more appropriately represents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
(a) Amount represents less than $0.01 per share.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of year $ 9.32 $ 10.55 $ 9.94
Net investment income 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments 0.90 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.59) (0.87) (0.57)
Net asset value, end of year $ 10.22 $ 9.32 $ 10.55
Total return++ 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.71%+ 0.68% 0.61%
Ratio of net investment income to average net assets 6.05%+ 5.43% 5.40%
Portfolio turnover rate 228% 307% 161%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.81%+ 0.76% 0.77%
Net investment income per share without waivers and/or reimbursements $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of year $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment
operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.05)
Net asset value, end of year $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.86%+
Net investment income per share without waivers and/or reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
NATIONS
GLOBAL GOVT.
INCOME FUND
PERIOD ENDED
9/30/95*
PRIMARY A SHARES (UNAUDITED)
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.13
Net realized and unrealized gain/(loss) on investments 0.04
Net increase/(decrease) in net assets resulting from investment operations 0.17
Distributions:
Dividends from net investment income (0.13)
Total distributions (0.13)
Net asset value, end of period $ 10.04
Total return++ 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,402
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets 5.61%+
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
20
<PAGE>
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund, described below, endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospectus.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return (of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1) The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a "passive" or "indexing" investment
approach, attempts to duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Under normal market conditions, it is expected that the average weighted
maturity of the Fund's portfolio will be between two and seven years.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years.
(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.
21
<PAGE>
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed three years.
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: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities. Under normal
market conditions, it is expected that the average weighted maturity of the
Fund's portfolio will be greater than seven years.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities. Under normal market conditions, it
is expected that the average weighted maturity of the Fund's portfolio will be
10 years or less.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations 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 are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and time of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund also may
invest in guaranteed investment contracts and in instruments issued by trusts,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by trusts. In
addition, the Fund may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may lend its portfolio securities
to qualified institutional investors. For more information concerning these
instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund also may
lend its portfolio securities to qualified institutional investors. For more
information concerning these instruments, see "Appendix A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser 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
22
<PAGE>
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.
The Fund invests under normal market conditions 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 stock and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest in securities of foreign issuers. See "Appendix A -- Foreign
Securities." The Fund also may hold up to 20% of its total assets in U.S.
Government Obligations, and investment grade bonds and other debt securities of
domestic companies. Obligations with the lowest investment grade rating (E.G.
rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by Moody's
Investors Service, Inc. ("Moody's")) have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
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 may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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 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 objective, 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
23
<PAGE>
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 also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% 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 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
24
<PAGE>
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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Future's Trading Commission ("CFTC") and options thereon for
market exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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 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.
25
<PAGE>
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-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 more information concerning these
instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that 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
profession-
26
<PAGE>
als. 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 an NRSRO 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 up to 10% of its total assets 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 among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
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.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. Government Securities.
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.
27
<PAGE>
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
ABOUT THE INDEX. The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The 500 securities, most of which trade on the New York Stock Exchange,
represented, as of February 13, 1996, approximately 81% 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 46% 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 13, 1996, the five
largest companies in the Index were: General Electric (2.7%), American Telephone
& Telegraph (2.2%), Exxon Corporation (2.1%), Coca-Cola (2.1%) and Merck (1.7%).
The largest industry categories were: consumer non-durables (32.7%), finance
(14.1%), utilities (12.5%), materials and services (11.3%) and technology
(10.8%).
GENERAL: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, 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 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.
High quality companies with strong long term fundamentals and earnings growth
potential, trading at reasonable market valuations, offer the best total return
potential 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 favorable industry positioning and strong management teams. 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
28
<PAGE>
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 defense measure if market
conditions warrant. For additional information concerning these instruments, see
"Appendix A."
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund also may engage in dollar roll
transactions. The Fund also may invest in restricted, private placement and
other illiquid securities, and also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: 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.
The Fund also 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; 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 the Federal Home Loan Mortgage
Corporation ("FHLMC"), or of private issuers, including mortgage pass-through
certificates, collateralized mortgage obligations ("CMOs"), real estate
investment trust securities or mortgage-backed bonds; other asset-backed
securities rated by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality. 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. The Fund also 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; 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 a more detailed description of the investment practices of this
Fund, see "Appendix A".
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.
29
<PAGE>
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, 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 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 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 circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, 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; U.S.
Government Obligations; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by 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 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.
30
<PAGE>
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." They 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,
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
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. 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 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 assets in securities of foreign issuers. The value of
the Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
31
<PAGE>
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 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: 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. Nations Short-Intermediate
Government Fund, Nations Government Securities Fund, Nations Short-Term Income
Fund, Nations Diversified Income Fund and Nations Strategic Fixed Income Fund
also may lend their portfolio securities to qualified institutional investors.
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund also may invest in restricted, private placement and
other illiquid securities and may engage in reverse repurchase agreements and
dollar roll transactions. 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 NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
those Funds presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
32
<PAGE>
Investors in 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
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.
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 those Funds, investing in securities denominated in
foreign currencies and utilization of forward foreign currency exchange
contracts and other currency hedging techniques involve certain considerations
comprising both opportunities and risks not typically associated with investing
in U.S. dollar-denominated securities. Additionally, changes in the value of
foreign currencies can significantly affect a Fund's share price. General
economic and political factors in the various world markets also can impact a
Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's portfolio turnover rate exceeds
100%, it may result in higher brokerage costs and possible tax consequences for
the Fund and its shareholders. For the Funds' portfolio turnover rates, see
"Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities will tend to decrease when interest
rates rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt instruments
in response to interest rate movements. In addition, debt securities that are
not backed by the United States Government are subject to credit risk, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate.
33
<PAGE>
There are certain types of derivative securities that can, under certain
circumstances, significantly increase a purchaser's exposure to market or other
risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives 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
Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than the Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
In order for the Money Market Funds to value their investments on the basis of
amortized cost, investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. These include
maturity, quality and diversification requirements. Maturity is limited to a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar-denominated instruments
determined to present minimal credit risks and that at the time of acquisition
are rated in the top two rating categories by the required number of NRSROs (at
least two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a Money Market Fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer or invest more than 5% of its assets in securities (and no
more than 1% in any one issuer) that have not been rated in the highest category
by the required number of NRSROs or, if unrated, are described in (i) or (ii)
above. Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities, and fully-collateralized repurchase agreements secured by
such obligations, are exempt from the quality requirements, other than minimal
credit risk. In the event that a Money Market Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Money Market Fund's own restrictions will govern.
34
<PAGE>
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares. YIELD AND EFFECTIVE YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "yield" of a class of shares in a Fund refers to the income
generated by an investment in such class over a seven-day period identified in
the advertisement. This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. TOTAL RETURN AND
YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" of a class of shares of Non-Money Market
Fund may be calculated on an average annual total return basis or an aggregate
total return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, assuming the reinvestment of all dividend and capital gains
distributions. Aggregate total return reflects the total percentage change in
the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return may
also be presented for other periods.
"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 Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios, respectively.
Nations Fund and 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. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
35
<PAGE>
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.
TradeStreet is 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 investment management services to individuals, corporations
and institutions.
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 sub-advisory agreements.
Nations Gartmore is a joint venture structured as a general partnership between
NB Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK-based
international fund management group of companies (the "Gartmore Group").
Compagnie de Suez S.A. and affiliated entities (collectively, "Compagnie de
Suez") own 75% of the equity of Gartmore plc.
On February 19, 1996, it was announced that National Westminster Bank plc
("NatWest"), one of the world's largest commercial and investment banking firms,
had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez through a two-part
transaction involving (1) the direct purchase from Compagnie de Suez of its
subsidiary that holds 75% of the outstanding voting shares of Gartmore plc; and
(2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately $47
billion.
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.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, 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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of Nations
Government Money Market Fund; 0.50% of the average daily net assets of Nations
Equity Index Fund; 0.60% of the average daily net assets of each of the Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund 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 expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.055% of Nations Prime
36
<PAGE>
Fund's, Nations Treasury Fund's and Nations Government Money Market Fund's
average daily net assets; 0.20% of Nations Equity Income Fund's average daily
net assets; 0.10% of Nations Equity Index Fund's average daily net assets; 0.25%
of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital Growth
Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity Fund's
average daily net assets; 0.15% of Nations Short-Intermediate Government Fund's,
Nation's Government Securities Fund's, Nations Short-Term Income Fund's, Nations
Diversified Income Fund's, and Nations Strategic Fixed Income Fund's average
daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory
agreements, Nations Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rates of 0.70% of Nations
International Equity Fund's average daily net assets. 0.85% of Nations Emerging
Markets Fund's average daily net assets; 0.70% of Nations Pacific Growth Fund's
average daily net assets and 0.54% of Nations Global Government Income Fund's
average daily net assets. Although the advisory fees for Nations Value Fund,
Nations Equity Income Fund, Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund, Nations Global Government Income
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund and Nations Balanced Assets Fund are higher than the
advisory fees paid by most other mutual funds, Nations Fund believes that the
fees are comparable to the advisory fees paid by many other funds with similar
investment objectives and policies. From time to time, NationsBank (and/or
TradeStreet and/or Nations Gartmore) may waive or reimburse (either voluntarily
or pursuant to applicable state limitations) advisory fees or expenses payable
by a Fund.
For the fiscal year ended November 30, 1995, 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 Government Money
Market Fund -- 0.16%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.70%; Nations Equity Index Fund -- 0.10%; Nations Balanced Assets
Fund -- 0.75%; Nations Short-Intermediate Government Fund -- 0.40%; Nations
Short-Term Income Fund -- 0.30%; Nations Diversified Income Fund -- 0.50%; and
Nations Strategic Fixed Income Fund -- 0.50%. For the fiscal year ended November
30, 1995, after waivers, Nations Disciplined Equity Fund paid its prior
sub-adviser fees at the rate of 0.05% 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 advisory fees at the indicated rate
of the following Funds' average daily net assets: Nations Prime Fund -- 0.13%;
Nations Treasury Fund -- 0.16%; Nations Government Securities Fund -- 0.46%;
Nations Equity Income Fund -- 0.68%; and Nations International Equity
Fund -- 0.40%. For the fiscal year ended May 31, 1995, after waivers, Nations
Fund, Inc. paid the prior sub-adviser to Nations International Equity Fund 0.38%
of such Fund's average daily net assets.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Previously
she was Vice President and Portfolio Manager for NationsBank. Ms. Duck has
worked in the investment community since 1980. Her past experience includes
product management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Previously he was
Vice President and Structured Products Manager for NationsBank. He has worked in
the investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Previously she was Vice
President and Senior Portfolio Manager for NationsBank. Ms. Sherman has worked
in the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Previously she was Senior
Vice President and Portfolio Manager for NationsBank. Ms. Herrmann has worked
for NationsBank since 1981 where her responsibilities included fund management
and portfolio management. She attended Virginia Wesleyan College. Ms. Herrmann
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
37
<PAGE>
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager for 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 Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager of Nations Emerging Markets Fund since 1995. 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 Principal Portfolio Manager of the Nations Pacific Growth Fund. She
has been Portfolio Manager of Nations Pacific Growth Fund since 1995. She has
been associated with the Gartmore Group since 1990 as the London based manager
on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union Bank
Securities in Singapore where she was responsible for Singaporean and Malaysian
equity sales and then subsequently for Rothschild as a Fund Manager in Singapore
and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent in
Mandarin and Cantonese and received an Economics degree from the University of
Durham in 1985.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Sanders has worked in the financial investment community since
1981. His past experience includes portfolio management, equity research and
financial analysis for NationsBank and Duke Power Company. Mr. Sanders received
a B.A. in Economics from the University of Michigan and an M.B.A. from
University of North Carolina at Charlotte. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Development for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Previously he was Senior Vice President and Senior Portfolio
Manager for NationsBank. He has worked in the investment community since 1968.
His past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Moser has worked for NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Previously she was Vice President and Senior Portfolio Manager for NationsBank.
She has worked in the investment community since 1981. Her past experience
includes research analysis and portfolio management for Mercantile Safe Deposit
and Trust, and National City Bank. Ms. Hale received a B.S. in Business and
Finance from St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Associa-
38
<PAGE>
tion for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since 1995. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Previously he was Vice President and Senior Portfolio Manager
for NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Ahnrud has worked for NationsBank since 1985 where his
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Previously he was Vice President and
Senior Portfolio Manager for NationsBank. Mr. Swaim has worked in the investment
community since 1986. His past experience includes derivative products manager
for the NationsBank Texas Corporate Investment Division portfolio. Mr. Swaim
received a B.S. from University of North Texas and an M.B.A. from University of
Texas at Arlington.
David M. Hetherington, CFA, is Managing Director of Fixed Income Management for
TradeStreet. Mr. Hetherington is responsible for overseeing all fixed income
product management and is Senior Portfolio Manager for Nations Short-Term Income
Fund. Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income
Fund since 1995. Previously he was Senior Vice President and Director of Fixed
Income for NationsBank. Mr. Hetherington has worked in the investment community
since 1975. His past experience includes working as a portfolio manager, a trust
investment officer and a securities analyst for First Citizens Bank and Deposit
Guarantee as well as working as an Economist for the U.S. Department of Labor in
the Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics
from Duke University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
39
<PAGE>
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data 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, 1995, after waivers, Nations Fund Trust
paid its administrators fees at the indicated rates of the following Funds'
average daily net assets: Nations Government Money Market Fund and Nations
Diversified Income Fund -- .07%; 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 and Nations Strategic Fixed
Income Fund -- 0.10%.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
its administrators fees at the rate of 0.09% of the following Funds' average
daily net assets: Nations Prime Fund, Nations Treasury Fund, Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund.
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 0.01% 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
Primary Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, together with Bank of
New York, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Primary
Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
40
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has more than 45 distinct investment portfolios and total assets in excess of
$18 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 -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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
Primary A Shares of the following funds of Nations Fund Trust: Nations
Government Money Market Fund, Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity
Index Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund 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 the related SAI for examples of when the 1940 Act
requires voting by fund.
As of April 1, 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 Primary A Shares of the following
funds of Nations Fund, Inc.: Nations Prime Fund, Nations Treasury Fund, Nations
Equity Income Fund, Nations International Equity Fund and Nations Government
Securities Fund. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Institution (as
defined below) or Nations Fund at 1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to
41
<PAGE>
any of Nations Fund, Inc.'s shares. Nations Fund, Inc.'s shares, when issued,
will be fully paid and non-assessable.
As of April 1, 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 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment com-
pany. 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 mis-
statement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
42
<PAGE>
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund). A purchase order received by Stephens or the Transfer Agent after
such time will not be accepted; notice thereof will be given to the Institution
or investor placing the order, and any funds received will be returned promptly
to the sending Institution or investor. If federal funds are not available by
4:00 p.m., Eastern time, the order will be canceled. Primary A Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in the Non-Money Market Funds that 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
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institution or investor. Nations Fund reserves the right to wire
redemption proceeds within three Business Days after receiving the redemption
orders if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. However, redemption proceeds for shares purchased by check may
not be remitted until at least 15 days after the date of purchase to ensure that
the check has cleared; a certified check, however, is deemed to be cleared
immediately. Redemption orders will not be accepted by Stephens or by the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Government Money Market Fund), for execution on that Business
Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A 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.
43
<PAGE>
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is 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.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A 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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent 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 Money Market Funds are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund), each Bank Business Day. Shares of the Non-Money Market Funds are
valued as of the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each NYSE Business Day. Currently, the days on which the
Federal Reserve Bank of New York is closed (other than weekends) are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
44
<PAGE>
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (12
noon, Eastern time, with respect to Nations Government Money Market Fund), on
the day of declaration. Primary A Shares begin earning dividends on the day the
purchase order is executed and continue earning dividends through and including
the day before the redemption order is executed (E.G., the settlement date).
Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Primary A Shares of the same Fund
unless the Customer or investor has elected prior to the date of distribution to
receive payment in cash. Such election, or any revocation thereof, must be made
in writing to the Fund's Transfer Agent and will become effective with respect
to dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his Primary A Shares
in a Fund. To the extent that there are any net short-term capital gains, they
will be paid at least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar 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.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax 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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of the Nations International Equity,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such 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.
45
<PAGE>
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 tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations that 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 advisors 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 this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. For example, falling interest
rates generally result in an increase in the rate of prepayments of mortgage
loans while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
46
<PAGE>
MORTGAGE-BACKED SECURITIES represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA 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.
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.
47
<PAGE>
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 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.
48
<PAGE>
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations, 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 a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it 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. A 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 Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Funds' asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated
49
<PAGE>
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.
The Nations Treasury Fund has entered into an arrangement whereby it reinvests
the proceeds of a reverse repurchase agreement in a tri-party repurchase
agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. The Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two NRSROs, are rated in the highest rating category for short-term debt
obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable and floating rate
instruments.
The Nations Prime Fund also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and
companies meet the quality standards set forth above.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's 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
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when 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
50
<PAGE>
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 United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If 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 SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess periodic
charges against a GIC for expense and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. The purchase price
paid for a GIC becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by 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 hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as
51
<PAGE>
may be required by the states in which the appropriate Fund sells its shares.
The Non-Money Market Funds will not hold 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, GICs and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by the
Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that 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 their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
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. Each
Fund that may invest in lower-rated debt securities intends 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' Boards, 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 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 is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
52
<PAGE>
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 does not
intend to exercise its rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
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
invest-
53
<PAGE>
ment company's expenses, including advisory fees. These expenses would be in
addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
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 credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by such trusts,
either from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress.
54
<PAGE>
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.
55
<PAGE>
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:
56
<PAGE>
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
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.
57
<PAGE>
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
58
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1996
NATIONS INTERNATIONAL
EQUITY FUND
NATIONS EMERGING MARKETS FUND
NATIONS PACIFIC GROWTH FUND
NATIONS GLOBAL GOVERNMENT (Nations Fund
INCOME FUND logo
appears
INVESTMENT ADVISER: NationsBanc Advisors, Inc. here)
SUB-INVESTMENT ADVISER: Nations Gartmore Investment Management
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1996
This Prospectus describes three equity Nations International
portfolios -- NATIONS INTERNATIONAL EQUITY FUND, Equity Fund
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS Nations Emerging
GLOBAL GOVERNMENT INCOME FUND (each, a "Fund") -- of Markets Fund
the Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class Nations Pacific
of shares of each Fund -- Primary A Shares (formerly Growth Fund
called Trust A Shares).
This Prospectus sets forth concisely the information Nations Global
about each Fund that a prospective purchaser of Government Income
Primary A Shares should consider before investing. Fund
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund, Inc. and Nations Fund Portfolios, Inc.
("Nations Portfolios"), each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. Nations
Gartmore Investment Management ("Nations Gartmore")
is sub-investment adviser to the Funds. As used
herein the "Adviser" shall mean NBAI 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. For purchase, redemption
and performance
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE information call:
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH 1-800-626-2275
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND Nations Fund
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR c/o Stephens Inc.
NATIONS FUND. One NationsBank Plaza
33rd Floor
THESE SECURITIES HAVE NOT BEEN APPROVED OR Charlotte, NC 28255
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR (Nations Fund logo
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY appears here)
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 8
How Performance Is Shown 12
How The Funds Are Managed 13
Organization And History 15
About Your How To Buy Shares 16
Investment How To Redeem Shares 17
How To Exchange Shares 17
How The Funds Value Their Shares 18
How Dividends And Distributions Are Made;
Tax Information 18
Appendix A -- Portfolio Securities 19
Appendix B -- Description Of Ratings 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as
those in Latin America, eastern Europe, the Pacific Basin, the
Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these factors, See "How Objectives Are Pursued -- Special Risk
Considerations Relevant to an Investment in the Funds."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. Nations Gartmore provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and Nations
Global Government Income Fund declares dividends daily and pays them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Global
Nation Nations Nations Government
International Emerging Pacific Growth Income
Equity Fund Markets Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management Fees .90% 1.10% .90% .70%
All Other Expenses (After Expense Reimbursements) .25% .80% .80% .60%
Total Operating Expenses (After Expense Reimbursements) 1.15% 1.90% 1.70% 1.30%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations
Global
Nations Nations Nations Government
International Emerging Pacific Growth Income
Equity Fund Markets Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 12 $19 $17 $13
3 Years $ 37 $60 $54 $41
5 Years $ 63 N/A N/A N/A
10 Years $140 N/A N/A N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Absent expense
reimbursements, "All Other Expenses"and "Total Operating Expenses" for Nations
International Equity Fund would have been .26% and 1.16%, respectively. For more
complete descriptions of the Funds' operating expenses, see "How The Funds Are
Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The following audited and, where indicated, unaudited financial information has
been derived from the financial statements of Nations Fund, Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund,
Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the most
recent fiscal years of Nations Fund, Inc. accompany the financial statements for
such periods and are incorporated by reference in Nations Fund, Inc.'s SAI,
which is available upon request. The financial information for Nations
Portfolios has not been audited by Price Waterhouse LLP. For more information
see "Organization And History." Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
11/30/95 ENDED ENDED ENDED ENDED
PRIMARY A SHARES (UNAUDITED)# 5/31/95# 5/31/94# 5/31/93# 5/31/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40 $ 10.00
Net investment income/(loss) 0.07 0.14 0.09 0.09 0.08
Net realized and unrealized gain/(loss) on
investments 0.70 (0.20) 1.44 0.21 0.36
Net increase/(decrease) in net assets resulting from
investment operations 0.77 (0.06) 1.53 0.30 0.44
Distributions:
Dividends from net investment income -- (0.03) (0.05) (0.08) (0.04)
Distributions from net realized capital gains -- (0.12) (0.02) (0.02) --
Distributions in excess of net realized capital gains -- (0.10) -- -- --
Total distributions -- (0.25) (0.07) (0.10) (0.04)
Net asset value, end of period $ 12.52 $ 11.75 $ 12.06 $ 10.60 $ 10.40
Total return++ 6.64% (0.46)% 14.37% 3.14% 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 674,179 $ 572,940 $ 401,559 $ 118,873 $ 83,970
Ratio of operating expenses to average net assets 1.15%+ 1.03% 1.17% 1.30% 1.33%+
Ratio of net investment income/(loss) to average net
assets 0.83%+ 1.17% 0.75% 1.03% 1.81%+
Portfolio turnover rate 16% 92% 39% 41% 11%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 1.24%+ 1.04% 1.18% 1.32% 1.43%+
Net investment income per share without waivers
and/or reimbursements $ 0.06 $ 0.14 $ 0.08 $ 0.10 $ 0.03
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the results
of operations.
5
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*
PRIMARY A SHARES (UNAUDITED)#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment loss (0.00)
Net realized and unrealized loss on investments (0.12)
Net decrease in net assets resulting from investment operations (0.12)
Net asset value, end of period $ 9.88
Total return++ (1.20)
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14,529
Ratio of operating expenses to average net assets 1.90%
Ratio of net investment loss to average net assets (0.03)
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*
PRIMARY A SHARES (UNAUDITED
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized loss on investments (0.30)
Net decrease in net assets resulting from investment operations (0.29)
Net asset value, end of period $ 9.71
Total return++ (2.90)
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,727
Ratio of operating expenses to average net assets 1.70%
Ratio of net investment income/(loss) to average net assets (0.15)
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June
30, 1995.
+ 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
6
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*
PRIMARY A SHARES (UNAUDITED)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.13
Net realized and unrealized gain on investments 0.04
Net increase in net assets resulting from investment operations 0.17
Distributions:
Dividends from net investment income (0.13)
Total distributions (0.13)
Net asset value, end of period $ 10.04
Total return++ 1.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,402
Ratio of operating expenses to average net assets 1.30%
Ratio of net investment income to average net assets 5.61%
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
7
<PAGE>
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% 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.
8
<PAGE>
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by 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 Funds," 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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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
9
<PAGE>
or a significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. When allocating investments
among individual countries, 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various 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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. For defensive purposes, the Fund may
temporarily invest substantially all of its assets in U.S. financial markets or
in U.S. dollar-denominated instruments. See "Appendix A" below for additional
information concerning the investment practices of the Fund.
10
<PAGE>
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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 invests. 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.
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 U.S. 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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
11
<PAGE>
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to permit the sale of a Fund's shares 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 DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of a Fund may be calculated on an average annual total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gains distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return also
may be presented for other periods.
"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 Primary A Shares, the Funds offer Primary B, Investor A, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of
12
<PAGE>
a Fund's shares. Any fees charged by an institution directly to its customers'
accounts in connection with investments in the Funds will not be included in
calculations of total return or yield. Each Fund's annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or your Institution, as defined below.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. The SAIs
for Nations Fund and Nations Portfolios contain the names of and general
background information concerning each of their respective Directors.
INVESTMENT ADVISER: NationsBanc Investment 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. NBAI has its
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds pursuant to sub-advisory agreements. Nations Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, a wholly
owned subsidiary of Gartmore plc, a UK company listed on the London Stock
Exchange which is the holding company for a leading UK-based international fund
management group of companies (the "Gartmore Group"). Compagnie de Suez and
affiliated entities (collectively, "Compagnie de Suez") own 75% of the equity of
Gartmore plc.
On February 19, 1996, it was announced that National Westminster Bank plc
("NatWest"), one of the world's largest commercial and investment banking firms,
had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez through a two-part
transaction involving (1) the direct purchase from Compagnie de Suez of its
subsidiary that holds 75% of the outstanding voting shares of Gartmore plc; and
(2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately $47
billion.
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.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with it or which have sold shares in a Fund, 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 has a lending
relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.90% of the average daily net assets
of Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund; 0.90% of the average daily net assets of Nations
Pacific Growth Fund; and 0.70% of the average daily net assets of Nations Global
Government Income Fund. For the fiscal year ended May 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Advisory Agreement advisory
fees at the rate of 0.40% of the Nations International Equity Fund's average
daily net assets.
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
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Pacific Growth Fund's average daily net assets and 0.54% of
Nations Global Government Income Fund's average daily net assets. For the fiscal
year ended May 31, 1995, Nations Fund, Inc. paid the prior sub-
13
<PAGE>
adviser for Nations International Equity Fund 0.38% of the Fund's average daily
net assets. Although the advisory fees for the Funds are higher than the
advisory fees paid by most other mutual funds, Nations Fund, Inc. and Nations
Portfolios believe that the fees are comparable to the advisory fees paid by
many other funds with similar investment objectives and policies. From time to
time, NationsBank and/or Nations Gartmore may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees or
expenses payable by the Funds.
Stephen Watson has been Principal Portfolio Manager for Nations International
Equity Fund since February 1995. He joined the Gartmore Group as a Global Fund
Manager in August 1993 and was recently appointed Head of the International and
Global Team. Prior to that, Mr. Watson was employed by James Capel Fund Managers
where he acted as a Director, Global Fund Manager and Client Services Manager
for various international clients. From 1980 to 1987 he was associated with
Capel-Cure Myers in their portfolio Management Division and prior to that he was
with the investment division at Samuel Montagu. Mr. Watson is currently a member
of the Securities Institute.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since 1995. 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 Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. She has been Portfolio Manager for Nations Pacific
Growth Fund since 1995. 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 NationsBank and its
affiliates may perform the services contemplated by the Advisory Agreements and
this Prospectus without violation of the Glass-Steagall Act. Such counsel has
pointed out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds. For the services rendered pursuant to the
Administration and Co-Administration Agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to 0.10% of each
Fund's average daily net assets.
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,
14
<PAGE>
coordinating and monitoring various aspects of the Funds' administrative
operations. For providing such services, NationsBank shall be entitled to
receive a monthly fee from Stephens based on an annual rate of 0.01% of the
Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Portfolios
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to Institutions which assist customers in
purchasing Primary Shares of the Funds. For the fiscal year ended May 31, 1995,
after waivers, Nations Fund, Inc. paid its administrators fees at the rate of
0.09% of the average daily net assets of the Nations International Equity Fund.
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as the Transfer Agent for the Funds' Primary Shares.
NationsBank of Texas, N.A. serves as the sub-transfer agent for the Funds'
Primary Shares. The sub-transfer agent is located at 1401 Elm Street, Dallas,
Texas 75202. In return for providing sub-transfer agency services for the
Primary A Shares of Nations Fund, NationsBank of Texas, N.A. is entitled to
receive an annual fee from First Data of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, MA 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's directors and
officers); Federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund, Inc. or Nations
Portfolios that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations Fund, Inc. or Nations
Portfolios or in such other manner as the relevant Board of Directors determines
is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as "The Capitol Mutual Funds"). The Nations Fund Family
currently has more than 45 distinct investment portfolios and total assets in
excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of the Nations
International Equity Fund of Nations Fund, Inc. To obtain additional information
regarding the Fund's other classes of shares which may be available to you,
contact your 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.
15
<PAGE>
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of April 1, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote more than 25% of the outstanding shares of Nations Fund, Inc.
and therefore could be considered to be a controlling person of Nations Fund,
Inc. for purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series over which NationsBank and its affiliates
possessed or shared power to dispose or vote as of a certain date, see Nations
Fund, Inc.'s SAI. It is anticipated that Nations Fund, Inc. will not hold annual
shareholder meetings on a regular basis unless required by the 1940 Act or
Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of Nations Portfolios. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Institution (as defined below) or Nations Fund at 1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of April 1, 1996, NationsBank and its affiliates possessed power or shared
power to dispose of or vote more than 25% of the outstanding shares of Nations
Portfolios and therefore would be considered to be a controlling person of
Nations Portfolios for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which Stephens possessed
power to dispose or vote as of a certain date, see the SAI. It is anticipated
that Nations Portfolios will not hold annual shareholder meetings on a regular
basis unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
16
<PAGE>
Purchases may be effected on days on which the New York Stock Exchange (the
"Exchange") is open for business (a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary A Shares in the Funds
that are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by a
Fund's Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Institution or investor placing the order. Payment for
orders which are not received or accepted will be returned after prompt inquiry
to the sending Institution or investor.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution or investor within three Business Days after receipt of
the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with a Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Portfolios also may redeem shares involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is Stephens' responsibility to
transmit orders it receives to Nations Fund, Inc. and Nations Portfolios. No
charge for wiring redemption payments is imposed by Nations Fund, although
Institutions may charge their Customer accounts for these or other services
provided in connection with the redemption of Primary A Shares and may establish
additional procedures. Information concerning any charges or procedures is
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.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A 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
17
<PAGE>
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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or their Transfer Agent 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 are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the respective Boards of Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Primary A Shares of the Funds are eligible to receive dividends when
declared provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed.
The net asset value of Primary A Shares in each Fund will be reduced by the
amount of any dividend or distribution. Dividends and distributions are paid in
cash within five Business Days of the end of the quarter or the month to which
the dividend relates. Dividends are paid in the form of additional Primary A
Shares of the same Fund unless the Customer or investor has elected prior to the
date of distribution to receive payment in cash. Such election, or any
revocation thereof, must be made in writing to the Fund's Transfer Agent and
will become effective with respect to dividends paid after its receipt.
Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his or her
Primary A Shares in a Fund.
TAX INFORMATION: Each of the Funds intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Indi-
18
<PAGE>
vidual Retirement Account are generally deferred under the Code.)
Corporate shareholders in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the Fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Funds, if
any, will be distributed at least annually to the Funds' shareholders. The Funds
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held a Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from dividends paid by Nations
Fund and/or redemptions (including exchange redemptions) that occur in certain
shareholder accounts if the shareholder has not properly furnished a certified
correct Taxpayer Identification Number and has not certified that withholding
does not apply. If the Internal Revenue Service has notified Nations Fund that
the Taxpayer Identification Number listed on a shareholder account is incorrect
according to its records, or that the shareholder is subject to backup
withholding, a Fund is required by the Internal Revenue Service to withhold 31%
of dividends and/or redemptions (including exchange redemptions). Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of tax. Federal law also requires each Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies such Fund's permissible investments, and the SAIs contain more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% or more of such Fund's total assets
at the time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), 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,
19
<PAGE>
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser, at the
time of purchase, to be of comparable quality to rated instruments that may be
acquired by the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund enters into these
transactions either on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they involve the risk that anticipated currency
movements will not be accurately predicted. The Funds will generally not enter
into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject the Funds to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
20
<PAGE>
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 United States
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by the Funds may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued," the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect against
adverse market movements by investing in futures, options and other derivative
instruments. These include the purchase and writing of options on securities
(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
equity swap contracts, interest rate swaps, currency swaps, caps, collars and
floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, such Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. A Fund will not hold more than
15% of the value of its net assets in securities that are illiquid or such lower
percentage as may be required by the states in which such Fund sells its shares.
Repurchase agreements and time deposits that do not provide for payment to a
Fund within seven days after notice, guaranteed investment contracts and some
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") (other than variable-amount
master demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, a Fund
may purchase securities that are not registered under the 1933 Act but which can
be sold to "qualified institutional buyers" in accordance with Rule 144A under
the 1933 Act. Any such security will not be considered illiquid so long as it is
determined by such Fund's Board of Directors or 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 their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
21
<PAGE>
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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Funds may invest in securities issued by other
investment companies to the extent that such investments are consistent with a
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that such Fund bears directly in connection with its own
operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from such Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, a Fund may lend
its portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. These contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in
22
<PAGE>
the exchange rate between the U.S. dollar and the currencies in which trading is
done on foreign exchanges, any profits that a Fund might realize could be
eliminated by adverse changes in the exchange rate, or the Fund could incur
losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in 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.
23
<PAGE>
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 Duff & Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may 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 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.
24
<PAGE>
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
25
<PAGE>
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
and its affiliate, IBCA (collectively "IBCA"):
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
26
<PAGE>
Prospectus
PRIMARY B SHARES
AUGUST 1, 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 -- Primary B Shares (formerly
called Trust B Shares).
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Primary 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"), each
an open-end management investment company, is
contained in separate Statements of Additional
Information ("SAIs"), that 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 each dated
August 1, 1996, 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:
1-800-621-2192
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
TR-96131-496
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 20
How The Funds Are Managed 21
Organization And History 26
About Your
Investment
How To Buy Shares 28
Shareholder Administration Arrangements 28
How To Redeem Shares 29
How To Exchange Shares 29
How The Funds Value Their Shares 30
How Dividends And Distributions Are Made; Tax
Information 30
Appendix A -- Portfolio Securities 32
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's
investment objective is to seek long-term
capital growth by investing primarily in
equity securities of non-United States
companies in Europe, Australia, the Far East
and other areas, including some developing
countries.
(Bullet) Nations Emerging Markets Fund's
investment objective is to seek
long-term capital growth by
investing primarily in equity
securities of companies in emerging
markets countries such as those in
Latin America, eastern Europe, the
Pacific Basin, the Far East, Africa
and India.
(Bullet) Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth
by investing primarily in equity securities of
companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment
objective is to seek growth of capital by
investing in companies that are believed to
have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment
objective is to seek capital appreciation
by investing in emerging growth companies
that are believed to have superior long-term
earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by
investing in companies that are expected
to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment
objective is to seek investment results
that correspond, before fees and expenses,
to the total return of the Standard & Poor's
500 Composite Stock Price Index.
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment
objective is to seek current income
consistent with minimal fluctuation of
principal. The Fund invests primarily in
short-term investment grade fixed income
securities.
3
<PAGE>
(Bullet) Nations Diversified Income Fund's
investment objective is to seek
current income consistent with
total return by investing primarily
in a diversified portfolio of fixed
income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income
securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued
by governments, banks and supranational
entities located throughout the world.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. 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 which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these factors, see "How Objectives
Are Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. TradeStreet Investment Associates, Inc. provides
sub-advisory services to certain of the Funds and Nations Gartmore
Investment Management provides sub-advisory services to the other
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Bond Funds declare dividends daily and pay them monthly.
Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary 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 PRIMARY 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(1) 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(1) None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses
(After Expense
Reimbursements) .69% .71% .75% 1.30% 1.30% .73% .73%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.44% 1.41% 1.65% 2.40% 2.20% 1.48% 1.48%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .10% .75%
Other Expenses
(After Expense
Reimbursements) .75% .77% .74%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.50% .87% 1.49%
</TABLE>
1 Primary 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 the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
NATIONS FUND BOND FUNDS PRIMARY 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(1) 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(1) None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .40% .50% .30% .50%
Other Expenses (After Expense Reimbursements) .55% .80% .61% .80%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .95% 1.30% .91% 1.30%
</TABLE>
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers) .50% 0.70%
Other Expenses (After Expense Reimbursements) .71% 1.10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) 1.21% 1.80%
</TABLE>
1 Primary 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 the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary 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 $ 15 $ 14 $ 17 $ 24 $ 22
3 Years $ 46 $ 45 $ 52 $ 75 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
1 Year $ 15 $ 15
3 Years $ 47 $ 47
</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 $ 10 $ 13
3 Years $ 47 $ 28 $ 47 $ 30 $ 41
</TABLE>
<TABLE>
<CAPTION>
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 13
3 Years $ 29 $ 41
</TABLE>
<TABLE>
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C>
1 Year $ 12 $ 18
3 Years $ 38 $ 57
</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
Primary 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 of 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 expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Value Fund -- .75%, .79% and 1.54%,
respectively; Nations Equity Income Fund -- .70%, .82% and 1.52%, respectively;
Nations International Equity Fund -- .90%, .86% and 1.76%, 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%, .83% and 1.58%, respectively; Nations Emerging Growth
Fund -- .75%, 83% and 1.58%, respectively; Nations Disciplined Equity
Fund -- .75%, .85% and 1.60%, respectively; Nations Equity Index Fund -- .50%,
.87% and 1.37%, respectively; Nations Balanced Assets Fund -- .75%, .84% and
1.59%, respectively; Nations Short-Intermediate Government Fund -- .60%, .80%
and 1.40%, respectively; Nations Government Securities Fund -- .64%, .91% and
1.55%, respectively; Nations Short-Term Income Fund -- .60%, .86% and 1.46%,
respectively; Nations Diversified Income Fund -- .60%, .93% and 1.53%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .81% and 1.41%,
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.
6
<PAGE>
Objectives
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: The investment objective of Nations Equity Index Fund
is to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").1 The Fund is not managed according to tradi-
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.
tional methods of "active" investment management, which involve the buying and
selling of securities based upon economic, financial, and market analyses and
investment judgment. Instead, the Fund, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Under normal market conditions, it is expected that the average weighted
maturity of the Fund's portfolio will be between two and seven years.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed three years.
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: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities. Under normal
market conditions, it is expected that the average weighted maturity of the
Fund's portfolio will be greater than seven years.
7
<PAGE>
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities. Under normal market conditions, it
is expected that the average weighted maturity of the Fund's portfolio will be
10 years or less.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
How Objectives Are Pursued
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser 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-to-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.
The Fund invests under normal market conditions 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 stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest in securities of foreign issuers. See "Appendix A -- Foreign
Securities." The Fund also may hold up to 20% of its total assets in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government Obligations"), and investment grade bonds and other debt
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's"), have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. 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
8
<PAGE>
total return of the S&P 500 Index, a broad-based and widely used index of common
stock prices. Second, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Finally, the Adviser
believes that stocks that 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 objective, 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." They 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 companies 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 companies 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; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal
9
<PAGE>
market conditions at least 65% of its total assets in securities of companies in
emerging markets. A company will be considered in a country, market or region if
it conducts its principal business activities in the country, market or region.
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%) 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% 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 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.
The Fund also may invest in certain specified derivative securities, including:
exchage-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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
10
<PAGE>
the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by
S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in 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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the CFTC and options thereon for market exposure risk management. The Fund may
lend its portfolio securities to qualified institutional investors. The Fund may
invest in restricted, private placement and other illiquid securities, and also
may invest in securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS 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
11
<PAGE>
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 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-to-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 an NRSRO 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.
12
<PAGE>
The Fund may invest up to 10% of its total assets 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 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.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. Government Securities.
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 13, 1996, approximately 81% 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 46% 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 13, 1996, the five
largest companies in the Index were: General Electric
13
<PAGE>
(2.7%), American Telephone & Telegraph (2.2%), Exxon Corporation (2.1%),
Coca-Cola (2.1%) and Merck (1.7%). The largest industry categories were:
consumer non-durables (32.7%), finance (14.1%), utilities (12.5%), materials and
services (11.3%) and technology (10.8%).
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. High quality companies with strong long term
fundamentals and earnings growth potential, trading at reasonable market
valuations, offer the best total return potential 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 favorable industry positioning and strong management teams. 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.
14
<PAGE>
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund invests substantially all of its assets in U.S. Government
Obligations and repurchase agreements relating to such obligations. Some U.S.
Government Obligations 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 are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and times of issuance. 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.
The Fund also 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; 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 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. 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: At least 65% of the Fund's assets, though
under normal circumstances substantially all of the Fund's assets, will be
invested in U.S. Government Obligations. The Fund also 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; 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 a more detailed description of the investment practices of this
Fund, see "Appendix A -- U.S. Government Obligations" and "Appendix
A -- 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, 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 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 to instruments
so rated. (For more information concerning asset-backed securities, including
mortgage-backed securities, see "Appendix A -- Asset-Backed Securities.")
15
<PAGE>
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, 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 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." They 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
16
<PAGE>
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,
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 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 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.
17
<PAGE>
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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
GENERAL: 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 NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
these Funds presents unique risks that investors should be aware of.
Investors in 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 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.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or
18
<PAGE>
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, 1995, 1994 and 1993 were
as follows: Nations Value Fund -- 63%, 75% and 64%, respectively; Nations
Capital Growth Fund -- 80%, 56% and 81%, respectively; Nations Balanced Assets
Fund -- 174%, 156% and 50%, respectively; Nations Short-Intermediate Government
Fund -- 328%, 133% and 92%, respectively; Nations Short-Term Income
Fund -- 224%, 293% and 121%, respectively; Nations Diversified Income
Fund -- 96%, 144% and 86%, respectively; and Nations Strategic Fixed Income
Fund -- 228%, 307% and 161%, respectively. The portfolio turnover rates for
Nations Disciplined Equity Fund for the periods ended November 30, 1995 and 1994
were 124% and 177%, respectively. The portfolio turnover rates for Nations
Emerging Growth Fund for the fiscal year ended November 30, 1995, 1994 and the
period from commencement of operations to November 30, 1993 were 139%, 129% and
159%, respectively. The portfolio turnover rate for Nations Equity Index Fund
for the fiscal year ended November 30, 1995 and for the period from commencement
of operations to November 30, 1994 was 18% and 14%, respectively. The portfolio
turnover rates for the indicated Funds 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 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
19
<PAGE>
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 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.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA 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
20
<PAGE>
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 Primary B Shares, the Money Market Funds offer Primary A,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
B Shares, the Non-Money Market Funds offer Primary 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 an Investor's Institution, as
defined below.
How The Funds Are Managed
The business and affairs of each 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.
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 investment management services to individuals, corporations
and institutions.
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 sub-advisory agreements.
Nations Gartmore is a joint venture structured as a general partnership between
NB Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange, which is the holding company for a leading UK-based
international fund management group of companies (the "Gartmore Group").
Seventy-five percent of the equity of Gartmore plc is owned by Compagnie de Suez
and affiliated entities (collectively, "Compagnie de Suez").
On February 19, 1996, it was announced that National Westminster Bank plc
("NatWest"), one of the world's largest commercial and investment banking firms,
had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez through a two-part
transaction involving (1) the direct purchase from Compagnie de Suez of its
subsidiary that holds 75% of the outstanding voting shares of Gartmore plc; and
(2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately 47
billion.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and
advi-
21
<PAGE>
sory services to pension funds, unit trusts, offshore funds and investment
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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
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
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 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 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: 0.10% of the average daily net asset of
Nations Equity Index Fund; 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 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
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets; and
0.54% of Nations Global Government Income Fund's average 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 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 or reimburse (either voluntarily or pursuant to applicable state
limitations) advisory or sub-advisory fees or expenses payable by a Fund.
For the fiscal year ended November 30, 1995, 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 -- 0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.70%; Nations Equity Index
Fund -- 0.10%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.40%; Nations Short-Term Income Fund -- 0.30%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income Fund --
0.50%. For the fiscal year ended November 30, 1995, after waivers, Nations
Disciplined Equity Fund paid its prior sub-adviser fees at the rate of 0.05% 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
22
<PAGE>
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, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Previously she was Senior
Vice President and Portfolio Manager for NationsBank. Ms. Herrmann has worked
for NationsBank since 1981 where her responsibilities included fund management
and portfolio management. She attended Virginia Wesleyan College. Ms. Herrmann
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager of the Nations International
Equity Fund since February, 1995. He has been Portfolio Manager for Nations
International Equity Fund since 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, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Sanders has worked in the financial investment community since
1981. His past experience includes portfolio management, equity research and
financial analysis for NationsBank and Duke Power Company. Mr. Sanders received
a B.A. in Economics from the University of Michigan and an M.B.A. from
University of North Carolina at Charlotte. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Development for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Previously he was Senior Vice President and Senior
Portfolio Manager for NationsBank. He has worked in the investment community
since 1968. His past experience includes management consulting and portfolio
management for Interfirst Investment Management, Merrill Lynch and Dean Witter.
Mr. Smiley received a B.B.A. in Management from Southern Methodist University.
He holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the Dallas
Association of Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Previously he was Senior Vice President and Senior Portfolio Manager
for NationsBank. Mr. Moser has worked for NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Previously she was Vice President and Senior Portfolio Manager for NationsBank.
She has worked in the investment community since 1981. Her past experience
includes research analysis and portfolio management for Mercantile Safe Deposit
and Trust, and National City Bank. Ms. Hale received a B.S. in Business and
Finance from St. Mary's College and an M.B.A. from
23
<PAGE>
Kent State University. She holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Security Analysts, Inc. She is also a member of
the National Association for Petroleum Investment Analysts and the World Affairs
Council of Washington, D.C.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Previously he was Vice President and Senior Portfolio Manager
for NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Previously he was Senior Vice President and
Director of Fixed Income for NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been Portfolio Manager for Nations Diversified Income Fund since 1992.
Previously he was Senior Vice President and Senior Portfolio Manager for
NationsBank. Mr. Ahnrud has worked for NationsBank since 1985 where his
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Previously he was Vice President and
Senior Portfolio Manager for NationsBank. Mr. Swaim has worked in the investment
community since 1986. His past experience includes derivative products manager
for the NationsBank Texas Corporate Investment Division portfolio. Mr. Swaim
received a B.S. from University of North Texas and an M.B.A. from University of
Texas at Arlington.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager of Nations Global Government Income
Fund since 1995. 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 Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since 1995. 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 NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or
24
<PAGE>
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 entities from continuing to perform, in whole or in part, such services. If
any such entity were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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, 1995, after waivers, Nations Fund Trust paid its
administrators fees at the indicated rates 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 and Nations Strategic Fixed Income Fund -- 0.10%; Nations
Diversified Income Fund -- 0.07%. 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 0.01% 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
Primary Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas", together with Bank of New
York, 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 Primary 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 Primary Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Primary B Shares,
25
<PAGE>
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 First Data; 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 First Data under
their respective agreements with Nations Fund; and any extraordinary expenses.
Primary 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 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 more than 45 distinct investment portfolios and total assets in excess of
$18 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 -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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
Primary 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 1-800-621-2192.
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 April 1, 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 Primary 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
26
<PAGE>
you, contact your Institution (as defined below) or Nations Fund at
1-800-621-2192.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of April 1, 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
Primary 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 1-800-621-2192.
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 April 1, 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.
27
<PAGE>
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary 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 the accounts of their customers
("Customers") 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 Primary 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
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued.
Purchase orders for Primary 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 Primary 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 Primary 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
Primary 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 Primary B Shares
of a Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, First
Data 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 Primary 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 Primary 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
showing their positions in Primary B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in Primary B
Shares; (vii) providing sub-accounting with respect to Primary B Shares
beneficially owned by Customers or the information necessary for sub-accounting;
(viii) if
28
<PAGE>
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 Primary 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 Primary 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 Primary 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 Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary 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 Primary 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 Primary 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 Primary 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 Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary 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.
29
<PAGE>
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.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such 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.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary 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
calendar 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.
Primary 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. Primary 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
including the day before the redemption order is executed.
30
<PAGE>
The net asset value of Primary 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 Primary 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
Primary B Shares in a Fund. Each Fund's net investment income available for
distribution to the holders of Primary 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 tax 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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds 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 each such
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 tax 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
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
31
<PAGE>
The foregoing discussion is based on tax laws and regulations that 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 advisors 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 this 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 the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
32
<PAGE>
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.
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 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
33
<PAGE>
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) 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
34
<PAGE>
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 objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
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
35
<PAGE>
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. 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 United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
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 SAIs.
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
36
<PAGE>
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 hold 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
hold 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, GICs 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 their investment objectives and policies, certain
Funds may purchase securities that 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. Each
Fund that may invest in lower-rated debt securities intends 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
37
<PAGE>
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 is adequate
to meet future obligations, have improved, or are expected to improve in the
future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities 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 does not
intend to exercise its 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
38
<PAGE>
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.
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 indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress.
39
<PAGE>
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.
40
<PAGE>
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.
41
<PAGE>
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
42
<PAGE>
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
43
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1996
This Prospectus describes three equity Nations
portfolios -- NATIONS INTERNATIONAL EQUITY FUND, International
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC Equity Fund
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a Nations Emerging
"Fund") -- of the Nations Fund Family ("Nations Markets Fund
Fund" or "Nations Fund Family"). This Prospectus
describes one class of shares of each Nations Pacific
Fund -- Investor A Shares. Growth Fund
This Prospectus sets forth concisely the Nations Global
information about each Fund that a prospective Government
purchaser of Investor A Shares should consider Income Fund
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Fund Portfolios, Inc. ("Nations
Portfolios"), each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the Funds.
As used herein the "Adviser" shall mean NBAI and/or
Nations Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER For purchase, redemption
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED and performance
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS information call:
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. 1-800-321-7854
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER Nations Fund
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS c/o Stephens Inc.
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF One NationsBank Plaza
PRINCIPAL. 33rd Floor
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE Charlotte, NC 28255
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 (Nations Fund logo
STATE SECURITIES COMMISSION PASSED UPON THE appears here)
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NF-96136-496
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your How To Buy Shares 20
Investment Shareholder Servicing And Distribution Plans 21
How To Redeem Shares 22
How To Exchange Shares 24
How The Funds Value Their Shares 25
How Dividends And Distributions Are Made;
Tax Information 25
Appendix A -- Portfolio Securities 27
Appendix B -- Description Of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS'
SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to
seek long-term capital growth by investing primarily in
equity securities of companies in emerging markets countries
such as those in Latin America, eastern Europe, the Pacific
Basin, the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in
equity securities of companies in the Pacific Basin and the
Far East (excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these factors, see "How Objectives Are Pursued -- Special Risk
Considerations Relevant to an Investment in the Funds."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. Nations Gartmore Investment Management provides
sub-advisory services to the Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and Nations
Global Government Income Fund declares dividends daily and pays them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations Global
International Emerging Pacific Government
Equity Fund Markets Fund Growth Fund Income Fund
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None None None None
Maximum Deferred Sales Charge (as a percentage of the lower
of the original purchase price or redemption proceeds)1 None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90% .70%
Rule 12b-1 Fees (Including shareholder servicing fees) .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .80% .80% .60%
Total Operating Expenses (After Expense Reimbursements) 1.40% 2.15% 1.95% 1.55%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge applicable at the time of purchase. See "How To
Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations Global
International Emerging Market Pacific Growth Government
Equity Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 22 $ 20 $ 16
3 Years $ 44 $ 67 $ 61 $ 49
5 Years $ 77 N/A N/A N/A
10 Years $ 168 N/A N/A N/A
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The fees
and expenses for the Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund are based on estimates. The figures in
the above tables for the Nations International Equity Fund are based on amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Nations International Equity Fund would have been .26% and 1.41%,
respectively. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. For more complete descriptions
of the Funds' operating expenses, see "How The Funds Are Managed." For a more
complete description of the Rule 12b-1 and shareholder servicing fees payable by
the Funds, see "Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund,
Inc. and Nations Portfolios. Price Waterhouse LLP is the independent accountant
to Nations Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse
LLP for the most recent fiscal years of Nations Fund, Inc. accompany the
financial statements for such periods and are incorporated by reference in the
SAIs, which are available upon request. The financial information for Nations
Portfolios have not been audited by Price Waterhouse LLP. For more information
see "Organization And History." Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
11/30/95 ENDED ENDED ENDED
INVESTOR A SHARES (UNAUDITED)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.04 0.11 0.06 0.07
Net realized and unrealized gain/(loss) on
investments 0.70 (0.20) 1.44 0.21
Net increase/(decrease) in net assets resulting
from investment operations 0.74 (0.09) 1.50 0.28
Distributions:
Dividends from net investment income -- (0.02) (0.04) (0.08)
Distributions from net realized capital gains -- (0.12) (0.02) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) -- --
Total distributions -- (0.24) (0.06) (0.10)
Net asset value, end of period $ 12.41 $ 11.67 $ 12.00 $ 10.56
Total return++ 6.34% (0.69)% 14.00% 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,875 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to average net
assets 1.40%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss) to average
net assets 0.58%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 16% 92% 39% 41%
Ratio of operating expenses to average net
assets without waivers and/or reimbursements 1.49%+ 1.29% 1.43% 1.62%+
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.03 $ 0.11 $ 0.05 $ 0.07
</TABLE>
* Nations International Equity Fund Investor A Shares commenced operations on
June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95*
INVESTOR A SHARES (UNAUDITED)#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment loss## (0.01)
Net realized and unrealized loss on investments (0.12)
Net decrease in net assets resulting from investment operations (0.13)
Net asset value, end of period $ 9.87
Total return++ (1.30)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 57
Ratio of operating expenses to average net assets 2.15%+
Ratio of net investment loss to average net assets (0.28)%+
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Investor A Shares commenced operations on June
30, 1995.
+ 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.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95*
INVESTOR A SHARES (UNAUDITED)#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)**
Net realized and unrealized loss on investments (0.30)
Net increase/(decrease) in net assets resulting from investment operations (0.30)
Net asset value, end of period $ 9.70
Total return++ (3.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 161
Ratio of operating expenses to average net assets 1.95%+
Ratio of net investment income/(loss) to average net assets (0.10)%+
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Investor A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95
INVESTOR A SHARES (UNAUDITED)*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.12
Net realized and unrealized gain on investments 0.04
Net increase in net assets resulting from investment operations 0.16
Distributions:
Dividends from net investment income (0.12)
Total Distributions (0.12)
Net asset value, end of period $ 10.04
Total return++ 1.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23
Ratio of operating expenses to average net assets 1.55%+
Ratio of net investment income to average net assets 5.36%+
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Investor A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
8
<PAGE>
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% of its assets situated in such country,
market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by 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 sin-
9
<PAGE>
gle country. If the Fund invests all or a significant portion of its assets at
any time in a single country, events occurring in such country are more likely
to affect the Fund's investments. For additional information concerning risk,
see "Special Risk Considerations Relevant to an Investment in the Funds," below.
When allocating investments among individual countries, 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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission (the "CFTC") and options thereon for
market exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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
10
<PAGE>
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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with 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
11
<PAGE>
"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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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
Nations Emerging Markets Fund invests. 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.
12
<PAGE>
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 U.S. 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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5%
13
<PAGE>
of the value of such Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of such Fund's total assets may
be invested without regard to these limitations and with respect to 75% of such
Fund's assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current positions and
needs.
In order to permit the sale of a Fund's shares in certain states, a Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gains distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear
differ-
14
<PAGE>
ent sales charges, shareholder servicing fees, loads and other expenses, which
may cause the performance of a class to differ from the performance of the other
classes. Total return and yield quotations will be computed separately for each
class of the Funds' shares. Any quotation of total return or yield not
reflecting CDSCs would be reduced if such sales charges were reflected. Any fees
charged by a selling agent and/or servicing agent directly to its customers'
accounts in connection with investments in the Funds will not be included in
calculations of total return or yield. Each Fund's annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or an investors' selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Fund and 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. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds pursuant to sub-advisory agreements. Nations Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, a wholly
owned subsidiary of Gartmore plc, a UK company listed on the London Stock
Exchange which is the holding company for a leading UK-based international fund
management group of companies (the "Gartmore Group"). Compagnie de Suez and
affiliated entities (collectively, "Compagnie de Suez") own 75% of the equity of
Gartmore plc. On February 19, 1996, it was announced that National Westminister
Bank plc ("NatWest"), one of the world's largest commercial and investment
banking firms, had agreed to acquire, subject to the satisfaction or waiver of
certain conditions, control of Gartmore plc from Compagnie de Suez through a
two-part transaction involving (1) the direct purchase from Compagnie de Suez of
its subsidiary that holds 75% of the outstanding voting shares of Gartmore plc;
and (2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately $47
billion.
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.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of
15
<PAGE>
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. 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 the 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 has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.90% of each of
Nations International Equity Fund's and Nations Pacific Growth Fund's average
daily net assets; 1.10% of Nations Emerging Markets Fund's average daily net
assets; and 0.70% of Nations Global Government Income Fund's average daily net
assets.
For services provided and expenses assumed pursuant to sub-advisory agreements,
Nations Gartmore is entitled to receive from NBAI sub-advisory fees, computed
daily and paid monthly, at the annual rates of: 0.70% of Nations International
Equity Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets; 0.70% of Nations Pacific Growth Fund's average daily
net assets; and 0.54% of Nations Global Government Income Fund's average daily
net assets. Although the advisory fees for the Funds are higher than the
advisory fees paid by most other mutual funds, Nations Fund believes that the
fees are comparable to the advisory fees paid by many other funds with similar
investment objectives and policies.
From time to time, NBAI (and/or Nations Gartmore) may waive (either voluntarily
or pursuant to applicable state limitations) advisory fees payable by a Fund. In
addition, the Adviser may from time to time compensate Agents, as defined below,
for providing certain services to Customers.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank under a prior Advisory Agreement advisory fees at the rate of 0.40%
of Nations International Equity Fund's average daily net assets. For the fiscal
year ended May 31, 1995, after waivers, Nations International Equity Fund paid
its prior sub-adviser fees at the rate of 0.38% of the Fund's average daily net
assets.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since 1995. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined its 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.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since 1995. 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
16
<PAGE>
and then subsequently for Rothschild as a Fund Manager in Singapore and later in
Tokyo. Ms. Teoh, who is a native of Singapore, is fluent in Mandarin and
Cantonese and received an Economics degree from the University of Durham in
1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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 May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations International Equity
Fund's average daily net assets.
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 0.01% of the Funds' average daily net
assets.
17
<PAGE>
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund, Inc. and Nations Portfolios or in such other manner
as the relevant Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has more than 45 distinct investment portfolios and total assets in excess of
$18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor A Shares of Nations
International Equity Fund of Nations Fund, Inc. To obtain additional information
regarding the Fund's other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on
18
<PAGE>
the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
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 April 1, 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 two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
19
<PAGE>
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and/or a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents").
Customers may invest in Investor A Shares through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI, (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor A Shares, the Servicing Agents have entered into
Servicing Agreements with Nations Fund under which they will provide various
shareholder services to their customers ("Customers") who own Investor A Shares.
Servicing Agents and Selling Agents are sometimes referred to hereafter as
"Agents." From time to time the Agents, Stephens and Nations Fund may agree to
voluntarily reduce the maximum fees payable for sales support or shareholder
services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor A Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according
20
<PAGE>
to the net asset value determined on that day but are not executed until 4:00
p.m., Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Funds' Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Agent placing
the order. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers
21
<PAGE>
with a service that invests the assets of their accounts in Investor A Shares
pursuant to specific or preauthorized instructions; (iii) processing dividend
and distribution payments from the Funds on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. The fees payable to Selling Agents are used primarily to
compensate or reimburse Selling Agents for providing sales support assistance in
connection with the sale of Investor A Shares to Customers, which may include
forwarding sales literature and advertising provided by Nations Fund to
Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the
22
<PAGE>
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Nations Fund. Except for any CDSC which may be applicable upon
redemption of Investor A Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner will be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are responsible for providing evidence sufficient to estab-
23
<PAGE>
lish that they are eligible for any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor A Shares of a Nations
Fund non-money market fund (including the Funds) to acquire shares of the same
class that are offered by any other fund of Nations Fund when the shareholder
believes that a shift between funds is an appropriate investment decision. A
qualifying exchange is based on the next calculated net asset value per share of
each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares that
meets the requirements discussed in this section. If Investor A Shares of a Fund
are exchanged for shares of the same class of another fund, any CDSC applicable
to the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of
24
<PAGE>
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-
25
<PAGE>
term capital gains) are distributed at least annually. Investor A Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA is generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of tax. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. part-
26
<PAGE>
nership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each of those Funds will consist of securities
of foreign issuers, and therefore each of those Funds may elect to "pass
through" to its shareholders these foreign taxes, if any. In such event each
shareholder will be required to include his or her pro rata portion thereof in
his or her gross income, but will be able to deduct or (subject to various
limitations) claim a foreign tax credit against U.S. income tax for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a
27
<PAGE>
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when 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
develop-
28
<PAGE>
ments, 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 United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If 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 SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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.
29
<PAGE>
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that 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 Directors or the Adviser, acting
under guidelines approved and monitored by the Fund's Board, after considering
trading activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A, the level of
illiquidity of a Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: 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,
30
<PAGE>
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.
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 credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
31
<PAGE>
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
32
<PAGE>
and interest are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps Credit
Rating Co. (collectively, "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.
33
<PAGE>
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch
Investors Service, Inc. ("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.
34
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
or its affiliate IBCA Inc. ("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
35
<PAGE>
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
36
<PAGE>
Prospectus
INVESTOR C SHARES
AUGUST 1, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of the Nations Fund Family ("Nations
Fund" or "Nations Fund Family"). This Prospectus
describes one class of shares of each
Fund -- Investor C Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Fund Portfolios, Inc. ("Nations
Portfolios"), each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the Funds.
As used herein the "Adviser" shall mean NBAI 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.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income Fund
For purchase, redemption
and performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-96143-496
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your Investment
How To Buy Shares 20
Shareholder Servicing And Distribution Plans 21
How To Redeem Shares 23
How To Exchange Shares 24
How The Funds Value Their Shares 25
How Dividends And Distributions Are Made;
Tax Information 26
Appendix A -- Portfolio Securities 27
Appendix B -- Description Of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors: $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment
objective is to seek long-term capital
growth by investing primarily in equity
securities of companies in the Pacific Basin
and the Far East (excluding Japan).
(Bullet) Nations Global Government Income
Fund's investment objective is to
maximize total return by investing
primarily in high quality debt
securities issued by governments,
banks and supranational entities
located throughout the world.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these factors, see "How Objectives Are Pursued -- Special Risk
Considerations Relevant to an Investment in the Funds."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. Nations Gartmore Investment Management provides
sub-advisory services to the Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and the
Nations Global Government Income Fund declares dividends daily and pays
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations
International Nations Emerging Nations Pacific
Equity Fund Markets Fund Growth Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .80% .80%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.65% 2.40% 2.20%
<CAPTION>
Nations Global
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .60%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.80%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Market Pacific Growth
Equity Fund Funds Fund
<S> <C> <C> <C>
1 Year $ 22 $ 29 $ 27
3 Years $ 52 $ 75 $ 69
5 Years $ 90 N/A N/A
10 Years $ 195 N/A N/A
<CAPTION>
Nations Global
Government
Income Fund
1 Year $ 23
3 Years $ 57
5 Years N/A
10 Years N/A
</TABLE>
4
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Market Pacific Growth
Equity Fund Funds Fund
<S> <C> <C> <C>
1 Year $ 17 $ 24 $ 22
3 Years $ 52 $ 75 $ 69
5 Years $ 90 N/A N/A
10 Years $ 195 N/A N/A
<CAPTION>
Nations Global
Government
Income Fund
1 Year $ 18
3 Years $ 57
5 Years N/A
10 Years N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The fees
and expenses for the Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund are based on estimates. The figures in
the above tables for the Nations International Equity Fund are based on amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. In particular, the figures
reflect a waiver effective January 1, 1996, of each Fund's Rule 12b-1 fees to
0.25% of each Fund's average daily net assets. Absent such waiver, each Fund's
Total Operating Expenses would be 0.50% greater than the amount shown. Nations
International Equity Fund also reimburses expenses. Accordingly, absent fee
waivers and expense reimbursements, "Rule 12b-1 Fees," "Other Expenses" and
"Total Operating Expenses" for such Fund would have been .75%, .26% and 2.16%,
respectively. 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 of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed." For a more complete description of the Rule 12b-1 and
shareholder servicing fees payable by the Funds, see "Shareholder Servicing And
Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund,
Inc. and Nations Portfolios. Price Waterhouse LLP is the independent accountant
to Nations Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse
LLP for the most recent fiscal years of Nations Fund, Inc. accompany the
financial statements for such periods and are incorporated by reference in the
SAIs, which are available upon request. The financial information for Nations
Portfolio have not been audited by Price Waterhouse LLP. For more information
see "Organization And History." Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
11/30/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED)# 05/31/95# 05/31/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.45 $ 11.86 $ 10.49
Net investment income/(loss) (0.01) 0.02 (0.03)
Net realized and unrealized gain/(loss) on
investments 0.70 (0.21) 1.43
Net increase/(decrease) in net assets resulting
from investment operations 0.69 (0.19) 1.40
Distributions:
Dividends from net investment income -- -- (0.01)
Distributions from net realized capital gains -- (0.12) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) --
Total distributions 0.00 (0.22) (0.03)
Net asset value, end of period $ 12.14 $ 11.45 $ 11.86
Total return++ 6.03% (1.56)% 13.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 589 $ 495 $ 339
Ratio of operating expenses to average net assets 2.15%+ 2.03% 2.17%
Ratio of net investment income/(loss) to average
net assets (0.17)%+ 0.17% (0.25)%
Portfolio turnover rate 16% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 2.24%+ 2.04% 2.18%
Net investment income/(loss) per share without
waivers and/or reimbursements $ (0.02) $ 0.02 $ (0.03)
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income/(loss) 0.00**
Net realized and unrealized gain/(loss) on
investments 0.48
Net increase/(decrease) in net assets resulting
from investment operations 0.48
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital
gains --
Total distributions (0.09)
Net asset value, end of period $ 10.49
Total return++ 4.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 200
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average
net assets 0.03%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 2.32%+
Net investment income/(loss) per share without
waivers and/or reimbursements $ 0.00**
</TABLE>
* Nations International Equity Fund Investor C Shares commenced operations on
June 17, 1992.
** Amount represents less than $0.01.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95*
INVESTOR C SHARES (UNAUDITED)#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment loss ## (0.02)
Net realized and unrealized loss on investments (0.13)
Net decrease in net assets resulting from investment operations (0.15)
Net asset value, end of period $ 9.85
Total return++ (1.50)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 10
Ratio of operating expenses to average net assets 2.90%+
Ratio of net investment loss to average net assets (1.03)%+
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Investor C Shares commenced operations on June
30, 1995.
+ 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 withdawals of shares in relation to the fluctuating market value of the
portfolio.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95*
INVESTOR C SHARES (UNAUDITED)#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized loss on investments (0.30)
Net decrease in net assets resulting from investment operations (0.32)
Net asset value, end of period $ 9.68
Total return++ (3.20)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 46
Ratio of operating expenses to average net assets 2.70%+
Ratio of net investment income/(loss) to average net assets (0.85)%+
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Investor C Shares commenced operations on June
30, 1995.
+ 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.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
09/30/95
INVESTOR C SHARES (UNAUDITED)*
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.10
Net realized and unrealized gain on investments 0.04
Net increase in net assets resulting from investment operations 0.14
Distributions:
Dividends from net investment income (0.10)
Total distributions (0.10)
Net asset value, end of period $ 10.04
Total return++ 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income to average net assets 4.61%+
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Investor C Shares commenced operations
on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
8
<PAGE>
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% of its assets situated in such country,
market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by 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
sin-
9
<PAGE>
gle country. If the Fund invests all or a significant portion of its assets at
any time in a single country, events occurring in such country are more likely
to affect the Fund's investments. For additional information concerning risk,
see "Special Risk Considerations Relevant to an Investment in the Funds," below.
When allocating investments among individual countries, 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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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
10
<PAGE>
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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with 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
11
<PAGE>
"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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. For defensive purposes, the Fund may
temporarily invest substantially all of its assets in U.S. financial markets or
in U.S. dollar-denominated instruments. See "Appendix A" below for additional
information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and Far
East.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund invests. 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.
12
<PAGE>
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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5%
13
<PAGE>
of the value of such Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of such Fund's total assets may
be invested without regard to these limitations and with respect to 75% of such
Fund's assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current positions and
needs.
In order to permit the sale of a Fund's shares in certain states, a Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gains distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear
differ-
14
<PAGE>
ent sales charges, shareholder servicing fees, loads and other expenses, which
may cause the performance of a class to differ from the performance of the other
classes. Total return and yield quotations will be computed separately for each
class of the Funds' shares. Any quotation of total return or yield not
reflecting CDSCs would be reduced if such sales charges were reflected. Any fees
charged by a selling agent and/or servicing agent directly to its customers'
accounts in connection with investments in the Funds will not be included in
calculations of total return or yield. Each Fund's annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Fund and 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. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds pursuant to sub-advisory agreements. Nations Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, a wholly
owned subsidiary of Gartmore plc, a UK company listed on the London Stock
Exchange which is the holding company for a leading UK-based international fund
management group of companies (the "Gartmore Group"). Compagnie de Suez and
affiliated entities (collectively, "Compagnie de Suez") own 75% of the equity of
Gartmore plc.
On February 19, 1996, it was announced that National Westminster Bank plc
("NatWest"), one of the world's largest commercial and investment banking firms,
had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez through a two-part
transaction involving (1) the direct purchase from Compagnie de Suez of its
subsidiary that holds 75% of the outstanding voting shares of Gartmore plc; and
(2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately $47
billion.
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
15
<PAGE>
Gartmore Group had over $30 billion in assets under management.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the 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 has a lending relationship. For the services provided and expenses
assumed pursuant to various Investment Advisory Agreements, NBAI is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rates of:
0.90% of each of Nations International Equity Fund's and Nations Pacific Growth
Fund's average daily net assets; 1.10% of Nations Emerging Markets Fund's
average daily net assets, and 0.70% of Nations Global Government Income Fund's
average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NBAI sub-advisory fees, computed
daily and paid monthly, at the annual rate of 0.70% of Nations International
Equity Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets; 0.70% of Nations Pacific Growth Fund's average daily
net assets; and 0.54% of Nations Global Government Income Fund's average daily
net assets. Although the advisory fees for the Funds are higher than the
advisory fees paid by most other mutual funds, Nations Fund believes that the
fees are comparable to the advisory fees paid by many other funds with similar
investment objectives and policies. From time to time, NBAI (and/or Nations
Gartmore) may waive or reimburse (either voluntarily or pursuant to applicable
state limitations) advisory fees or expenses payable by a Fund.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank under a prior Advisory Agreement advisory fees at the rate of 0.40%
of Nations International Equity Fund's average daily net assets. For the fiscal
year ended May 31, 1995, after waivers, Nations International Equity Fund paid
its prior sub-adviser fees at the rate of 0.38% of the Fund's average daily net
assets.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since 1995. 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.
16
<PAGE>
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since 1995. She has
been associated with the Gartmore Group since 1990 as the London based manager
on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union Bank
Securities in Singapore where she was responsible for Singaporean and Malaysian
equity sales and then subsequently for Rothschild as a Fund Manager in Singapore
and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent in
Mandarin and Cantonese and received an Economics degree from the University of
Durham in 1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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 May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations International Equity
Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-
17
<PAGE>
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 0.01% of the
Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund, Inc. and Nations Portfolios or in such other manner
as the relevant Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has more than 45 distinct investment portfolios and total assets in excess of
$18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor C Shares of Nations
International Equity Fund of Nations Fund, Inc. To obtain additional information
regarding the Fund's other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of
18
<PAGE>
shares of a particular fund or class will have the exclusive right to vote on
matters affecting only the rights of the holders of such fund or class. In the
event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Fund, Inc., less (b) the liabilities of Nations Fund, Inc. attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
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 April 1, 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.
19
<PAGE>
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a Sales
Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according
20
<PAGE>
to the net asset value determined on that day but are not executed until 4:00
p.m., Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Funds' Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Agent placing
the order. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Directors have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to
21
<PAGE>
compensate Selling Agents for providing the services described in (i) and (iii)
above, with any remaining amounts being used by Stephens to partially defray
other expenses incurred by Stephens in distributing Investor C Shares. Fees
received by Stephens pursuant to the Distribution Plan will not be used to pay
any interest expenses, carrying charges or other financing costs (except to the
extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Directors also have approved a shareholder servicing plan ("Servicing Plan")
for the Funds which permits the Funds to compensate Servicing Agents for
services provided to their Customers that own Investor C Shares. Payments under
the Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
22
<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances
23
<PAGE>
where the aggregate net asset value of the Investor C shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor C
Shares in the account. Shareholders are responsible for providing evidence
sufficient to establish that they are eligible for any waiver of the CDSC.
Nations Fund may terminate any waiver of the CDSC by providing notice in the
Funds' Prospectus, but any such termination would affect only shares purchased
after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-
24
<PAGE>
money market fund or Investor D Shares of any money market fund of Nations Fund,
the remaining period of time (if any) that the CDSC is in effect will be
computed from the time of the initial purchase of the previously held Investor C
Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, an investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
25
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Investor C Shares of the Funds are eligible to receive dividends when
declared, provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the Fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-
26
<PAGE>
interest dividends) paid by Nations Fund and/or redemptions (including exchange
redemptions) that occur in certain shareholder accounts if the shareholder has
not properly furnished a certified correct Taxpayer Identification Number and
has not certified that withholding does not apply, or if the Internal Revenue
Service has notified Nations Fund that the Taxpayer Identification Number listed
on a shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Funds to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each of those Funds will consist of securities
of foreign issuers, and therefore each of those Funds may elect to "pass
through" to its shareholders these foreign taxes, if any. In such event each
shareholder will be required to include his or her pro rata portion thereof in
his or her gross income, but will be able to deduct or (subject to various
limitations) claim a foreign tax credit against U.S. income tax for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), 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
27
<PAGE>
off. The Funds may borrow money from banks for temporary purposes in amounts of
up to one-third of their respective total assets, provided that borrowings in
excess of 5% of the value of the Funds' total assets must be repaid prior to the
purchase of portfolio securities. The Funds are parties to a Line of Credit
Agreement with Mellon Bank, N.A. Advances under the agreement are taken
primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when 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
28
<PAGE>
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 United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed-income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If 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
29
<PAGE>
and other derivative instruments, and the associated risks, is contained in the
SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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 their investment objectives and policies, certain
Funds may purchase securities that 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 Directors or the Adviser, acting
under guidelines approved and monitored by the Fund's Board, after considering
trading activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A, the level of
illiquidity of a Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: 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.
30
<PAGE>
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.
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 credit worthy and
when, in its judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, 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,
authori-
31
<PAGE>
ties or instrumentalities. Direct obligations are issued by the U.S. Treasury
and include all U.S. Treasury instruments. Obligations of U.S. Government
agencies, authorities and instrumentalities are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies, authorities and instrumentalities are not debts
of the U.S. Treasury, in some cases payment of interest and principal on such
obligations is guaranteed by the U.S. Government, E.G., Government National
Mortgage Association certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in 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
32
<PAGE>
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff + Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may 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 Investors
Service ("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
33
<PAGE>
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
34
<PAGE>
are regarded as having the strongest degree of assurance for timely
payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is
35
<PAGE>
strong, the relative degree of safety is not as high as for issues rated
"TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
36
<PAGE>
Prospectus
INVESTOR N SHARES
AUGUST 1, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of the Nations Fund Family ("Nations
Fund" or "Nations Fund Family"). This Prospectus
describes one class of shares of each
Fund -- Investor N Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Fund Portfolios, Inc. ("Nations
Portfolios"), each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the Funds.
As used herein the "Adviser" shall mean NBAI 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.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income
Fund
For purchase, redemption
and performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo appears here)
NSI-96147-496
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 9
How Objectives Are Pursued 10
How Performance Is Shown 15
How The Funds Are Managed 16
Organization And History 19
About Your Investment
How To Buy Shares 21
Shareholder Servicing And Distribution Plans 22
How To Redeem Shares 23
How To Exchange Shares 25
How The Funds Value Their Shares 26
How Dividends And Distributions Are Made;
Tax Information 27
Appendix A -- Portfolio Securities 28
Appendix B -- Description Of Ratings 33
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS'
SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to
seek long-term capital growth by investing primarily in
equity securities of companies in emerging markets countries
such as those in Latin America, eastern Europe, the Pacific
Basin, the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in
equity securities of companies in the Pacific Basin
and the Far East (excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these factors, see "How Objectives Are Pursued -- Special Risk
Considerations Relevant to an Investment in the Funds."
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NationsBanc Advisors, Inc. provides investment
advice to more than 45 investment company portfolios in the Nations
Fund Family. Nations Gartmore Investment Management provides
sub-advisory services to the Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and the
Nations Global Government Income Fund declares dividends daily and pays
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
International Nations Nations
Equity Emerging Markets Pacific Growth
Fund Fund Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .80% .80%
Total Operating Expenses (After Expense
Reimbursements) 2.15% 2.90% 2.70%
</TABLE>
Nations Global
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees .75%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .60%
Total Operating Expenses (After Expense
Reimbursements) 2.30%
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific
Equity Markets Growth
Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 22 $ 29 $ 27
3 Years $ 67 $ 90 $ 84
5 Years $ 115 N/A N/A
10 Years $ 248 N/A N/A
</TABLE>
Nations Global
Government
Income Fund
1 Year $ 23
3 Years $ 72
5 Years N/A
10 Years N/A
4
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. The fees and expenses for Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund, are based on estimates. The figures contained in the above tables
for Nations International Equity Fund are based on amounts incurred during the
Fund's most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. Absent expense reimbursements, "Other Expenses"
and "Total Operating Expenses" for Nations International Equity Fund would have
been .26% and 2.16%, respectively. The "Other Expenses" figures in the above
table are based on estimates for the current fiscal year. There is no assurance
that any fee waivers and reimbursements will continue beyond the current fiscal
year. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund,
Inc. and Nations Portfolios. Price Waterhouse LLP is the independent accountant
to Nations Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse
LLP for the most recent fiscal years of Nations Fund, Inc. accompany the
financial statements for such periods and are incorporated by reference in the
SAIs, which are available upon request. The financial information for Nations
Portfolios have not been audited by Price Waterhouse LLP. For more information
see "Organization And History." Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
5
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
11/30/95 ENDED ENDED
INVESTOR N SHARES (UNAUDITED)# 05/31/95# 05/31/94*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) 0.01 0.05 (0.00)**
Net realized and unrealized gain/(loss) on investments 0.70 (0.22) 1.51
Net increase/(decrease) in net assets resulting from investment
operations 0.71 (0.17) 1.51
Distributions:
Dividends from net investment income -- (0.01) (0.04)
Distributions from net realized capital gains -- (0.12) (0.02)
Distributions in excess of net realized capital gains -- (0.10) --
Total distributions -- (0.23) (0.06)
Net asset value, end of period $ 12.27 $ 11.56 $ 11.96
Total return++ 6.23% (1.30)% 14.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's): $ 38,035 $ 31,372 $ 17,349
Ratio of operating expenses to average net assets 1.90%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to average net assets 0.08%+ 0.42% (0.00)%+*
Portfolio turnover rate 16% 92% 39%
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 1.99%+ 1.79% 1.93%+
Net investment income/(loss) per share without waivers
and/or reimbursements $ 0.00** $ 0.05 $ (0.00)**
</TABLE>
* Nations International Equity Fund Investor N Shares commenced operations on
June 7, 1993.
** Amount represents less than $0.01.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*#
INVESTOR N SHARES (UNAUDITED)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment loss## (0.02)
Net realized and unrealized loss on investments (0.13)
Net decrease in net assets resulting from investment operations (0.15)
Net asset value, end of period $ 9.85
Total return++ (1.50)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 386
Ratio of operating expenses to average net assets 2.90%+
Ratio of net investment loss to average net assets (1.03)%+
Portfolio turnover rate 10%
</TABLE>
* Nations Emerging Markets Fund Investor N Shares commenced operations on June
30, 1995.
+ 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.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*#
INVESTOR N SHARES (UNAUDITED)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized loss on investments (0.30)
Net decrease in net assets resulting from investment operations (0.31)
Net asset value, end of period $ 9.69
Total return++ (3.10)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 385
Ratio of operating expenses to average net assets 2.70%+
Ratio of net investment income/(loss) to average net assets (0.85)%+
Portfolio turnover rate 3%
</TABLE>
* Nations Pacific Growth Fund Investor N Shares commenced operations on June
30, 1995.
+ 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.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/95*
INVESTOR N SHARES (UNAUDITED)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.10
Net realized and unrealized gain on investments 0.04
Net increase in net assets resulting from investment operations 0.14
Distributions:
Dividends from net investment income (0.10)
Total distributions (0.10)
Net asset value, end of period $ 10.04
Total return++ 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 110
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income to average net assets 4.61%+
Portfolio turnover rate 104%
</TABLE>
* Nations Global Government Income Fund Investor N Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
9
<PAGE>
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies in emerging markets. A company will be considered in a
country, market or region if it conducts its principal business activities in
the country, market or region. 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%) 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% of its assets situated in such country,
market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by 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 sin-
10
<PAGE>
gle country. If the Fund invests all or a significant portion of its assets at
any time in a single country, events occurring in such country are more likely
to affect the Fund's investments. For additional information concerning risk,
see "Special Risk Considerations Relevant to an Investment in the Funds," below.
When allocating investments among individual countries, 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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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.
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
11
<PAGE>
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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with 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
12
<PAGE>
"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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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
Nations Emerging Markets Fund invests. 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.
13
<PAGE>
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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5%
14
<PAGE>
of the value of such Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of such Fund's total assets may
be invested without regard to these limitations and with respect to 75% of such
Fund's assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to permit the sale of a Fund's shares in certain states, a Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of the Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment (reflecting the deduction of any applicable contingent
deferred sales charge ("CDSC")), and assuming the reinvestment of all dividend
and capital gains distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gains distributions.
Total return may also be presented for other periods or may not reflect a
deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
15
<PAGE>
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investors' selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios, respectively.
Nations Fund and 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., through its investment
management division, serves as investment adviser to the Funds. NBAI is an
indirect 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. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
Nations Gartmore Investment Management ("Nations Gartmore"), with principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255, serves as
sub-investment adviser to the Funds pursuant to sub-advisory agreements. Nations
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK based
international fund management group of companies (the "Gartmore Group").
Compangnie de Suez and affiliated entities (collectively, "Compagnie de Suez")
own 75% of the equity of Gartmore plc.
On February 19, 1996, it was announced that National Westminster Bank plc
("NatWest"), one of the world's largest commercial and investment banking firms,
had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez through a two-part
transaction involving (1) the direct purchase from Compagnie de Suez of its
subsidiary that holds 75% of the outstanding voting shares of Gartmore plc; and
(2) a tender offer for the remaining portion of Gartmore plc shares held by
public shareholders (collectively, the "Acquisition"). The Acquisition, if
completed, will result in a change in ownership of Nations Gartmore and will
probably result in a change in the name of Nations Gartmore. Based on
representations made by Nations Gartmore, it is not anticipated that the change
in ownership will affect the level of service provided to the Funds or result in
a change to the personnel assigned to handle advisory responsibilities. As of
February 19, 1996, NatWest had assets under management of approximately $47
billion.
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.
16
<PAGE>
Subject to the general supervision of 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. 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 has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.90% of each of
Nations International Equity Fund's and Nations Pacific Growth Fund's average
daily net assets; 1.10% of the average daily net assets of Nations Emerging
Markets Fund, and 0.70% of the average daily net assets of the Nations Global
Government Income Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NationsBank will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets and
0.54% of Nations Global Government Income Fund's average daily net assets.
Although the advisory fees for the Funds are higher than the advisory fees paid
by most other mutual funds, Nations Fund believes that the fees are comparable
to the advisory fees paid by many other funds with similar investment objectives
and policies. From time to time, NationsBank (and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid
NationsBank under a prior Advisory Agreement advisory fees at the rate of 0.40%
of Nations International Equity Fund's average daily net assets. For the fiscal
year ended May 31, 1995, after waivers, Nations International Equity Fund paid
its prior sub-adviser fees at the rate of 0.38% of the Fund's average daily net
assets.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Nations Gartmore Emerging Markets Team. He has been
Portfolio Manager for Nations Emerging Markets Fund since 1995. 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.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since 1995. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of Institute of Investment Management and
Research.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since 1995. 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
17
<PAGE>
and then subsequently for Rothschild as a Fund Manager in Singapore and later in
Tokyo, Ms. Teoh, who is a native of Singapore, is fluent in Mandarin and
Cantonese and received an Economics degree from the University of Durham in
1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this prospectus, without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc. 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data 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 May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of Nations International Equity Fund's
average daily net assets.
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
18
<PAGE>
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, out of its
own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor N Shares of the Funds. See "Shareholder
Servicing And Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35, 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. These Fund expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund, Inc. and/or Nations Portfolios that are not readily identifiable
as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund, Inc. and Nations Portfolios or in such other manner as the
Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has more than 45 distinct investment portfolios and total assets in excess of
$18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor N Shares of Nations
International Equity Fund of Nations Fund, Inc. To obtain additional information
regarding the Fund's other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on
19
<PAGE>
the respective liquidation value of each fund
or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 the SAI of Nations Fund, Inc. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
28, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor N Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund
and Nations Global Government Income Fund of Nations Portfolios. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of April 1, 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 two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company, Nations Fund, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
20
<PAGE>
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor N Shares in
order to accommodate different investors. Purchase orders may be placed through
banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
21
<PAGE>
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodi-
22
<PAGE>
cally to Customers showing their positions in Investor N Shares; (v) arranging
for bank wires; and (vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors have
approved a Distribution Plan with respect to Investor N Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor N Shares. Payments under the Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the foregoing;
and any other costs and expenses relating to distribution or sales support
activities. The overhead and other office expenses referenced above may include,
without limitation, (i) the expenses of operating Stephens' or the Selling
Agents' offices in connection with the sale of Fund shares, including rent, the
salaries and employee benefit costs of administrative, operations and support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (ii) the costs of client sales seminars and travel related to
distribution and sales support activities, and (iii) other expenses relating to
distribution and sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting
redemp-
23
<PAGE>
tion orders to Stephens or to the Transfer Agent and for crediting their
Customers' accounts with the redemption proceeds on a timely basis. No charge
for wiring redemption payments is imposed by Nations Fund. Except for any CDSC
which may be applicable upon redemption of Investor N Shares, as described
below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject a CDSC if
such shares are redeemed within six years of the date of purchase. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions. Subject to the
exclusions described below, the amount of the CDSC is determined as a percentage
of the lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Year Since Purchase Percentage of Dollar
Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal
with-
24
<PAGE>
drawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant to
Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor N shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund
25
<PAGE>
(except Nations Short-Term Income Fund and Nations Short-Term Municipal Income
Fund), Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund, or Investor C Shares of a Nations Fund money market fund.
A qualifying exchange is based on the next calculated net asset value per share
of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market
26
<PAGE>
quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Distributions from capital gains are made after applying any available
capital loss carryovers. Distributions paid by the Funds with respect to one
class of shares may be greater or less than those paid with respect to another
class of shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Portions of Nations International Equity Fund, Nations Emerging Markets Fund's,
Nations Pacific Growth Fund's 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
27
<PAGE>
consist of securities of foreign issuers, and therefore each Fund may elect to
"pass through" to its shareholders these foreign taxes if any. In such event
each shareholder will be required to include his or her pro rata portion thereof
in his or her gross income, but will be able to deduct or (subject to various
limitations) claim a foreign tax credit against U.S. income taxes for such
amount.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) 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
28
<PAGE>
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by 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: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a con-
29
<PAGE>
tract 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, a
Fund may commit a substantial portion of its portfolio to the executive of these
contracts. The Adviser will consider the effects such a commitment would have on
the investment program of such Fund and the flexibility of such Fund to purchase
additional securities. Although forward contracts will be used primarily to
protect a Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted. The Funds will
generally not enter into a forward contract with a term of greater than one
year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
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 United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued," the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If 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
30
<PAGE>
possible absence of a liquid secondary market for any particular instrument at
any time; and the possible need to defer closing out certain hedged positions to
avoid adverse tax consequences. A Fund may not purchase put and call options
which are traded on a national stock exchange in an amount exceeding 5% of its
net assets. Further information on the use of futures, options and other
derivative instruments, and the associated risks, is contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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 their investment objectives and policies, certain
Funds may purchase securities that 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 Directors or the Adviser, acting
under guidelines approved and monitored by the Fund's Board, after considering
trading activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A, the level of
illiquidity of a Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Funds may invest in securities issued by other
investment companies to the extent that such investments are consistent with 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
31
<PAGE>
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.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker/dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by NationsBank or Nations Gartmore to be
credit worthy and when, in their judgment, the income to be earned from the loan
justifies the attendant risks. The aggregate of all outstanding loans of a Fund
may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, 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
32
<PAGE>
realize could be eliminated by adverse changes in the exchange rate, or the Fund
could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in 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.
33
<PAGE>
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
34
<PAGE>
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.
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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity fac-
tors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small. D-3 indicates satisfactory liquidity and other protection
factors which qualify the issue as investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
35
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific
issues of long-term debt and preferred stock. The long-term ratings specifically
assess the likelihood of untimely payment of principal or interest over the term
to maturity of the rated instrument. The following are the four investment grade
ratings used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
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.
36
<PAGE>
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
and its affiliate, IBCA (collectively "IBCA"):
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1 -- Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of A1+
is assigned.
A2 -- Obligations supported by a good capacity for timely repayment.
37
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Statement of Additional Information
NATIONS EMERGING MARKETS FUND
NATIONS PACIFIC GROWTH FUND
NATIONS GLOBAL GOVERNMENT INCOME FUND
INVESTOR SHARES AND PRIMARY SHARES
AUGUST 1, 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 August 1, 1996 (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 ............................................................ 23
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
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ADDITIONAL INFORMATION CONCERNING TAXES................................................. 34
Qualification as a Regulated Investment
Company........................................................................ 35
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.................................................. 44
Nations Funds Deferred Compensation Plan....................................... 45
Compensation Table............................................................. 45
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING, SHAREHOLDER ADMINISTRATION AND DISTRIBUTION
AGREEMENTS 47
The Company and Its Common Stock............................................... 47
Investment Adviser............................................................. 48
Investment Styles.............................................................. 50
Administrator and Co-Administrator............................................. 51
Distributor.................................................................... 52
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares............................................. 53
Investor A Shares..................................................... 53
Investor C Shares..................................................... 54
Investor N Shares..................................................... 55
Information Applicable to Investor A,
Investor C and Investor N Shares............................................. 57
Shareholder Administration Plan
(Primary B Shares)........................................................... 58
Expenses....................................................................... 58
Transfer Agents and Custodians................................................. 60
INDEPENDENT ACCOUNTANT AND REPORTS...................................................... 60
COUNSEL................................................................................. 60
ADDITIONAL INFORMATION ON PERFORMANCE................................................... 60
Yield Calculations............................................................. 61
Total Return Calculations...................................................... 61
MISCELLANEOUS........................................................................... 63
Certain Record Holders......................................................... 63
SCHEDULE A - Description of Ratings..................................................... A-1
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Options & Futures.............................................................. B-1
SCHEDULE C - Additional Information Concerning
Mortgage Backed Securities..................................................... C-1
iii
<PAGE>
5
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 Primary A (formerly called Trust
A), Primary B (formerly called 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 Primary A and Primary B Shares are collectively
referred to herein as "Primary 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") is sub-investment adviser. As used
herein the "Adviser" shall mean NBAI or Nations Gartmore as the context may
require. 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, the Adviser 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. The Adviser's primary consideration in effecting a
security transaction is to obtain the best net price and the most favorable
execution of the order. While the Adviser 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, the Adviser is 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 the Adviser generally seeks reasonably competitive commission
rates, a Fund will not necessarily pay the lowest commission or spread
available.
1
<PAGE>
The Adviser anticipates that most brokerage services will be provided
by brokerage companies located in London. A portion of the securities in which
the Funds invest are traded in over-the-counter markets, and in such
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.
The 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 the 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
the Adviser.
Subject to the overall objective of obtaining best price and execution
for the Funds, the Adviser may also consider sales of shares of the Funds and of
the other mutual funds managed or advised by the Adviser as a factor in the
selection of broker/dealers to execute portfolio transactions for the Funds.
The 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 the Adviser may receive orders for
transactions by the Funds. Information so received will be in addition to and
not in lieu of the services required to be performed by the Adviser under their
agreements with each Fund and the expenses of the 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 the 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.
The Adviser and its 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
the Adviser. The Adviser may combine such
2
<PAGE>
transactions, in accordance with applicable laws and regulations, in
order to 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 the 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
the 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 the 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, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an 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 the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's directors with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to
3
<PAGE>
communicate research information, the arranging of meetings with
management of companies and the providing of access to consultants who
supply research information.
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Funds. Similarly, any research services received by the Adviser through the
placement of fund transactions of other clients may be of value to the Adviser
in fulfilling its obligations to the Funds. The Adviser is of the opinion that
this material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Company by improving the quality of the Adviser's
investment advice. The advisory fees paid by the Company are not reduced because
the 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 the 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-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).
4
<PAGE>
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 tax. The value of when-issued securities on the settlement date
may be more or less than the purchase price.
5
<PAGE>
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Fund relies on the other party
to complete the transaction. If the transaction is not completed, the Fund may
miss a price or yield considered to be advantageous.
FOREIGN CURRENCY TRANSACTIONS
As described in the Prospectuses, the Funds may invest in foreign
currency transactions. Foreign securities involve currency risks. The U.S.
dollar value of a foreign security tends to decrease when the value of the U.S.
dollar rises against the foreign currency in which the security is denominated,
and tends to increase when the value of the U.S. dollar falls against such
currency. A Fund may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A Fund may also purchase and sell foreign currency futures contracts
and related options (see "Purchase and Sale of Currency Futures Contracts and
Related Options"). A forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date that is individually
negotiated and privately traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward foreign currency
exchange contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser 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 the Adviser
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk
6
<PAGE>
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 standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
7
<PAGE>
Futures contracts on 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 obligations issued or guaranteed as to payment of principal and
interest by the U.S. Government, it agencies or instrumentalities ("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 maturities
when interest rates are expected to increase. However, since the futures market
is more
8
<PAGE>
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 contracts
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
interest rate decline when they are not fully invested. A Fund would write
options on these futures contracts primarily for the purpose of terminating
existing positions.
9
<PAGE>
OPTIONS ON STOCK INDEX FUTURES CONTRACTS, OPTIONS ON STOCK 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. The
Adviser believes that such a combination may more closely parallel movements in
the value of the security underlying the call option than would the option
itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
OPTIONS AND FUTURES STRATEGIES. The Adviser may seek to increase the
current return of 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, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and losses incurred
as a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. Investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of "trade
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 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
10
<PAGE>
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 the Adviser determines is
appropriate in seeking to attain its objective. Call options written by a Fund
give the holder the right to buy the underlying securities from a Fund at a
stated exercise price; put options give the holder the right to sell the
underlying security to the Fund at a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might
11
<PAGE>
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 the Adviser expects general stock market prices to rise, a Fund
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Fund may purchase and
sell interest rate futures contracts on foreign government securities for the
purpose of hedging fixed income and interest sensitive securities against the
adverse effects of anticipated movements in interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate
12
<PAGE>
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.
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
13
<PAGE>
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 puts 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 a Fund, the 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. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of the 15% test imposed by
the SEC staff.
14
<PAGE>
RISK FACTORS ASSOCIATED WITH FUTURES AND OPTIONS TRANSACTIONS
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of 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 the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
RISK OF IMPERFECT CORRELATION. A Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index.
15
<PAGE>
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
the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by a Fund, which could require
the Fund to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures or option positions also could have an adverse
impact on a Fund's ability effectively to hedge its securities, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged
16
<PAGE>
against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of
the increased value of its bonds which have been hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell bonds
from its portfolio to meet daily variation margin requirements, possibly
at a time when it may be disadvantageous to do so. Such sale of bonds
may be, but will not necessarily be, at increased prices which reflect
the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and premiums
paid for options on futures contracts would exceed 5% of the market value of the
Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial deposit and variation margin held in the account of its broker, will at
all times equal the value of the futures contract, thereby insuring that the use
of such futures is unleveraged.
The Funds' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Funds may also further
limit their ability to engage in such transactions in response to the policies
and concerns of various Federal and state regulatory agencies. Such policies may
be changed by vote of the Board of Directors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which a Fund may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. Each Fund intends to use these transactions as hedges and not
as speculative investments and will not sell interest rate caps or floors where
it does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a
17
<PAGE>
Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two
or more currencies based on the relative value differential among them
and an index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate
or amount.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser 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
the Adviser. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations for which
standardized documentation has not yet been fully developed and, accordingly,
they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
ASSET-BACKED SECURITIES
IN GENERAL. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. For example, falling interest
rates generally result in an increase in the rate of prepayments of mortgage
loans while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt
18
<PAGE>
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.
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
19
<PAGE>
earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate Purchased at a premium may result in a loss to the
Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of Mortgage Assets. A Fund will only invest
in SMBS whose Mortgage Assets are U.S.
Government obligations.
A common type of SMBS will be structured so that one class receives
some of the interest and most of the principal from the Mortgage Assets, while
the other class receives most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial investment
in these securities. The market value of any class which consists primarily or
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. Because SMBS were only recently introduced,
established trading markets for these securities have not yet been developed.
20
<PAGE>
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 the Adviser and
used for the purpose of determining the average weighted maturity of the Funds.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
21
<PAGE>
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, the Adviser, intends to
limit its purchases of mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities to securities that are readily
marketable at the time of purchase.
SPECIAL SITUATIONS
As described in the Prospectuses, certain Funds may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs and new
management or management policies. Although large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
EQUITY SWAP CONTRACTS
The counterparty to an Equity Swap Contract will typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty will
generally agree to pay a Fund the amount, if any, by which the notional amount
of the Equity Swap Contract would have increased in value had it been invested
in the stocks comprising the S&P 500 Index in proportion to the composition of
the Index, plus the dividends that would have been received on those stocks. A
Fund will agree to pay to the counterparty a floating rate of interest
(typically the London Inter Bank Offered Rate) on the notional amount of the
Equity Swap Contract plus the amount, if any, by which that notional amount
would have decreased in value had it been invested in such stocks. Therefore,
the return to a Fund on any Equity Swap Contract should be the gain or loss on
the notional amount plus dividends on the stocks comprising the S&P 500 Index
less the interest paid by the Fund on the notional amount. A Fund will only
enter into Equity Swap Contracts on a net basis, i.e., the two parties'
obligations are netted out, with the Fund paying or receiving, as the case may
be, only the net amount of any payments. Payments under the Equity Swap
Contracts may be made at the conclusion of the contract or periodically during
its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Each Fund may from time to time enter into the opposite side of Equity
Swap Contracts (i.e., where a Fund is obligated to pay the increase (net of
interest) or receive the decrease (plus interest) on the contract to reduce the
amount of the Fund's equity market exposure consistent with
22
<PAGE>
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.
The Adviser does not believe that a Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
SECURITIES LENDING
To increase return on portfolio securities, certain 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
23
<PAGE>
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 the Adviser 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 the Adviser.
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.
24
<PAGE>
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 objective. In addition, the Funds may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by 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 the Adviser . 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 the Adviser deems the investment to
involve minimal credit risk. If such instruments are not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will be deemed to have a maturity equal to the 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
25
<PAGE>
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 the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the ability of the municipal borrower to meet an obligation for full repayment
of principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and
26
<PAGE>
give the purchaser an undivided interest in one or more underlying
municipal security. To the extent that municipal participation interests
are considered to be "illiquid securities," such instruments are subject
to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the
form of a lease or an installment sales contract, are issued by state
and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are
exempt from Federal income tax.
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 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:
27
<PAGE>
1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) a Fund may borrow money from banks for temporary or
emergency purposes in amounts up to one-third of the value of such
Fund's total assets at the time of borrowing, provided that
borrowings in excess of 5% of the value of such Fund's total assets
will be repaid prior to the purchase of additional portfolio
securities by such Fund, (b) a Fund may enter into commitments to
purchase securities in accordance with the Fund's investment
program, including delayed delivery and when-issued securities,
which commitments may be considered the issuance of senior
securities, and (c) a Fund may issue multiple classes of shares in
accordance with SEC regulations or exemptions under the 1940 Act.
The purchase or sale of futures contracts and related options shall
not be considered to involve the borrowing of money or issuance of
senior securities.
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.
28
<PAGE>
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 purchase or retain the securities of any issuer
if the officers, or directors of the Company, its advisers, or managers
owning beneficially more than one half of one percent of the securities of
each issuer together own beneficially more than five percent of such
securities.
2. No Fund of the Company will purchase securities of unseasoned issuers,
including their predecessors, that have been in operation for less than
three years, if by reason thereof the value of such Fund's investment in
such classes of securities would exceed 5% of such Fund's total assets. For
purposes of this limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets which have less than three years of continuous operation
or relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets except that: (a)
this restriction shall not apply to standby commitments, (b) this
restriction shall not apply to a Fund's transactions in futures contracts
and related options, and (c) a Fund may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of such Fund's assets, and no more than 2% of the
value of the Fund's net assets may be invested in warrants that are not
listed on principal domestic or foreign exchanges (for purposes of this
undertaking, warrants acquired by a Fund in units or attached to securities
will be deemed to have no value).
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.
29
<PAGE>
The Funds also are available for a variety of retirement plans,
including IRAs, that allow investors to shelter some of their income from taxes.
Investors should contact their Selling Agents for details concerning retirement
plans.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposal of portfolio securities or the
valuation of the net assets of a Fund of the Company not reasonably practicable.
NET ASSET VALUE DETERMINATION
Shares of the common stock of each class of shares of each Fund that
are offered by the Prospectuses are sold at their respective net asset value
next determined after the receipt of the purchase order, plus any applicable
sales charge. Shareholders may at any time redeem all or a portion of their
shares at net asset value next determined following receipt of a redemption
order, less any contingent deferred sales charge applicable to Investor Shares.
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 a 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
30
<PAGE>
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.
EXCHANGES
By use of the exchange privilege, the holder of Investor Shares and/or
Primary 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 Primary 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 Primary Shares of each
Fund describe the exchange privileges available to holders of such Investor
Shares and Primary 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
his or her pro rata share of such gain, with the result that each shareholder
will be required to report his or her pro rata share of such gain on his or her
31
<PAGE>
tax return as long-term capital gain, will receive a refundable tax credit for
his or her share of tax paid by the Fund on the gain and will increase the basis
for his or her Shares by an amount equal to the deemed distribution less the tax
credit.
Ordinary income dividends paid by the Emerging Markets Fund with
respect to a taxable year will qualify for the 70% dividends received deduction
generally available to corporations (other than corporations, such as "S"
corporations, which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A 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
32
<PAGE>
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would, therefore, be allowed
to either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
The Funds may purchase the securities of certain foreign investment
funds or trusts called passive foreign investment companies ("PFICs"). If a Fund
invests in PFICs, it may be 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
33
<PAGE>
will be deemed to have been received by the shareholders (and made by
the Fund) on December 31 of such calendar year if such distributions are
actually paid in January of the following year. Shareholders will be
advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of Shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
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 Primary B Shares of
the Funds shall accrue an additional expense not borne by the Primary 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 Primary B Shares of the
Fund shall accrue an additional expense not borne by the Primary 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 Primary A,
Primary 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
34
<PAGE>
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 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
35
<PAGE>
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 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
36
<PAGE>
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.
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
37
<PAGE>
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 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.
38
<PAGE>
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 advisors with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
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 advisors 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, 59 Director Director, President and Treasurer, Saunders
Saunders & Benson, Inc. & Benson, Inc. (Insurance); Trustee,
728 East Main Street Nations Institutional Reserves and Nations
Suite 400 Fund Trust; Director, Nations Fund, Inc.
Richmond, VA 23219 and Nations Fund Portfolios, Inc.
39
<PAGE>
James Ermer, 53 Director Senior Vice President- Finance, CSX
CSX Corporation Corporation (transportation and natural
One James Center resources); Director, National Mine
901 East Cary Street Service; Director, Lawyers Title
Richmond, VA 23219 Corporation; Trustee, Nations Institutional
Reserves and Nations Fund Trust; Director,
Nations Fund, Inc. and Nations Fund
Portfolios, Inc.
William H. Grigg, 63 Director Since April 1994, Chairman and Chief
Duke Power Co. Executive Officer; November 1991 to April
422 South Church Street 1994, Vice Chairman, Duke Power Co.; from
PB04G April 1988 to November 1991, Executive Vice
Charlotte, NC 28242-0001 President Customer Group, Duke Power Co.;
Director,
Hatteras Income
Securities, Inc.,
Nations
Government Income
Term Trust 2003,
Inc., Nations
Government Income
Term Trust 2004,
Inc., Nations
Balanced Target
Maturity Fund,
Inc., Nations
Fund, Inc. and
Nations Fund
Portfolios, Inc.;
Trustee, Nations
Institutional
Reserves and
Nations Fund
Trust.
40
<PAGE>
Thomas F. Keller, 64 Director R.J. Reynolds Industries Professor of
Fuqua School of Business Business Administration and Dean, Fuqua
Duke University School of Business, Duke University;
Durham, NC 27706 Director, LADD Furniture, Inc.; Director,
Wendy's
International
Mentor Growth
Fund, and
Cambridge Trust;
Director,
Hatteras Income
Securities, Inc.,
Nations
Government Income
Term Trust 2003,
Inc., Nations
Government Income
Term Trust 2004,
Inc., Nations
Balanced Target
Maturity Fund,
Inc., Nations
Fund, Inc. and
Nations Fund
Portfolios, Inc.;
Trustee, Nations
Institutional
Reserves and
Nations Fund
Trust.
Carl E. Mundy, Jr., 60 Director Commandant, United States Marine Corps,
9308 Ludgate Drive from July 1991 to July 1995; Commanding
Alexandria, VA 23309 General, Marine Forces Atlantic, from June
1990 to June 1991; Director, Nations Fund,
Inc. and Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional Reserves and
Nations Fund Trust.
41
<PAGE>
A. Max Walker, 74* President, Director and Financial consultant; Formerly, President,
6215 Riverwood Drive, N.W. Chairman of the Board A. Max Walker, Inc.; Director and Chairman
Atlanta, GA 30328 of the Board, Hatteras Income Securities,
Inc., Nations
Government Income
Term Trust 2003,
Inc., Nations
Government Income
Term Trust 2004,
Inc., Nations
Balanced Target
Maturity Fund,
Inc., Nations
Fund, Inc. and
Nations Fund
Portfolios, Inc.;
President and
Chairman of the
Board of
Trustees, Nations
Institutional
Reserves and
Nations Fund
Trust.
Charles B. Walker, 57 Director Since 1989, Director, Executive Vice
Ethyl Corporation President, Chief Financial Officer and
P.O . Box 2189 Treasurer, Ethyl Corporation (chemicals,
330 South Fourth Street plastics, and aluminum manufacturing);
Richmond, VA 23217 since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman, Chief
Financial Officer and Treasurer, Albemarle
Corporation, Director, Nations Fund, Inc.
and Nations Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves and Nations
Fund Trust.
Thomas S. Word, Jr., 57* Director Partner, McGuire Woods Battle & Boothe
McGuire, Woods, Battle (law); Director, Vaughan Bassett Furniture
& Boothe Company, Director VB Williams Furniture
One James Center Company, Inc.; Director, Nations Fund, Inc.
Richmond, VA 23219 and Nations Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves and Nations
Fund Trust.
42
<PAGE>
Richard H. Blank, Jr., 39 Secretary Since 1994, Vice President of Mutual Fund
Stephens Inc. Services, Stephens Inc. 1990 to 1994,
Manager Mutual Fund Services, Stephens Inc.
1983 to 1990, Associate in Corporate
Finance Department, Stephens Inc.;
Secretary, Nations Institutional Reserves,
Nations Fund Trust, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.
Michael W. Nolte, 35 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, Division
The Shareholder Services Manager, First Data Investors Services
Group, Inc. Group, Inc. (formerly, The Shareholder
One Exchange Place Services Group), since 1988, Senior Vice
Boston, MA 02109 President, The Boston Company Advisors,
Inc.; Treasurer, Nations Institutional
Reserves, Nations Fund Trust, Nations Fund,
Inc. and Nations Fund Portfolios, Inc.
Joseph C. Viselli, 32 Assistant Treasurer Assistant Vice President, The Boston
First Data Investors Company Advisors, Inc. since April 1992.
Services Group,
Inc.(formerly, The
Shareholder Services Group,
Inc.)
One Exchange Place
Boston, MA 02109
</TABLE>
43
<PAGE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data Investors Services Group, Inc. or its affiliates serve as
sponsor, distributor, administrator and/or investment adviser. Mr. Blank serves
as Secretary and Treasurer, Chief Operating Officer to other investment
companies for which Stephens Inc. serves as administrator.
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.
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 the Adviser. 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
44
<PAGE>
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 was submitted to and approved by the SEC
to permit deferring directors to elect to tie the rate of return on fees
deferred pursuant to the Deferred Compensation Plan to one or more of certain
investment portfolios of certain Funds. 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.
COMPENSATION TABLE
<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
45
<PAGE>
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., $7,000.00 N/A N/A N/A
Director
</TABLE>
(1) All directors receive reimbursements for expenses related to their
attendance at meetings of the Board of Directors. Officers of the Company
receive no direct remuneration in such capacity from the Company.
(2) For current fiscal year and includes estimated future payments. Each
Director receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Company, plus (ii) a fee of
$1,000 for attendance at each "in-person" meeting of the Board of Directors
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including the Company, that are deemed to be part of
the Nations Fund "fund complex," as that term is defined under Rule 14a-101
of the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer,
C. Walker, Mundy and Word receive compensation from four investment
companies, including the Company, deemed to be part of the Nations Fund
fund complex.
<PAGE>
46
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: Primary A Shares, Primary 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."
Primary 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.
47
<PAGE>
INVESTMENT ADVISER
Effective January 1, 1996, the Adviser began serving as investment
adviser to the Funds, pursuant to an Investment Advisory Agreement dated January
1, 1996. The Adviser is a wholly owned 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.
The Adviser 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, the
Adviser 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
$18 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, the Adviser and TradeStreet Investment Associates, Inc.
The restructuring resulted in the transfer of the division's investment
management and advisory functions to the Adviser. The investment professionals
who performed investment company management functions as employees of
NationsBank continue to perform such services as employees of the Adviser. 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.
48
<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.
On February 19, 1996, it was announced that National Westminster Bank
plc ("NatWest"), one of the world's largest commercial and investment banking
firms, had agreed to acquire, subject to the satisfaction or waiver of certain
conditions, control of Gartmore plc from Compagnie de Suez, S.A. and affiliated
entities (collectively, "Compagnie de Suez") through a two-part transaction
involving (1) the direct purchase from Compagnie de Suez of its subsidiary that
holds 75% of the outstanding voting shares of Gartmore plc; and (2) a tender
offer for the remaining portion of Gartmore plc shares held by public
shareholders (collectively, the "Acquisition"). The Acquisition, if completed,
will result in a change in ownership of Nations Gartmore and will probably
result in a change in the name of Nations Gartmore. Based on representations
made by Nations Gartmore, it is not anticipated that the change in ownership
will affect the level of service provided to the Funds or result in a change to
the personnel assigned to handle advisory responsibilities. As of February 19,
1996, NatWest had assets under management of approximately $47,000,000,000.
Pursuant to the terms of the Advisory and Sub-Advisory Agreements
relating to the Funds Investment, the Adviser 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. The Adviser obtains and evaluates 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 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 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 the
Adviser or the Sub-Adviser or for any loss sustained by the Company or by its
shareholders except in the case of the Adviser or the Sub-Adviser's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of NBAI 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.
49
<PAGE>
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 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 may waive a portion of their fees; however, any such waiver may be
discontinued at any time. As discussed under the caption "Expenses," the Adviser
will be required to reduce their fees from the Funds, in direct proportion to
the fees payable by the Funds to the Adviser, the 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.
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
50
<PAGE>
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.
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 First Data Investors 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) coordinate 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-
51
<PAGE>
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 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
52
<PAGE>
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 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 ("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
53
<PAGE>
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, 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
54
<PAGE>
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 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.
55
<PAGE>
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 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 CDSCs, 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.
56
<PAGE>
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.'s
("NASD") Rules of Fair Practice governing receipt by NASD members of shareholder
servicing plan fees from registered investment companies (the "NASD Servicing
Plan Rule"), which became effective on July 7, 1993. Such compensation shall
only be paid for services determined to be permissible under the NASD Servicing
Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on January 26, 1995. The
Plans continue in effect as long as such continuance is specifically approved at
least annually by the Board of Directors, including a majority of the Qualified
Directors.
In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor C or Investor N Shares and the holders of such shares. The Plans were
approved by their initial shareholders on June 30, 1995.
Each Plan may be terminated with respect to its shares by vote of a
majority of the Qualified Directors or by vote of a majority of holders of its
outstanding voting securities. Any change in a Plan that would increase
materially the distribution expenses paid by the Investor A, Investor C or
Investor N Shares requires shareholder approval; otherwise, each Plan may be
amended by the directors, including a majority of the Qualified Directors, by
vote cast in person at a meeting called for the purpose of voting upon such
amendment. The Investor C Servicing Plan and the Investor N Servicing Plan may
be terminated by a vote of a majority of the Qualified Directors. As long as a
Plan is in effect, the selection or nomination of the Qualified Directors is
committed to the discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling,
and/or Servicing Agents of compensation from Nations Fund in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money maneuvers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
57
<PAGE>
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES)
As stated in the Prospectus describing the Primary 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 Primary B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their Customers who may from time to
time own of record or beneficially Primary B Shares in consideration for the
payment of up to 0.60% (on an annualized basis) of the net asset value of such
shares. Such services may include: (i) aggregating and processing purchase,
exchange and redemption requests for Primary B Shares from Customers and
transmitting promptly net purchase and redemption orders with the Distributor or
the transfer agents; (ii) providing Customers with a service that invests the
assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
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 Primary 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 Primary 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 pursuant to Rule
12b-1 under the 1940 Act. 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 the Adviser 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.
58
<PAGE>
The Company pays, or causes to be paid, all other expenses of the
Company, including without limitation: the fees of the Adviser, 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; 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 the Adviser (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 Funds 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 Investment Advisory Agreement, the Sub-Advisory Agreement and the
Administration Agreement require the Adviser, 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 the Adviser, the Sub-Adviser or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to the Adviser, the Sub-Adviser and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, the Adviser,
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).
59
<PAGE>
TRANSFER AGENTS AND CUSTODIANS
First Data Investors Services Group, Inc, formerly The Shareholder
Services Group, Inc., a wholly owned subsidiary of First Data Corporation, is
located at One Exchange Place, 53 State Street, Boston, Massachusetts 02109, and
acts as transfer agent (the "Transfer Agent") for the Company's Primary 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 Primary Shares.
Bank of New York 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 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 ACCOUNTANT 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 accountant. 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 audited Financial Statements for the fiscal
year ended March 31, 1996 appearing in the Company's 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.
60
<PAGE>
YIELD CALCULATIONS
The yield of the Primary 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
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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
61
<PAGE>
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
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 Primary 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.
62
<PAGE>
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.
MISCELLANEOUS
CERTAIN RECORD HOLDERS
The following indicates those persons who owned 5% or more of the
indicated class of shares as of May 24, 1996.
Percentage of Shares
Name and Address Held of Record Only
NATIONS EMERGING MARKETS FUND
PRIMARY A SHARES
NationsBank of Texas NA 99.98%
ATTN: Adrian Castillo
1405 Elm Street, 11th Floor
Dallas, TX 75202-2911
INVESTOR A SHARES
Dorothy B. Rolph and 30.88%
Colin M. Rolph JTWROS
Tall Oaks
P.O. Box 226
Keswick, VA 22947-0226
63
<PAGE>
BSDT CUST 7.05%
Charles R. Egan IRA RO
410 Ridge Drive
Naples, FL 33963
Stephens Inc. 6.19%
Custodian for Theodore Otto Johnson
Account 824772751
P.O. Box 34127
Little Rock, AR 72203
INVESTOR C SHARES
Stephens Inc. 36.31%
For the Exclusive Benefit of our Customers
111 Center Street
Little Rock, AR 72201
Willie E. Elston & 25.02%
Mary L. Elston JTWROS
7919 Wingate Drive
Glenn Dale, MD 20769
Dean Witter Reynolds Cust. For 11.10%
David G. Elmer
IRA Std/Rollover DTD 7/18/95
191 Second Avenue
Dayton, TN 37321
Renee A. Kriz 10.61%
7212 Rolling Road
Springfield, VA 22152-3652
Youssef I A Talaat Cust For 8.45%
Ashraf Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153
Youssef I A Talaat Cust For 8.45%
Adham Y Talaat VA/UTMA
7383 Jiri Woods Ct.
Springfield, VA 22153
64
<PAGE>
NATIONS GLOBAL GOVERNMENT INCOME FUND
PRIMARY A SHARES
NationsBank of Texas, NA 99.96%
Attn: Adrian Castillo
1405 Elm Street 11th Floor
Dallas, TX 75202-2911
INVESTOR A SHARES
NationsBank Corporation 99.20%
NC1-007-23-01
100 North Tryon Street
Charlotte, NC 28255
INVESTOR C SHARES
Stephens Inc. 99.89%
For the Exclusive Benefit of Our Customers
111 Center Street
Little Rock, AR 72201
INVESTOR N SHARES
Dixie Restaurant & Equipment Co. Inc. 52.72%
2734 Spring Garden Road
Winston Salem, NC 27106-5714
Shirley M. Clark Family Trust
Shirley M. Clark TTEE DTD 11/30/92 17.88%
14131 Woodstream
San Antonio, TX 78231
Dean Witter Reynolds Cust For 9.49%
Alex Thomson IRA SEP Dated 10/26/95
c/o McGladrey & Pullen
P.O. Box 1730
Wilmington, NC 28402
Charlotte S. Copeland 7.59%
103 Quail Drive Meadowbrook
Summerville, SC 29485
Dean Witter Reynolds Cust For 5.11%
Sandra D. Riggs
IRA Standard Dated 08/08/94
1608 Summerwood Trail
Hixson, TN 37343
65
<PAGE>
NATIONS PACIFIC GROWTH FUND
PRIMARY A SHARES
NationsBank of Texas, N.A. 99.99%
ATTN: Adrian Castillo
1405 Elm Street, 11th Floor
Dallas, TX 75202-2911
INVESTOR A SHARES
Ron Underwood & David Brown TTEES 7.52%
Dallas Heart Group, 401K Plan
8440 Walnut Hill Lane, Suite 700
Dallas, TX 75231
Kenneth D. Lewis 6.24%
2525 Richardson Drive
Charlotte, NC 28211
INVESTOR C SHARES
Carolyn Branan
19209 Hidden Cove Lane 35.84%
Huntersville, NC 28078
BSDT Cust Rollover IRA FBO 21.34%
Rosemary L. Waring
4601 Anson Court
Plano, TX 75024
Stephens Inc. 12.10%
For the Exclusive Benefit of our Customers
111 Center Street
Little Rock, AR 72201
Dean Witter Reynolds Cust For Jean M. De Ru IRA 7.36%
2664 Sharondale Drive
Atlanta, GA 30305-3858
William D. Ratliff III 7.33%
801 Cherry Street, Suite 1300
Fort Worth, TX 76102
As of May 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 considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times
over the future.
Uncertainty of position characterizes bonds in this class.
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 exists 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 D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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 Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding
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 are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay
principal and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong
ability to repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an
acceptable capacity to repay principal and interest. Issues rated "BBB"
are, however, more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used by IBCA
Limited and its affiliate, IBCA Inc. (collectively, "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse
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.
BBB - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of
principal and interest is adequate, although adverse changes in
business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to
denote relative status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A-1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A-6
<PAGE>
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectuses, each Fund may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, each of the Funds intends to limit its
transactions in futures contracts and options so that not more than 5% of the
Fund's net assets are at risk. Furthermore, in no event would any Fund purchase
or sell futures contracts, or related options thereon, for hedging purposes if,
immediately thereafter, the aggregate initial margin that is required to be
posted by the Fund under the rules of the exchange on which the futures contract
(or futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, exceeds 5% of the Fund's total assets, after taking
into account any unrealized profits and unrealized losses on the Fund's open
contracts and excluding the amount that a futures option is "in-the-money" at
the time of purchase. (An option to buy a futures contract is "in-the-money" if
the value of the contract that is subject to the option exceeds the exercise
price; an option to sell a futures contract is "in-the-money" if the exercise
price exceeds the value of the contract that is subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures market have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
DESCRIPTION OF INTEREST RATES FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
B-1
<PAGE>
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. A Fund would deal only in
standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; GNMA modified
pass-through mortgagee-backed securities; three-month U.S. Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices.
For example, assume that the market value of a certain security in a Fund tends
to move in concert with the futures market prices of long-term U.S. Treasury
bonds. The investment adviser wishes to fix the current market value of this
portfolio security until some point in the future. Assume the portfolio security
has a market value of 100, and the investment adviser believes that, because of
an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio securities does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The investment adviser could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
losses realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
B-2
<PAGE>
EXAMPLES OF FUTURE CONTRACTS PURCHASES. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The investment adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the investment adviser believes
that, because of an anticipated fall in interest rates, the price will have
risen to 105 (and the yield will have dropped to about 9-1/2%) in four months.
The Fund might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from 98
to 103. In that case, the 5-point increase in the price that the Fund pays for
the long-term bond would be offset by the 5-point gain realized by closing out
the futures contract purchase.
The investment adviser could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fail to
10% or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds would
have decreased. The benefit of this price decrease, and thus yield increase,
will be reduced by the loss realized on closing out the futures contract
purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 Composite Stock
Price Index 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
B-3
<PAGE>
stocks. Futures contracts are traded on organized exchanges regulated by
the CFTC. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each
contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund also may sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
B-4
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,00
Value = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and the Fund had entered into an anticipatory purchase
hedge, or market value increased and the Fund had hedged its stock portfolio,
the results of the Fund's transactions in stock index futures would be as set
forth below.
B-5
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price= $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted
Equity Portfolio-Own Buy 16 Index Futures at 130 Stock with Value = $1,040,000
Value of Futures = $1,040,000 Gain in Portfolio = $40,000 Loss on Futures =
$40,000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to, 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin
B-6
<PAGE>
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
B-7
<PAGE>
or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the investment 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 futures 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.
B-10
<PAGE>
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest be FNMA.
The principal government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government
C-1
<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 objectives
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
C-2
<PAGE>
payments of principal and interest on the underlying mortgages. The occurrence
of mortgage prepayments is affected by factors including the level of interest
rates, general economic conditions, the location and age of the mortgage, and
other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
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.
C-3
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
FILE NOS. 33-89742; 811-8982
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Part B, Item 23:
Audited Financial Statements for Nations Emerging
Markets, Nations Pacific Growth and Nations
Global Government Income Funds:
Schedule of Investments for March 31, 1996
Statements of Assets and Liabilities for
March 31, 1996 Statements of Operations for
the year ended March 31, 1996 Statements of
Changes in Net Assets for the fiscal year
ended March 31, 1996
Schedule of Capital Stock Activity for the fiscal
period ended March 31, 1996
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants dated May 17, 1996
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
1(a) - Articles of Incorporation, dated January 20, 1995, are incorporated by reference
to Post -Effective Amendment No. 4 filed on March 19, 1996.
1(b) - Articles Supplementary, dated April 20, 1995,
are incorporated by reference to Post -Effective
Amendment No. 4 filed on March 19, 1996.
1(c) Articles Supplementary, dated March 18, 1996, are
incorporated by reference to Post -Effective
Amendment No. 4 filed on March 19, 1996.
C-1
<PAGE>
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) - Investment Advisory Agreement between NationsBanc Advisors, Inc. a North Carolina
corporation ("NBAI") and Registrant is incorporated by reference to Post-Effective
Amendment No. 3 filed on January 29, 1996.
(b) - Sub-Advisory Agreement between Registrant and Gartmore Global Partners
("Gartmore"), to be filed by amendment.
(c) - Supplement to Sub-Advisory Agreement between Registrant and Gartmore, to be filed
by amendment.
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
Primary B Shares is incorporated by reference to
Post-Effective Amendment No. 3 filed on January
29, 1996.
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 Services 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 First Data Investor Services Group, Inc.
(formerly The Shareholder Servicing Group, Inc.) and
C-2
<PAGE>
Nations Fund Portfolios, Inc.
is incorporated by reference to the Registration Statement on Form N-1A filed on
February 23, 1995.
(d) - Cross Indemnification Agreement between Nations Fund Portfolios, Inc., Nations
Fund, Inc. and Nations Fund Trust is incorporated by reference to Post-Effective
Amendment No. 1 filed on June 30, 1995.
10 - Opinion and Consent of Counsel is filed herewith.
11 - Accountants' Consent is filed herewith.
12 - Not applicable.
13 - Investment Letter, incorporated by reference to Pre-Effective Amendment No. 2
filed on June 29, 1995.
14 - Not applicable.
15(a) - Form of Shareholder Servicing Plan, Primary 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 Primary B Shares is incorporated by reference
to Post-Effective Amendment No. 3 filed on January 29, 1996.
C-3
<PAGE>
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.
No person is controlled by or under common
control with Registrant.
Item 26. Number of Holders of Securities.
</TABLE>
As of May 30, 1996, the number of record holders of
each class of securities of the Registrant was as follows:
Title of Class Number of Record Holders
Nations Global Government
Income Fund
Primary A Shares 100
Primary B Shares 0
Investor A Shares 24
Investor C Shares 2
Investor N Shares 10
Nations Pacific Growth Fund
Primary A Shares 1,902
Primary B Shares 0
Investor A Shares 312
Investor C Shares 18
Investor N Shares 370
Nations Emerging Markets Fund
Primary A Shares 798
Primary B Shares 0
Investor A Shares 170
Investor C Shares 7
Investor N Shares 184
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
C-4
<PAGE>
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 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
C-5
<PAGE>
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.
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
C-6
<PAGE>
this Article VIII shall adversely affect any right or
protection of a Director or officer that exists at the time
of such amendment, modification or repeal.
Under the terms of the Maryland Corporation Law and
the Registrant's Charter and By-Laws, incorporated by
reference as Exhibits (1) and 2 hereto, provides for the
indemnification of Registrant's directors and employees.
Indemnification of Registrant's principal underwriter,
custodian, and transfer agent is provided for, respectively,
in the Registrant's:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with First Data Investor
Services Group, Inc. ("First Data") (formerly The
Shareholder Services Group, Inc.);
3. Distribution Agreement with Stephens Inc.
4. Custody Agreement with Morgan Guaranty Trust Company
of New York.
5. Transfer Agency and Services Agreement with First
Data.
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
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) 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 Gartmore. The address for the individuals listed below is Gartmore,
Gartmore House, 16-18 Monument Street, London EC3R 8AJ,
C-7
<PAGE>
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, Gartmore
Simon H. Davies Chief Investment Officer Chief Investment Officer, Gartmore; Director
of International Investments, Gartmore
Investment Limited
James B. Sommers Committee Member NationsBank Corporation
President, NationsBank Trust
John W. Munce Committee Member Executive Vice President, NationsBank, N.A.
Mark H. Williamson Committee Member Senior Vice President, NationsBank, N.A.
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 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., 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.
C-8
<PAGE>
(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) Gartmore, Gartmore House, 16-18 Monument Street, London EC3R
8AJ, England (records relating to its function as
sub-investment advisor)
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Distributor)
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator)
(5) First Data (formerly The Shareholder Services Group, Inc.),
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)
(7) Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium
(records relating to its function as Custodian)
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
C-9
<PAGE>
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) Registrant undertakes to hold a special meeting of
its shareholders for the purpose of voting on the
question of removal of a director or directors if
requested in writing by the holders of at least 10%
of the Company's outstanding voting securities, and
to assist in communicating with other shareholders
as required by Section 16(c) of the Investment
Company Act of 1940.
(d) Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's most recent annual report to
shareholders upon request and without charge.
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
31st day of May, 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:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and Chairman May 31, 1996
- --------------------------------------
(A. Max Walker) of the Board of Directors
(Principal Executive Officer)
* Treasurer May 31, 1996
- --------------------------------------
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Director May 31, 1996
- --------------------------------------
(Edmund L. Benson, III)
* Director May 31, 1996
- --------------------------------------
(James Ermer)
* Director May 31, 1996
- --------------------------------------
(William H. Grigg)
* Director May 31, 1996
- --------------------------------------
(Thomas F. Keller)
* Director May 31, 1996
- --------------------------------------
(Carl E. Mundy, Jr.)
* Director May 31, 1996
- --------------------------------------
(Charles B. Walker)
* Director May 31, 1996
- --------------------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
<S> <C> <C>
EX-27.011 Financial Data Schedules - Nations Emerging Markets Fund - Investor A
EX-27.012 Financial Data Schedules - Nations Emerging Markets Fund - Investor C
EX-27.013 Financial Data Schedules - Nations Emerging Markets Fund - Investor N
EX-27.014 Financial Data Schedules - Nations Emerging Markets Fund - Primary A
EX-27.021 Financial Data Schedules - Nations Global Government Income Fund -
Investor A
EX-27.022 Financial Data Schedules - Nations Global Government Income Fund -
Investor C
EX-27.023 Financial Data Schedules - Nations Global Government Income Fund -
Investor N
EX-27.024 Financial Data Schedules - Nations Global Government Income Fund -
Primary A
EX-27.031 Financial Data Schedules - Nations Pacific Growth Fund - Investor A
EX-27.032 Financial Data Schedules - Nations Pacific Growth Fund - Investor C
EX-27.033 Financial Data Schedules - Nations Pacific Growth Fund - Investor N
EX-27.034 Financial Data Schedules - Nations Pacific Growth Fund - Primary A
EX-99.B10 OPIN COUNS
EX-99.B11 OTH CONSNT
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Nations Fund Port Emerg Mkts Inv-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,978,621
<INVESTMENTS-AT-VALUE> 45,287,085
<RECEIVABLES> 179,264
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,843,434
<TOTAL-ASSETS> 50,309,783
<PAYABLE-FOR-SECURITIES> 910,148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,124
<TOTAL-LIABILITIES> 1,040,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 463,304
<SHARES-COMMON-STOCK> 46,230
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (93,457)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (159,388)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308,060
<NET-ASSETS> 477,037
<DIVIDEND-INCOME> 188,821
<INTEREST-INCOME> 110,639
<OTHER-INCOME> 0
<EXPENSES-NET> 370,515
<NET-INVESTMENT-INCOME> (71,055)
<REALIZED-GAINS-CURRENT> (197,613)
<APPREC-INCREASE-CURRENT> 1,308,060
<NET-CHANGE-FROM-OPS> 1,039,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,699
<NUMBER-OF-SHARES-REDEEMED> (1,319)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,235,511
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,334
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370,515
<AVERAGE-NET-ASSETS> 151,135
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 2.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Nations Fund Port Emerg Mkts Inv-C
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,978,621
<INVESTMENTS-AT-VALUE> 45,287,085
<RECEIVABLES> 179,264
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,843,434
<TOTAL-ASSETS> 50,309,783
<PAYABLE-FOR-SECURITIES> 910,148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,124
<TOTAL-LIABILITIES> 1,040,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,753
<SHARES-COMMON-STOCK> 2,275
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (93,457)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (159,388)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308,060
<NET-ASSETS> 23,361
<DIVIDEND-INCOME> 188,821
<INTEREST-INCOME> 110,639
<OTHER-INCOME> 0
<EXPENSES-NET> 370,515
<NET-INVESTMENT-INCOME> (71,055)
<REALIZED-GAINS-CURRENT> (197,613)
<APPREC-INCREASE-CURRENT> 1,308,060
<NET-CHANGE-FROM-OPS> 1,039,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,425
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,235,511
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,334
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370,515
<AVERAGE-NET-ASSETS> 13,381
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 3.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> Nations Fund Port Emerg Mkts Inv-N
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,978,621
<INVESTMENTS-AT-VALUE> 45,287,085
<RECEIVABLES> 179,264
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,843,434
<TOTAL-ASSETS> 50,309,783
<PAYABLE-FOR-SECURITIES> 910,148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,124
<TOTAL-LIABILITIES> 1,040,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,156,257
<SHARES-COMMON-STOCK> 117,797
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (93,457)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (159,388)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308,060
<NET-ASSETS> 1,208,959
<DIVIDEND-INCOME> 188,821
<INTEREST-INCOME> 110,639
<OTHER-INCOME> 0
<EXPENSES-NET> 370,515
<NET-INVESTMENT-INCOME> (71,055)
<REALIZED-GAINS-CURRENT> (197,613)
<APPREC-INCREASE-CURRENT> 1,308,060
<NET-CHANGE-FROM-OPS> 1,039,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 121,704
<NUMBER-OF-SHARES-REDEEMED> (4,757)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,235,511
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,334
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370,515
<AVERAGE-NET-ASSETS> 644,100
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 3.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Nations Fund Port Emerg Mkts Pr-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,978,621
<INVESTMENTS-AT-VALUE> 45,287,085
<RECEIVABLES> 179,264
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,843,434
<TOTAL-ASSETS> 50,309,783
<PAYABLE-FOR-SECURITIES> 910,148
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,124
<TOTAL-LIABILITIES> 1,040,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,571,982
<SHARES-COMMON-STOCK> 4,600,734
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (93,457)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (159,388)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308,060
<NET-ASSETS> 47,560,154
<DIVIDEND-INCOME> 188,821
<INTEREST-INCOME> 110,639
<OTHER-INCOME> 0
<EXPENSES-NET> 370,515
<NET-INVESTMENT-INCOME> (71,055)
<REALIZED-GAINS-CURRENT> (197,613)
<APPREC-INCREASE-CURRENT> 1,308,060
<NET-CHANGE-FROM-OPS> 1,039,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,687)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,725,947
<NUMBER-OF-SHARES-REDEEMED> (126,079)
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> 49,235,511
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,334
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370,515
<AVERAGE-NET-ASSETS> 22,229,603
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 2.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Nations Fund Port Glob Govt Income Inv-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,371,067
<INVESTMENTS-AT-VALUE> 38,111,419
<RECEIVABLES> 4,072,446
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 887,941
<TOTAL-ASSETS> 43,071,806
<PAYABLE-FOR-SECURITIES> 3,041,278
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,681
<TOTAL-LIABILITIES> 3,219,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,053,668
<SHARES-COMMON-STOCK> 1,479,066
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (108,343)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 267,159
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200,139)
<NET-ASSETS> 14,897,567
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,225,862
<OTHER-INCOME> 0
<EXPENSES-NET> 256,392
<NET-INVESTMENT-INCOME> 969,470
<REALIZED-GAINS-CURRENT> 221,004
<APPREC-INCREASE-CURRENT> (200,139)
<NET-CHANGE-FROM-OPS> 990,335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (125,698)
<DISTRIBUTIONS-OF-GAINS> (89)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,478,192
<NUMBER-OF-SHARES-REDEEMED> (70)
<SHARES-REINVESTED> 94
<NET-CHANGE-IN-ASSETS> 39,817,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256,392
<AVERAGE-NET-ASSETS> 3,372,076
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> Nations Fund Port Glob Govt Income Inv-C
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,371,067
<INVESTMENTS-AT-VALUE> 38,111,419
<RECEIVABLES> 4,072,446
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 887,941
<TOTAL-ASSETS> 43,071,806
<PAYABLE-FOR-SECURITIES> 3,041,278
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,681
<TOTAL-LIABILITIES> 3,219,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,820
<SHARES-COMMON-STOCK> 882
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (108,343)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 267,159
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200,139)
<NET-ASSETS> 8,886
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,225,862
<OTHER-INCOME> 0
<EXPENSES-NET> 256,392
<NET-INVESTMENT-INCOME> 969,470
<REALIZED-GAINS-CURRENT> 221,004
<APPREC-INCREASE-CURRENT> (200,139)
<NET-CHANGE-FROM-OPS> 990,335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (284)
<DISTRIBUTIONS-OF-GAINS> (33)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 39,817,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256,392
<AVERAGE-NET-ASSETS> 8,843
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 034
<NAME> Nations Fund Port Glob Govt Income Inv-N
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,371,067
<INVESTMENTS-AT-VALUE> 38,111,419
<RECEIVABLES> 4,072,446
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 887,941
<TOTAL-ASSETS> 43,071,806
<PAYABLE-FOR-SECURITIES> 3,041,278
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,681
<TOTAL-LIABILITIES> 3,219,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192,096
<SHARES-COMMON-STOCK> 19,129
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (108,343)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 267,159
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200,139)
<NET-ASSETS> 192,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,225,862
<OTHER-INCOME> 0
<EXPENSES-NET> 256,392
<NET-INVESTMENT-INCOME> 969,470
<REALIZED-GAINS-CURRENT> 221,004
<APPREC-INCREASE-CURRENT> (200,139)
<NET-CHANGE-FROM-OPS> 990,335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,410)
<DISTRIBUTIONS-OF-GAINS> (586)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,001
<NUMBER-OF-SHARES-REDEEMED> (114)
<SHARES-REINVESTED> 392
<NET-CHANGE-IN-ASSETS> 39,817,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256,392
<AVERAGE-NET-ASSETS> 113,858
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 2.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Nations Fund Port Glob Govt Income Pr-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,371,067
<INVESTMENTS-AT-VALUE> 38,111,419
<RECEIVABLES> 4,072,446
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 887,941
<TOTAL-ASSETS> 43,071,806
<PAYABLE-FOR-SECURITIES> 3,041,278
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,681
<TOTAL-LIABILITIES> 3,219,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,638,586
<SHARES-COMMON-STOCK> 2,457,534
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> (108,343)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 267,159
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200,139)
<NET-ASSETS> 24,752,718
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,225,862
<OTHER-INCOME> 0
<EXPENSES-NET> 256,392
<NET-INVESTMENT-INCOME> 969,470
<REALIZED-GAINS-CURRENT> 221,004
<APPREC-INCREASE-CURRENT> (200,139)
<NET-CHANGE-FROM-OPS> 990,335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (840,078)
<DISTRIBUTIONS-OF-GAINS> (81,861)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,470,544
<NUMBER-OF-SHARES-REDEEMED> (31,705)
<SHARES-REINVESTED> 17,845
<NET-CHANGE-IN-ASSETS> 39,817,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256,392
<AVERAGE-NET-ASSETS> 21,908,431
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Nations Fund Port Pacific Growth Inv-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 93,361,181
<INVESTMENTS-AT-VALUE> 96,411,658
<RECEIVABLES> 1,523,144
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,628,306
<TOTAL-ASSETS> 101,563,108
<PAYABLE-FOR-SECURITIES> 1,381,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,521
<TOTAL-LIABILITIES> 1,593,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,323,314
<SHARES-COMMON-STOCK> 134,482
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (389,016)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,049,926
<NET-ASSETS> 1,375,138
<DIVIDEND-INCOME> 385,965
<INTEREST-INCOME> 126,699
<OTHER-INCOME> 0
<EXPENSES-NET> 613,282
<NET-INVESTMENT-INCOME> (100,618)
<REALIZED-GAINS-CURRENT> (445,524)
<APPREC-INCREASE-CURRENT> 3,049,926
<NET-CHANGE-FROM-OPS> 2,503,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,632)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 145,535
<NUMBER-OF-SHARES-REDEEMED> (12,071)
<SHARES-REINVESTED> 168
<NET-CHANGE-IN-ASSETS> 98,935,485
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 307,806
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 613,282
<AVERAGE-NET-ASSETS> 556,903
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> Nations Fund Port Pacific Growth Inv-C
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 93,361,181
<INVESTMENTS-AT-VALUE> 96,411,658
<RECEIVABLES> 1,523,144
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,628,306
<TOTAL-ASSETS> 101,563,108
<PAYABLE-FOR-SECURITIES> 1,381,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,521
<TOTAL-LIABILITIES> 1,593,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,466
<SHARES-COMMON-STOCK> 5,902
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (389,016)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,049,926
<NET-ASSETS> 60,171
<DIVIDEND-INCOME> 385,965
<INTEREST-INCOME> 126,699
<OTHER-INCOME> 0
<EXPENSES-NET> 613,282
<NET-INVESTMENT-INCOME> (100,618)
<REALIZED-GAINS-CURRENT> (445,524)
<APPREC-INCREASE-CURRENT> 3,049,926
<NET-CHANGE-FROM-OPS> 2,503,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,052
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 98,935,485
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 307,806
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 613,282
<AVERAGE-NET-ASSETS> 41,240
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.20
<EXPENSE-RATIO> 2.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> Nations Fund Port Pacific Growth Inv-N
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 93,361,181
<INVESTMENTS-AT-VALUE> 96,411,658
<RECEIVABLES> 1,523,144
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,628,306
<TOTAL-ASSETS> 101,563,108
<PAYABLE-FOR-SECURITIES> 1,381,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,521
<TOTAL-LIABILITIES> 1,593,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,200,772
<SHARES-COMMON-STOCK> 228,263
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (389,016)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,049,926
<NET-ASSETS> 2,324,396
<DIVIDEND-INCOME> 385,965
<INTEREST-INCOME> 126,699
<OTHER-INCOME> 0
<EXPENSES-NET> 613,282
<NET-INVESTMENT-INCOME> (100,618)
<REALIZED-GAINS-CURRENT> (445,524)
<APPREC-INCREASE-CURRENT> 3,049,926
<NET-CHANGE-FROM-OPS> 2,503,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,443)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 232,191
<NUMBER-OF-SHARES-REDEEMED> (4,917)
<SHARES-REINVESTED> 139
<NET-CHANGE-IN-ASSETS> 98,935,485
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 307,806
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 613,282
<AVERAGE-NET-ASSETS> 1,132,144
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 2.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Nations Fund Port Pacific Growth Pr-A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 93,361,181
<INVESTMENTS-AT-VALUE> 96,411,658
<RECEIVABLES> 1,523,144
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,628,306
<TOTAL-ASSETS> 101,563,108
<PAYABLE-FOR-SECURITIES> 1,381,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,521
<TOTAL-LIABILITIES> 1,593,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,726,023
<SHARES-COMMON-STOCK> 9,296,497
<SHARES-COMMON-PRIOR> 850
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (389,016)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,049,926
<NET-ASSETS> 95,209,780
<DIVIDEND-INCOME> 385,965
<INTEREST-INCOME> 126,699
<OTHER-INCOME> 0
<EXPENSES-NET> 613,282
<NET-INVESTMENT-INCOME> (100,618)
<REALIZED-GAINS-CURRENT> (445,524)
<APPREC-INCREASE-CURRENT> 3,049,926
<NET-CHANGE-FROM-OPS> 2,503,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (108,132)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,508,684
<NUMBER-OF-SHARES-REDEEMED> (213,667)
<SHARES-REINVESTED> 630
<NET-CHANGE-IN-ASSETS> 98,935,485
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 307,806
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 613,282
<AVERAGE-NET-ASSETS> 44,289,828
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
May 30, 1996
Nations Fund Portfolios, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Capital Stock of
Nations Fund Portfolios, Inc.
Gentlemen:
We refer to Post-Effective Amendment No. 5 and Amendment No. 7 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, Nations Global Government Income
Fund, Nations Pacific Growth Fund and 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 year ended March 31, 1996. We have assumed the genuineness of all
signatures and the authenticity of all items submitted to us as originals and
the conformity with originals of all items submitted to us as copies.
<PAGE>
Nations Fund Portfolios, Inc.
May 30, 1996
Page Two
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the 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
<PAGE>
EX-99.B11
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting parts of this Post-Effective Amendment No. 5
under the Securities Act of 1933 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated May 17, 1996, relating to the
financial statements and financial highlights appearing in the March 31, 1996
Annual Reports to Shareholders of Nations Fund Portfolios, Inc., which are also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Other Service Providers" in the
Prospectuses and under the heading "Independent Accountant and Reports" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 30, 1996
<PAGE>
