<PAGE> 1
[NATIONS FUNDS LOGO]
Government
& Corporate
Bond Funds
Annual Report For The
Year Ended March 31, 1998
[PICTURE OF TREE]
Investments For A Lifetime(SM)
Nations
Short-Term
Income Fund
Nations
Short-Intermediate
Government Fund
Nations
Government
Securities Fund
Nations
Strategic
Fixed Income Fund
Nations
U.S. Government
Bond Fund
Nations
Diversified
Income Fund
Nations
Global Government
Income Fund
<PAGE> 2
[BACKGROUND DEPICTING BASKETS]
This Report is submitted for
the general information of
shareholders of Nations Funds.
This material must be preceded or
accompanied by a current Nations
Funds prospectus.
Nations Funds Distributor:
Stephens Inc. Stephens Inc., which
is not affiliated with NationsBank,
N.A., is not a bank, and securities
offered by it are not guaranteed by
any bank or insured by the FDIC.
Stephens Inc., member NYSE, SIPC.
Nations Funds Investment Adviser:
NationsBanc Advisors, Inc.
Nations Funds Investment Sub-
Advisers: TradeStreet Investment
Associates, Inc., Gartmore Global
Partners, Boatmen's Capital
Management, Inc. and Marsico
Capital Management, LLC.
- -----------------
[DOWNWARD ARROW]
NOT FDIC-
INSURED
- -----------------
May Lose Value
- -----------------
No Bank Guarantee
- -----------------
<PAGE> 3
Presidents'
Message
Dear Shareholder:
The past 12 months have been very rewarding for many
investors. Even with domestic markets feeling the
effects of the Asian financial crisis, the Standard &
Poor's 500 Composite Stock Price Index (S&P 500
Index) -- a widely known indicator of stock market
activity -- returned 47.98%.*
Even though the markets have experienced recent
success, the prudent investor realizes these conditions
cannot continue indefinitely. While the markets have
continued to perform well during the first three months
of 1998, we encourage you to consider:
-- BUILDING A DIVERSIFIED PORTFOLIO. A portfolio
comprised of different types of
investments -- stocks, bonds, money market
instruments -- has the potential to serve you best
in volatile markets.
-- CHOOSING AN INVESTMENT STRATEGY THAT COMPLEMENTS
YOUR LIFESTYLE AND FINANCIAL OBJECTIVES, and
maintaining that strategy as you pursue your
investment goals.
-- INVESTING FOR THE LONG TERM. If you can afford to
invest throughout inevitable market fluctuations,
you should benefit since historically, market prices
have generally gone up over the long term. This is
often a better strategy than attempting to "time"
the market.
-- INVESTING ON A REGULAR BASIS. This technique, known
as dollar-cost averaging, may enable you to buy more
shares when prices are lower and fewer when prices
are higher. Systematic investing generally provides
an easy, disciplined way to increase your assets.
Such a strategy does not assure a profit and does not
protect against loss in declining markets. Since
this strategy involves continuous investment in
securities regardless of fluctuating price levels,
you should carefully consider your financial ability
to continue your purchases through periods of
declining price levels.
Following these guidelines may help you create an
investment portfolio with the potential to make the
most of current market conditions, as well as those to
come.
With Nations Funds as a component of that portfolio,
your investment is part of over $33 billion in assets
under management. We are very pleased with the overall
performance of the Funds over the past 12 months.
Please refer to the individual fund commentary for
performance results.
NEW OPPORTUNITIES FOR YOUR DIVERSIFIED PORTFOLIO
We have continued to expand the Nations Funds family of
funds, including the addition of two new growth funds
managed by Tom Marsico, one of
* The S&P 500 Index is an unmanaged index of 500 widely
held common stocks. It is unavailable for investment.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE> 4
Presidents'
Message continued...
the most respected portfolio managers in the industry.
Mr. Marsico is widely known in the investment community
for having managed the Janus Twenty Fund and Janus
Growth and Income Fund; during his tenure of nearly 10
years at Janus, these Funds grew from $7 million in
assets to more than $7 billion.
In addition, we created Nations Annuity Trust, which
consists of eight investment portfolios that serve as
underlying investment vehicles for annuity products.
One of those products, Nations Variable Annuity issued
by Hartford Life Insurance Company, is now available
for your long-term tax-deferred investing needs.
RECOGNITION FOR SUPERIOR SHAREHOLDER SERVICES
The Nations Funds product line and its performance,
however, lacks importance if it isn't backed by
helpful, professional services to its shareholders.
That's why, among all the Funds' accomplishments this
year, we are particularly proud of the recognition the
industry bestowed on Nations Funds.
In its first year as a participant in the annual survey
conducted by DALBAR, Inc. -- an independent research
firm that measures customer service and establishes
benchmarks in the financial services industry --
Nations Funds was honored with the Key Honors Award for
superior customer service. This award "designates those
firms that demonstrate their commitment to the
shareholder by providing consistently solid service."
NATIONS FUNDS PROVIDES INVESTMENTS FOR A LIFETIME
We want to thank you for your confidence in Nations
Funds, and for making them part of your investment
strategy. As we strive to provide an ever-diverse range
of investment products, we recognize that the
strongest, most important asset is you, the
shareholder.
Sincerely,
<TABLE>
<S> <C>
/s/ A. Max Walker /s/ Robert H. Gordon
A. Max Walker Robert H. Gordon
President and Chairman President
of the Board NationsBanc Advisors, Inc.
</TABLE>
March 31, 1998
P.S.: If you have any questions or comments on your
annual report or the information in it, please contact
us at 1-800-321-7854 or send us a message from the
Nations Funds Web Site at
WWW.NATIONSBANK.COM/NATIONSFUNDS.
<PAGE> 5
Table
Of
Contents
<TABLE>
<S> <C>
NATIONS FUND SPECTRUM 2
ECONOMIC OVERVIEW 4
PORTFOLIO MANAGER COMMENTARY
Nations Short-Term Income Fund 6
Nations Short-Intermediate Government Fund 11
Nations Government Securities Fund 16
Nations Strategic Fixed Income Fund 21
Nations U.S. Government Bond Fund 28
Nations Diversified Income Fund 33
Nations Global Government Income Fund 38
FINANCIAL STATEMENTS
Schedules of Investments 44
Statements of Assets and Liabilities 56
Statements of Operations 60
Statements of Changes in Net Assets 62
Schedules of Capital Stock Activity 66
Financial Highlights 74
Notes to Financial Statements 88
---------------------------------------------------------------------------------
Nations Funds [Dalbar Logo]
Recognized For
Outstanding DALBAR, Inc., is a well-respected research firm
Customer Service that measures customer service levels and
establishes benchmarks in the financial services
In recognition of our industry.
commitment to retail
shareholders through
consistently providing
superior customer service,
Nations Funds was awarded
DALBAR Key Honors in 1997.
---------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
The
Nations Funds
Family At A Glance
STABILITY
- ---------------- CURRENT INCOME
- ----------------------------------------------------------------------------------
GROWTH & INCOME
-----------------------
MONEY SHORTER INTERMEDIATE LONGER TERM LARGE CAPITALIZATION
MARKET MATURITY MATURITY DOMESTIC VALUE FUNDS
FUNDS BOND FUNDS BOND FUNDS AND GLOBAL
BOND FUNDS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - Nations - Nations Short- - Nations - Nations Global - Nations
Prime Fund Intermediate Strategic Fixed Government Value Fund
Government Income Fund Income Fund
- - Nations Government Fund - Nations
Money Market - Nations - Nations Managed
Fund - Nations Government Diversified Value Index
Short-Term Securities Fund Income Fund Fund
- - Nations Income Fund
Treasury Fund - Nations - Nations - Nations
- - Nations Tax - Nations Short- Intermediate U.S. Government Equity Income
Exempt Fund Term Municipal Municipal Bond Fund Fund
Income Fund Bond Fund
- Nations - Nations
- Nations Municipal Balanced Assets
State-Specific Income Fund Fund
Intermediate
Municipal Bond - Nations
Funds State-Specific
Long-Term
Municipal Bond
Funds
</TABLE>
POTENTIAL RETURN
RISK (VARIABILITY)
2
<PAGE> 7
[NATIONS FUNDS LOGO]
Investments For A Lifetime(SM)
<TABLE>
<CAPTION>
GROWTH & INCOME
- -------------------------
GROWTH
- ----------------------------------------------------------
AGGRESSIVE GROWTH
-------------------------------------------------------------------------------
LARGE LARGE MID SMALL
CAPITALIZATION CAPITALIZATION INTERNATIONAL CAPITALIZATION CAPITALIZATION REGION-SPECIFIC
FUNDS GROWTH FUNDS EQUITY FUNDS FUNDS FUNDS INTERNATIONAL FUNDS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - Nations - Nations - Nations - Nations - Nations - Nations
Marsico Marsico Focused International Emerging Small Company Emerging
Growth Equities Fund Growth Fund Growth Fund Growth Fund Markets Fund
& Income
Fund - Nations - Nations - Nations - Nations
Disciplined International Managed Pacific Growth
- - Nations Equity Fund Equity Fund SmallCap Fund
Managed Index Fund
Index Fund - Nations
Capital Growth - Nations
Fund Managed
SmallCap
Value Index
Fund
</TABLE>
The Nations Funds family also includes Nations Equity Index Fund, which seeks
investment results that correspond, before fees and expenses, to the total
return of the Standard and Poor's 500 Composite Stock Price Index.
LIFEGOAL PORTFOLIOS
- - LifeGoal Income and Growth Portfolio
- - LifeGoal Balanced Growth Portfolio
- - LifeGoal Growth Portfolio
3
<PAGE> 8
Economic
Overview
For the 12-month period ended March 31, 1998, economic
conditions in the United States were stellar, fueling a
steady rise in the financial markets and giving
investors plenty to cheer about.
Economic activity was robust, and the pace of growth
for the year was the fastest of the current expansion,
which is now entering its eighth year. With business
booming, corporate profits rose by more than 10%.
Nearly three million new jobs were created, sending the
national unemployment rate down to a 30-year low of
4.6%. What's more, in this high employment environment,
U.S. workers have enjoyed rising wages.
Fortunately, the inflationary impact of rising labor
costs has been more than offset by other strong forces.
In fact, overall inflation was almost nonexistent for
the reporting period, with the Consumer Price Index,
the most commonly used measure of inflation at the
retail level, up less than 2%. Meanwhile, wholesale
inflation actually dropped over the past 12 months.
What explains the economic balancing act that allows
for continual growth without the threat of inflation?
The answer is that the United States is benefiting from
a moderate economic expansion, driven by capital
spending that is expanding capacity rather than
pressuring it. Productivity gains have been impressive,
and inflation is being subdued by increasingly global
markets for labor and products, along with a freer
world trade environment. As long as these trends remain
in place, our economy should continue to grow while
experiencing stable prices for goods and services. We
remain bullish about long-term economic prospects in
the United States.
These ideal economic conditions have helped propel the
financial markets to new significant highs. During the
past 12 months, the Dow Jones Industrial Average* broke
through the 7,000 and 8,000 barriers, closing the
period at 8,799.81 -- up over 35%. Even more amazing is
that the Dow soared by over 20% for the third year in a
row, an unprecedented feat for the blue-chip average.
All other domestic stock indexes rose as well, some
higher than others. By all measures, the past year was
a rewarding one for stock investors.
* The Dow Jones Industrial Average is a price-weighted
index of 30 of the largest, most widely held stocks
traded on the New York Stock Exchange. It is unmanaged
and unavailable for investment.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
<PAGE> 9
Economic
Overview continued...
With news on the inflation front remaining positive,
the bond market also performed well during the period.
Interest rates drifted to lower levels and bond values
rose accordingly. This translated into attractive
results for bond funds, with total returns generally
ranging from 9% to 12% for the period.
Looking ahead, the next several months will likely be
dominated by news about the financial crisis in Asia
and its impact on U.S. companies. However, we do not
expect the so-called "Asian contagion" to cause U.S.
economic conditions to deteriorate. We believe the
positive cyclical themes of 1997 -- moderate growth,
low inflation and continued profit growth -- will
remain intact in the year ahead, and we remain
optimistic that the expansion will continue
uninterrupted.
The U.S. economy has climbed to a level envied by most
other countries in the world. For stock investors in
particular, the view from this lofty perch is
spectacular. Could our markets soar to even higher
levels? Yes, as long as favorable conditions remain in
place.
But investors must remember that stock markets do not
go up indefinitely. Today, our challenge is to fight
off the euphoria that can often accompany a bull market
and remind ourselves that investing is a long-term
endeavor. Historically, stocks have risen over time,
but there have been plenty of ups and downs along the
way. The next stock market correction may be out there,
even if we can't see any dark clouds yet.
On behalf of Nations Funds shareholders, we will keep
our eye on the horizon.
E. Keith Wirtz, CFA
Chief Investment Officer
TradeStreet Investment Associates, Inc.
March 31, 1998
5
<PAGE> 10
Nations
Short-Term Income
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. FRITH SHARES HIS VIEWS
ON NATIONS SHORT-TERM INCOME FUND'S PERFORMANCE FOR THE
12-MONTH PERIOD ENDED MARCH 31, 1998 AND HIS CURRENT
OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
J. Patrick Frith, CFA, is REPORTING PERIOD?
Portfolio Manager of Nations During the period, economic growth was well above the most
Short-Term Income Fund and optimistic expectations of long-term sustainable levels,
Portfolio Manager, Fixed Income productivity rates were high and unemployment rates were at
Management for TradeStreet 30-year lows. In addition, inflation continued to fall and
Investment Associates, Inc., budget deficits declined, providing a favorable backdrop for
the investment sub-adviser to financial assets.
the Fund. In this economic environment, the U.S. Federal Reserve Board
INVESTMENT OBJECTIVE (the Fed) opted to keep the Federal Funds rate steady at
The Fund seeks high current 5.5%. The benchmark 30-year U.S. Treasury bond yield started
income consistent with minimal the period at just over 7% and declined steadily throughout
fluctuation of principal by the year. Late in 1997, the Asian financial crisis and the
investing in investment-grade ensuing "flight to quality" helped push the yield on the
debt securities. 30-year U.S. Treasury to just under 6%, where it remained at
PERFORMANCE REVIEW March 31, 1998.
For the 12-month period ended During the final quarter of 1997, the Asian crisis was the
March 31, 1998, Nations most significant bond market news. Asian stock markets
Short-Term Income Fund Primary plunged to levels not seen in years, creating a financial
A Shares provided a total crisis that shook the world's markets. As investor
return of 6.89%.** confidence deteriorated, the U.S. bond market benefited from
a massive "flight to quality," with investors selling stocks
and buying U.S. bonds. Within the bond market, investors
fled the corporate, mortgage-backed and asset-backed
securities sectors in favor of U.S. Treasuries. As a result,
bond funds with heavy U.S. Treasury weightings performed
very well.
Bonds continued to perform well in the first few weeks of
1998, as Fed Chairman Alan Greenspan talked publicly for the
first time about the possible deflationary impact of the
Asian crisis. Bonds rallied sharply, shifting the entire
yield curve downward. The short-end of the curve -- issues
of short maturities -- performed best, as two-year U.S.
Treasury yields fell by almost one half of one percent by
mid-January 1998. (Bond yields move in the opposite
direction of bond prices, so that when yields go down,
prices typically go up.)
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
6
<PAGE> 11
Nations
Short-Term Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
Over the remainder of the first quarter of 1998, the bond
market vacillated as a result of concerns over the negative
impact of the Asian financial crisis and economic releases
showing a U.S. economy still going strong. By quarter-end,
the concerns about an overly strong U.S. economy had the
upper hand, forcing bond yields back up to 1997 year-end
levels. Investors again entertained the possibility that the
Fed might need to raise interest rates to dampen above-trend
growth and control inflation.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?***
In the first two quarters of the reporting period, the Fund
continued to invest primarily in corporate, asset-backed and
mortgage-backed securities, all of which delivered solid
returns. The Fund's asset-backed securities typically offer
yields which are incrementally higher than those of
similarly rated U.S. Treasury and agency issues. High levels
of liquidity and quality coupled with lower spread
volatility make asset-backed securities an attractive
sector. The Fund's asset-backed securities weighting has
always emphasized larger, more liquid and well-seasoned
issuers.
In anticipation of declining interest rates in the fall of
1997, we increased the Fund's duration by investing in
securities with longer maturities. The Fund benefited from
this stance as well as from its diversified holdings in
asset-backed securities of large, well-seasoned issuers in
the credit card, auto loan and manufactured housing
industries.
In the first quarter of 1998, the economic environment was
again poised to support corporate bonds and asset-backed
securities. Accordingly, we increased the Fund's weighting
in these sectors, which aided the Fund's performance versus
its peer group.
***Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
7
<PAGE> 12
Nations
Short-Term Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
The Fund's BBB-rated corporate WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
securities, regardless of PERFORMANCE?
sector, outperformed its The Fund's BBB-rated corporate securities, regardless of
higher-rated corporate and U.S. sector, outperformed its higher-rated corporate and U.S.
Treasury counterparts. This Treasury counterparts. This outperformance was attributable
outperformance was attributable to the higher yields provided by BBB-rated issues, as well
to the higher yields provided as the continuance of a favorable U.S. economic environment.
by BBB-rated issues, as well as Although the Asian crisis, combined with the Fund's
the continuance of a favorable overweighted corporate bond exposure, did hinder performance
U.S. economic environment. during the fourth quarter of 1997, it enhanced Fund
performance for the entire period.
In the first quarter of 1998, we lengthened the duration of
the Fund's holdings to make it more in line with its peer
group. Some shorter-maturity corporate bond holdings were
sold, and proceeds were used to purchase corporate bonds
with three- to four-year maturities. This was a positive
contributor to first-quarter performance and should benefit
the portfolio in the future.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
In retrospect, the Fund was positioned with too short a
duration early in the reporting period (investing primarily
in securities with shorter maturities in anticipation of
higher interest rates). With a strong, and strengthening,
U.S. economy and hints of wage inflation, we believed that a
short-duration stance was warranted. Although this was a
reasonable assumption at the time, it was off-base and
caused relative underperformance for the portfolio early in
the period.
When the Asian crisis hit late in 1997, the Fund's relative
performance suffered due to its underweighting in U.S.
Treasury securities, which generally outperformed the Fund's
holdings of corporate and asset-backed bonds.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
Looking forward, it appears that we have not yet felt the
full effect of the Asian slowdown. We anticipate the
financial crisis in Asia to have an impact on the U.S.
economy, affecting our markets in the third or fourth
quarters of 1998. However, the U.S. economy remains
remarkably strong for the seventh year of its economic
expansion. Unemployment is very low, job growth and
corporate earnings are strong, consumer confidence is high,
and equity markets continue to hit new highs.
In this environment, we believe it is unlikely that the Fed
will soon ease interest rates. We expect the Fed to leave
short-term rates unchanged for the next several months.
</TABLE>
8
<PAGE> 13
Nations
Short-Term Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
Because the economic environment appears encouraging for
U.S. Treasury securities, asset-backed securities and
corporate bonds, we do not anticipate major shifts in sector
weightings. The Fund will continue to emphasize
income-oriented sectors as it seeks to continue to deliver
solid performance.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
1.9% Other
2.4% U.S. Treasury Obligations
3.7% Mortgage-Backed
Securities
4.3% Foreign Bonds
and Notes
31.9% Asset-Backed Securities
55.8% Corporate Bonds
and Notes
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 Federal National Mortgage
Association Certificate
6.000% 11/01/03 3.7%
-----------------------------------------
2 Chrysler Financial
Corporation, Notes, 6.375%
01/28/00 3.1%
-----------------------------------------
3 Chase Manhattan Auto Owner
Trust, Series 1996-C, Class
A4 6.150% 03/15/02 3.1%
-----------------------------------------
4 Spiegel Master Trust,
Series 1995-A, Class A,
7.500% 09/15/04 3.0%
-----------------------------------------
5 IMC Home Equity Loan Trust,
Series 1997-1, Class A3,
6.820% 10/25/11 3.0%
-----------------------------------------
6 Premier Auto, Series 1997-2,
Class A5, 6.320% 03/06/02 3.0%
-----------------------------------------
7 Banc One Credit Card Master
Trust, Series 1994-C, Class A
7.800% 11/15/98 2.9%
-----------------------------------------
8 Salomon Smith Barney Hldgs,
Inc., 7.980% 03/01/00 2.9%
-----------------------------------------
9 Time Warner, Inc.-PATS,
4.900% 07/29/99 2.8%
-----------------------------------------
10 First Chicago NBD
Corporation, Sr. Notes,
6.250% 07/21/00 2.7%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998,
ARE SUBJECT TO CHANGE AND MAY NOT
BE REPRESENTATIVE OF CURRENT HOLDINGS.
9
<PAGE> 14
Nations
Short-Term Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Merrill Lynch 1-3
(Fiscal Year Covered) Term Income $13,386 Year Treasury Index $13,393
Assumes the reinvestment of all distributions.
<S> <C> <C>
Sept. 30 1992 10000 10000
1992 9941 10018
10268 10239
10435 10350
10629 10498
1993 10692 10560
10592 10508
10553 10516
10660 10620
1994 10663 10620
11006 10977
11391 11329
11569 11499
1995 11865 11789
11899 11828
12017 11947
12212 12145
1996 12446 12375
12524 12457
12768 12732
13008 12981
1997 13197 13199
Mar. 31 1998 13386 13393
</TABLE>
Investor B Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Merrill Lynch 1-3
(Fiscal Year Covered) Term Income $12,741 Year Treasury Index $13,036
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10099 10074
10277 10218
1993 10328 10279
10223 10227
10177 10236
10271 10337
1994 10265 10337
10586 10684
10946 11027
11108 11192
1995 11382 11474
11405 11512
11508 11628
11684 11821
1996 11898 12045
11962 12125
12185 12392
12403 12635
1997 12572 12847
Mar. 31 1998 12741 13036
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(9/30/92 through 3/31/98) 5.45%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Short-Term Income
Fund from the date each class of shares
was first offered. Figures for the
Merrill Lynch 1-3 Year Treasury Index,
an unmanaged index comprised of U.S.
Treasury bonds with maturities of 1-3
years, include reinvestment of
dividends. It is unavailable for
investment. The performance shown
reflects the performance of Primary A
and Investor B Shares. The performance
of Primary B, Investor A, and Investor
C Shares may vary based on the
differences in sales loads and fees
paid by the shareholders investing in
each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception
(6/7/93 through 3/31/98) 5.16%
[CHART LEGEND]
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C>
Inception Date 9/30/92 6/28/96 10/2/92 6/7/93 10/2/92
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 6.89% 6.58% 6.67% 6.51% 6.51%
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 6.74% NA 6.54% 6.37% 6.37%
5 Years 5.45% NA 5.26% NA 5.04%
Since Inception 5.45% 6.00% 5.20% 5.16% 5.01%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
10
<PAGE> 15
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. SWAIM SHARES HIS VIEWS
ON NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND'S
PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 1998
AND HIS CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
John S. Swaim is The Fund offers shareholders a low-volatility,
Senior Portfolio Manager high-credit-quality approach to investing in the bond market
of Nations Short-Intermediate by focusing primarily on the relative attractiveness of U.S.
Government Fund and Senior Treasury securities and mortgage-backed securities.
Product Manager, Fixed Income
Management for TradeStreet WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
Investment Associates, Inc., REPORTING PERIOD?
the investment sub-adviser During the period, economic growth was well above the most
to the Fund. optimistic expectations of long-term sustainable levels,
INVESTMENT OBJECTIVE productivity rates were high and unemployment rates were at
The Fund seeks high current 30-year lows. In addition, inflation continued to fall and
income consistent with modest budget deficits declined, providing a favorable backdrop for
fluctuation financial assets.
of principal. It invests
primarily in securities issued In this economic environment, the U.S. Federal Reserve Board
or guaranteed (the Fed) opted to keep the Federal Funds rate steady at
by the U.S. Government, 5.5%. The benchmark 30-year U.S. Treasury bond started the
its agencies or period at just over 7%, traded in a fairly tight range until
instrumentalities. August 1997 and then declined in reaction to the Asian
PERFORMANCE REVIEW financial crisis, ending the period at just under 6%. (Bond
For the 12-month period ended yields typically move in the opposite direction of bond
March 31, 1998, Nations Short- prices, so that when yields go down, prices generally go
Intermediate Government Fund up.)
Primary A Shares provided a
total return of 9.11%.** Early in the reporting period, the economy experienced
impressive overall growth, a balanced budget and no
inflationary pressures. However, in August 1997, the market
retreated somewhat as the unemployment rate continued to
decline, consumer confidence remained high and the U.S.
dollar declined from its then year-to-date highs. But with
favorable inflation reports, the market accurately
anticipated that the Fed would not act to raise interest
rates. Accordingly, bond yields declined slightly in
September 1997.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
11
<PAGE> 16
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In the final quarter of 1997, Asian stock markets plunged to
levels not seen in several years, creating fears of a
financial crisis that affected the world's markets. As
investor confidence deteriorated, the U.S. bond market
benefited from a massive "flight to quality," with investors
selling off foreign securities and buying U.S. bonds. Within
the bond market, investors fled from corporate,
mortgage-backed and asset-backed securities into U.S.
Treasuries. As a result, any fund with primary holdings in
U.S. Treasuries was well positioned.
In early 1998, Fed Chairman Alan Greenspan discussed the
possibility of disinflationary shocks resulting from the
problems in Asia. This caused the bond market yield curve to
steepen dramatically, reducing short-term bond yields
relative to long-term bond yields, which also declined. In
February 1998, as the strength of the U.S. economy became a
concern, the market experienced a sell-off and investors
again entertained the possibility
that the Fed might raise interest rates to get ahead of
inflation and
influence growth.
IN JANUARY 1998, SHORT-TERM BOND PERFORMANCE FELL WHEN THE
YIELD CURVE STEEPENED. HOW WAS THE FUND AFFECTED BY THIS?
Prior to January 1998, the bond yield curve had been
flattening, indicating that investors who took on a
relatively low level of risk by investing in short-term
bonds earned income closer to that of more volatile 30-year
U.S. Treasury securities. The Fund benefited from this
flattening as it focused on very short-term and long-term
maturity securities. However, in January 1998, the yield
curve steepened sharply, negatively affecting the Fund's
performance as securities with intermediate maturities
outperformed.
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?***
The Fund invested over half of its assets in U.S. Treasury
securities. While these are viewed by many as a handicap to
performance because of their relative lack of income, the
Fund takes advantage of the high liquidity they provide. The
U.S. Treasury market is the most liquid fixed income market
in the world, and the Fund used this part of its portfolio
for duration and yield-curve management, which contributed
to performance at the lowest possible transaction cost.
*** Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
12
<PAGE> 17
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
Because the Fund can conduct transactions for U.S. Treasury
securities at less cost than for any other, it can take
advantage of valuation opportunities that arise across the
yield curve. Positioning along the yield curve is a key for
value-added performance and enhances the stability provided
by the Fund to its investors. The liquidity of this market
also permits more frequent duration adjustments within a
narrow band. The Fund historically has added value with
these low-cost strategies.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
As interest rates declined during the last six months due to
the Asian financial crisis, homeowners took advantage of
lower interest rates by prepaying or refinancing their
mortgages. As a result, mortgage-backed securities lost
value, causing a portion of the Fund to decline in value. In
reaction, we reduced the Fund's holdings in the mortgage
market. Because mortgage-backed securities had offered solid
income potential, it was important to invest in alternative
income-producing securities during this time. Accordingly,
we increased the Fund's weighting in callable securities,
which provided the Fund with an income component along with
liquidity.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
We anticipate the financial crisis in Asia to have an impact
on the U.S. economy, affecting our markets in the third or
fourth quarter of 1998. When this occurs, we expect the
economy to slow and disinflation to play a role. This could
ease pressure on the labor market and could prompt the Fed
to reduce interest rates. However, we do not expect the
impact to be so severe as to cause a recession.
We strive to provide investors If, however, the Asian situation does not have a significant
with a relatively stable net impact and economic growth remains strong, then the Fed will
asset value with attractive likely raise interest rates. We expect this to slow the
levels economy, eventually causing rates to decline.
of income.
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
The Fund will remain conservative and invest primarily in
U.S. Treasuries, maintaining a portfolio with a short
duration during the next few months. We strive to provide
investors with a relatively stable net asset value with
attractive levels of income.
</TABLE>
13
<PAGE> 18
Nations
Short-Intermediate Government
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
0.2% Government Guaranteed Bonds
4.3% Short-Term Investments
22.0% Mortgage-Backed
Securities
73.5% U.S. Government
and Agency
Obligations and
Other Assets
and Liabilities (Net)
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 U.S. Treasury Notes 55.5%
-----------------------------------------
2 Federal National Mortgage
Association (FNMA)
Certificates 10.2%
-----------------------------------------
3 Federal National Mortgage
Association (FNMA) Notes 9.7%
-----------------------------------------
4 Federal Home Loan Mortgage
Corp. (FHLMC) Certificates 7.1%
-----------------------------------------
5 Government National Mortgage
Association (GNMA)
Certificates 4.6%
-----------------------------------------
6 U.S. Treasury Bond
6.125% 11/15/27 4.4%
-----------------------------------------
7 Federal Home Loan Mortgage
Corporation 6.625% 03/12/08 4.4%
-----------------------------------------
8 Federal Home Loan Bank
Discount Note
5.475% 04/24/98 4.1%
-----------------------------------------
9 Second Attransco Tanker
Corporation, Series A
8.500% 06/15/02 0.2%
-----------------------------------------
10 Federal Housing Authority
(FHA) Certificates and Notes
6.000% 07/15/04 0.2%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998, ARE SUBJECT
TO CHANGE AND MAY NOT BE REPRESENTATIVE
OF CURRENT HOLDINGS.
14
<PAGE> 19
Nations
Short-Intermediate Government
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Lehman Brothers Intermediate Government Bond
(Fiscal Year Covered) Intermediate Government $15,369 Index $16,072
Assumes the reinvestment of all distributions.
<S> <C> <C>
Aug. 1 1991 10000 10000
10427 10363
1991 10925 10862
10762 10748
11242 11164
11639 11653
1992 11556 11614
11997 12049
12185 12285
12461 12545
1993 12483 12564
12266 12332
12147 12263
12208 12356
1994 12183 12345
12648 12859
13124 13460
13314 13669
1995 13699 14126
13580 14029
13599 14124
13834 14366
1996 14135 14699
14086 14694
14498 15104
14841 15491
1997 15160 15834
Mar. 31 1998 15369 16072
</TABLE>
Investor B Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Lehman Brothers Intermediate Government Bond
(Fiscal Year Covered) Intermediate Government $12,162 Index $13,272
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10092 10145
10304 10359
1993 10307 10375
10113 10184
9999 10127
10035 10204
1994 9999 10194
10366 10618
10740 11115
10878 11287
1995 11175 11665
11061 11585
11060 11663
11234 11863
1996 11461 12138
11404 12134
11720 12473
11979 12792
1997 12211 13075
Mar. 31 1998 12162 13272
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(8/1/91 through 3/31/98) 6.66%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Short-Intermediate
Government Fund from the date each
class of shares was first offered.
Figures for the Lehman Brothers
Intermediate Government Bond Index, an
unmanaged index comprised of U.S.
government agency and U.S. Treasury
securities, include reinvestment of
dividends. It is unavailable for
investment. The performance shown
reflects the performance of Primary A
and Investor B Shares. The performance
of Primary B, Investor A and Investor C
Shares may vary based on the
differences in sales loads and fees
paid by the shareholders investing in
each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC*
(6/7/93 through 3/31/98) 4.49% 4.15%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C> <C>
Inception Date 8/1/91 6/28/96 8/5/91 6/7/93 6/17/92
NAV CDSC*
- ---------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 9.11% 8.74% 8.89% 8.35% 4.35% 8.45%
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 6.71% NA 6.50% 6.03% 5.13% 6.14%
5 Years 5.08% NA 4.87% NA NA 4.48%
Since Inception 6.66% 6.85% 6.50% 4.49% 4.15% 5.03%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
15
<PAGE> 20
Nations
Government Securities
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. GUNSTER SHARES HIS VIEWS
ON NATIONS GOVERNMENT SECURITIES FUND'S PERFORMANCE FOR
THE 12-MONTH PERIOD ENDED MARCH 31, 1998 AND HIS CURRENT
OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
Christopher G. Gunster is The Fund invests primarily in U.S. Treasuries,
Portfolio Manager of Nations mortgage-backed securities and government agency bonds. The
Government Securities Fund and Fund moves strategically among these sectors and along the
Portfolio Manager, Fixed Income yield curve to provide both a high level of current income
Management for TradeStreet and capital appreciation.
Investment Associates, Inc., WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
the investment sub-adviser to REPORTING PERIOD?
the Fund. During the period, economic growth was well above the most
INVESTMENT OBJECTIVE optimistic expectations of long-term sustainable levels,
The Fund seeks high current productivity rates were high and unemployment rates were at
income consistent with moderate 30-year lows. In addition, inflation continued to fall and
fluctuation of principal. The budget deficits declined, providing a favorable backdrop for
Fund invests primarily in financial assets.
intermediate-term securities In this economic environment, the U.S. Federal Reserve Board
issued or guaranteed by the (the Fed) opted to keep the Federal Funds rate steady at
U.S. Government, its agencies 5.5%. The benchmark 30-year U.S. Treasury bond started the
or instrumentalities. period at just over 7%, traded in a fairly tight range until
PERFORMANCE REVIEW August 1997 and then declined in yield in reaction to the
For the 12-month period ended Asian financial crisis, ending the period at just under 6%.
March 31, 1998, Nations (Bond yields move in the opposite direction of bond prices,
Government Securities Fund so that when yields go down, prices generally go up.)
Primary A Shares provided a Early in the reporting period, the economy experienced
total return of 11.65%.** impressive overall growth and little inflationary pressures.
However, in August 1997, the market retreated somewhat as
the unemployment rate continued to decline, consumer
confidence remained high and the U.S. dollar declined from
its then year-to-date highs. But with favorable inflation
reports, the market accurately anticipated that the Fed
would not act to raise interest rates. Accordingly, bond
yields declined slightly in September.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
16
<PAGE> 21
Nations
Government Securities
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In the final quarter of 1997, Asian stock markets plunged to
levels not seen in several years, creating fears of a
financial crisis that would affect the world's markets. As
investor confidence deteriorated, the U.S. bond market
benefited from a massive "flight to quality," with investors
selling off foreign securities and buying U.S. bonds. Within
the U.S. bond market, investors fled from corporate,
mortgage-backed and asset-backed securities into U.S.
Treasuries. As a result, any fund with large holdings in
U.S. Treasuries did well.
In early 1998, Fed Chairman Alan Greenspan discussed the
possibility of disinflationary shocks from the problems in
Asia. This caused the bond market yield curve to steepen
dramatically with yields on short maturity instruments
declining and the yields on long-term bonds remaining
relatively stable. In February 1998, as the strength of the
U.S. economy became a concern, the market experienced a
sell-off and investors again entertained the possibility
that the Fed might raise interest rates to get ahead of
inflation and influence growth.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?***
Until the Asian financial crisis hit in October 1997, the
Fund invested primarily in mortgage-backed and U.S. Treasury
securities. As the Asian crisis unfolded, interest rates
declined and U.S. Treasury securities did well; however,
mortgage-backed securities did not. To minimize the negative
effect of homeowners' refinancing due to lower interest
rates and to capitalize on the strengthening U.S. Treasury
market, we reduced the Fund's holdings in mortgage-backed
securities and emphasized U.S. Treasuries. This sector
allocation performed well as rates continued to decline
through January 1998.
When interest rates increased at the end of February and
beginning of March 1998, we reduced the Fund's exposure to
U.S. Treasuries and invested in other
higher-income-producing securities. Specifically, we focused
on prepaid mortgage-backed securities that have historically
provided solid performance in this type of environment.
Because they are less likely to be refinanced, these
securities provide more income potential than U.S. Treasury
and agency securities, and less risk than other
mortgage-backed securities.
***Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
17
<PAGE> 22
Nations
Government Securities
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
Our decision to overweight U.S. Treasury securities in
October 1997 benefited the Fund, helping it make up
significant ground relative to its underperformance during
the beginning of the period. In addition, because
longer-term U.S. Treasuries perform particularly well when
markets rally, the Fund's longer duration boosted
performance.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
At the beginning of the fiscal year, we felt that the
nation's strong economic growth rate, combined with low
unemployment expectations and a rise in manufacturing, could
lead to inflationary pressures that would prompt the Fed to
raise interest rates.
While we were accurate in our forecast of exceptional
economic growth, we were incorrect on the direction of
inflation. The Fund's defensive stance on
duration -- investing in securities with shorter maturities
in preparation for higher interest rates -- hurt its overall
performance because this prevented the Fund from fully
participating in the bond market rally. While the Fund's
duration standpoint hurt us in the first part of the year,
it benefited the Fund later on.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
We anticipate the financial crisis in Asia to have an impact
on the U.S. economy, which may affect our markets in the
third or fourth quarter of 1998. If this occurs, we expect
the economy to slow, prompting the labor market to ease and
the Fed to reduce interest rates. However, we do not expect
the slowdown to be so severe as to cause a recession.
If, however, the Asian situation does not have a significant
impact and economic growth remains strong, then the Fed will
likely raise rates. Either way, we expect interest rates to
remain stable in the short term as this debate continues.
</TABLE>
18
<PAGE> 23
Nations
Government Securities
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In the coming months, we expect HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
to maintain the Fund's current ANTICIPATED DEVELOPMENTS?
stance, which emphasizes In the coming months, we expect to maintain the Fund's
prepaid mortgages that should current stance, which emphasizes prepaid mortgage-backed
provide the potential for solid securities that should provide the potential for solid
performance in this performance in this environment. With the Fed on hold and
environment. the effects of the Asian financial crisis still unclear, we
believe that short-term rates will not change significantly.
As a result, we will be overweighting mortgage-backed and
agency-backed securities -- higher income producing
bonds -- relative to U.S. Treasuries.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
Other Assets and Liabilities (Net) 0.2%
Municipal Bonds 14.0%
U.S. Treasury Obligations 23.9%
Mortgage-Backed Securities 61.9%
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
------------------------------------------
1 Federal National Mortgage
Association (FNMA)
Certificates 36.5%
------------------------------------------
2 Government National Mortgage
Association (GNMA)
Certificates 17.1%
------------------------------------------
3 U.S. Treasury Bond
6.125% 11/15/27 17.0%
------------------------------------------
4 U.S. Treasury Strip Principal
only 05/15/13 6.9%
------------------------------------------
5 Texas State Department of
Housing and Community Affairs,
Series C, 6.800% 09/01/29 6.5%
------------------------------------------
6 Chicago, Illinois, Public
Building 7.000% 01/01/07 6.4%
------------------------------------------
7 Freddie Mac Certificate,
Series 1999, Class PB
6.300% 01/15/17 6.0%
------------------------------------------
8 Federal Home Loan Mortgage
Corporation Certificates 2.2%
------------------------------------------
9 Portsmouth Virginia, Taxable
Ref., 6.630% 07/15/14 1.1%
------------------------------------------
10 Government National Mortgage
Association II (GNMA II)
Certificate, 11.000% 10/20/20 0.1%
------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT AS OF
MARCH 31, 1998, ARE SUBJECT TO CHANGE
AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS.
19
<PAGE> 24
Nations
Government Securities
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Government Securities $15,649 Salomon Brothers Mortgage Index $17,406
Assumes the reinvestment of all distributions.
<S> <C> <C>
April 11 1991 10000 10000
10118 10203
10647 10768
1991 11178 11245
10983 11185
11419 11637
11794 11980
1992 11782 12074
12136 12427
12378 12691
12673 12807
1993 12685 12923
12303 12652
12096 12583
12033 12683
1994 12037 12739
12635 13410
13221 14105
13449 14390
1995 13876 14875
13599 14820
13585 14920
13812 15234
1996 14228 15674
14017 15693
14516 16265
14894 16734
1997 15445 17126
Mar. 31 1998 15649 17406
<CAPTION>
Measurement Period
(Fiscal Year Covered) Lehman Brothers Intermediate Treasury Index $16,514
Assumes the reinvestment of all distributions.
<S> <C>
April 11 1991 10000
10167
10651
1991 11170
11047
11476
11988
1992 11945
12395
12640
12908
1993 12927
12685
12615
12711
1994 12697
13222
13842
14051
1995 14526
14423
14516
14765
1996 15106
15095
15514
15912
1997 16268
Mar. 31 1998 16514
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Government Securities $12,144 Salomon Brothers Mortgage Index $13,849
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10073 10097
10296 10190
1993 10289 10282
9963 10066
9779 10012
9713 10091
1994 9700 10136
10166 10670
10620 11222
10786 11450
1995 11110 11835
10871 11791
10842 11871
11005 12121
1996 11318 12471
11132 12486
11510 12941
11787 13314
1997 12197 13627
Mar. 31 1998 12144 13849
<CAPTION>
Measurement Period
(Fiscal Year Covered) Lehman Brothers Intermediate Treasury Index $13,257
Assumes the reinvestment of all distributions.
<S> <C>
June 7 1993 10000
10147
10362
1993 10377
10184
10128
10205
1994 10193
10614
11112
11280
1995 11661
11579
11654
11854
1996 12127
12118
12454
12774
1997 13059
Mar. 31 1998 13257
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(4/11/91 through 3/31/98) 6.64%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Government Securities
Fund from the date each class of shares
was first offered. Figures for the
Lehman Intermediate Treasury Index
track the market value of U.S. Treasury
securities with maturities of 3 to 10
years. The Salomon Brothers Mortgage
Index is comprised of 30-year and
15-year GNMA, FNMA and FHLMC
securities, and FNMA and FHLMC balloon
mortgages. Both indices are unmanaged
and include reinvestment of dividends.
Both indices are unavailable for
investment. The performance shown
reflects the performance of Primary A
and Investor B Shares. The performance
of Primary B, Investor A and Investor C
Shares may vary based on the
differences in sales loads and fees
paid by the shareholders investing in
each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC*
(6/7/93 through 3/31/98) 4.45% 4.12%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C> <C>
Inception Date 4/11/91 6/28/96 4/17/91 6/7/93 7/6/92
NAV CDSC*
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 11.65% 11.23% 11.37% 10.78% 5.78% 10.84%
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 7.39% NA 7.13% 6.65% 5.76% 6.71%
5 Years 5.22% NA 5.00% NA NA 4.50%
Since Inception 6.64% 7.93% 6.40% 4.45% 4.12% 4.76%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
20
<PAGE> 25
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary*
EFFECTIVE MAY 1998, THE FIXED INCOME MANAGEMENT TEAM OF
TRADESTREET INVESTMENT ASSOCIATES, INC. ASSUMED THE
DAILY PORTFOLIO MANAGEMENT RESPONSIBILITIES OF THE FUND.
IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON
NATIONS STRATEGIC FIXED INCOME FUND'S PERFORMANCE FOR
THE 12-MONTH PERIOD ENDED MARCH 31, 1998 AND THEIR
CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed by the The Fund actively manages both U.S. Government and
Fixed Income Management Team of investment-grade corporate bonds to seek to provide a high
TradeStreet Investment level of total return, capital appreciation and interest
Associates, Inc., investment income. The Fund moves between these sectors and along the
sub-adviser to the Fund. During yield curve to capitalize on market inefficiencies and seek
the reporting period, Greg Cobb investment opportunities.
was the Fund's portfolio
manager. WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
INVESTMENT OBJECTIVE REPORTING PERIOD?
The Fund seeks total return by Going into the first quarter of the reporting period
investing in investment-grade (April-June), bond investors were struggling to find good
fixed income securities. news. Market concerns were focused on the Federal Reserve
PERFORMANCE REVIEW Board (the Fed), given Chairman Alan Greenspan's now
For the 12-month period ended infamous comments on "irrational exuberance" in the
March 31, 1998, Nations financial markets and a one quarter of one percent
Strategic Fixed Income Fund tightening of the Federal Funds rate to 5.5%. Interest rates
Primary A Shares provided a were rising across all maturities, with long-term rates
total return of 10.53%.** rising to just over 7%. Patient investors were eventually
rewarded, however, as the economy slowed from its torrid
pace and inflation remained subdued. Slower growth and low
inflation allowed the Fed to remain on hold, and interest
rates declined across the yield curve as the market unwound
any further expectations of a Fed tightening of interest
rates. The month of June ended with long-term interest rates
near 6.75%.
Volatility rose in the second quarter of the reporting
period (July-September). Again, Greenspan attracted the
market's attention as he discussed the possibility of
continued strong economic growth, low inflation and a
balanced budget. Not surprisingly, interest rates declined
sharply. Nonetheless, economic growth remained solid as the
manufacturing sector surged, unemployment declined, incomes
rose and consumer confidence soared. As a result, interest
rates reversed course and rose. There was a stunning absence
of inflationary pressures, allowing the market to
*The outlook of the Fixed Income Management Team for this
Fund may differ from that presented for other Nations Funds
mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
21
<PAGE> 26
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
shrug off solid economic growth and pushing long-term
interest rates to their lows of the calendar year -- near
6.5%.
In the third quarter of the reporting period
(October-December), the financial and economic crisis of
Asia shook world financial markets. Investor confidence
across the globe rapidly deteriorated as fears of global
recession and deflation became a very real possibility. The
U.S. fixed income markets benefited from a
"flight-to-quality" as international investors sought the
relatively safe haven of the U.S. financial markets.
Interest rates continued their descent and ended the quarter
at slightly less than 6.0%.
During the fourth quarter of the reporting period
(January-March), there were two surprises -- the U.S.
domestic economy was stronger and the negative effects of
the Asian financial collapse were less severe than
anticipated. To date, there have been few signs that the
Asian crisis has been severe enough to undermine the solid
fundamentals of the U.S. economy: low unemployment, surging
incomes, rising equity markets, a balanced budget and high
levels of confidence. As a result, economic activity
continues to expand at a healthy pace. Although economic
activity has been higher than anticipated, inflationary
pressures remain absent. It is this absence of inflationary
pressures that allowed long-term interest rates to remain
relatively unchanged. At the end of the fiscal year,
interest rates were just under 6.0%.
In short, over the course of the reporting period, the
expansion continued with surprisingly high rates of economic
activity but with inflation rates well below historical
levels at the same stage of previous economic expansions.
The absence of inflationary pressures, coupled with the
financial turmoil in Asia, allowed the Fed to keep monetary
policy steady for the entire reporting period. With no
inflation, a potential regional financial crisis, a
safe-haven status and a Fed on hold, interest rates were
pushed down to levels not seen since 1993 -- creating a very
positive environment for fixed income investors.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?***
Throughout the reporting period, the Fund remained
overweighted in the major "spread sectors" -- corporate,
mortgage-backed and asset-backed securities. This 70-85%
weighting allowed the Fund to post significant yield
advantages versus U.S. Treasury securities of comparable
maturities.
***Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
22
<PAGE> 27
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
During the period, the Fund's corporate bond exposure ranged
between 30-55%. Over the course of the year, we remained
positive on the sector given that: (1) economic fundamentals
remained positive (i.e., above-trend growth with few signs
of inflationary pressures); (2) overall credit quality
measures were at their highest levels in a decade; and (3)
demand, though absent on brief occasions, proved to be
generally robust.
Our mortgage strategy needs to be placed in the context of
our long-term strategic outlook and our short-term tactical
trading strategies. Strategically, we look favorably on the
sector as fundamentals and technicals should remain positive
over the next nine to 12 months. In general, then, the Fund
will maintain a healthy exposure to this sector. However,
there will be short periods of time when the Fund will have
a tactical underweighting of the sector when either the
fundamentals or technicals, or both, are seen as
deteriorating. For most of the reporting period, the Fund
maintained its strategic positioning with a 20-35%
mortgage-backed securities weighting.
However, in January 1998, the Fund made a tactical move and
reduced its mortgage exposure to 5% as the fundamentals of
the sector were deteriorating rapidly. Spreads began to
widen as declining interest rates produced record levels of
financing activity and heightened fears of rapidly
accelerating prepayments. Because a continued low-rate
environment plus high prepayments creates a very negative
environment for mortgage-backed securities, we reduced the
Fund's exposure. It should be noted that proceeds were moved
to corporate and asset-backed securities of comparable
durations.
The Fund's exposure to asset-backed securities ranged
between 15-20% over the course of the period. The basic
elements of this sector remained intact: excellent
liquidity, high quality, incremental yield and the lowest
spread volatility of the major spread sectors. We see no end
of these trends on the horizon. Therefore, the Fund's 15-20%
weighting should be considered a core weighting.
With respect to duration, the Fund maintained a generally
defensive position given our outlook for
stronger-than-expected economic growth, lower unemployment
and higher inflation. To achieve this position, the Fund
increased exposure to issues of shorter maturities (1-5
years) at the expense of intermediate- (5-10 years) and
long- (10+ years) maturity issues.
</TABLE>
23
<PAGE> 28
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
ALL IN ALL, OUR SECTOR WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
STRATEGY -- A GENERAL PERFORMANCE?
OVERWEIGHTING OF CORPORATE, All in all, our sector strategy -- a general overweighting
MORTGAGE-BACKED AND of corporate, mortgage-backed and asset-backed
ASSET-BACKED SECTORS -- WAS A sectors -- was a positive for performance. The Fund's
POSITIVE FOR PERFORMANCE. general exposure to the corporate sector was beneficial,
given the incremental yield advantage versus U.S. Treasuries
and the sector's historical high absolute returns.
Specifically, the Fund's exposure to the brokerage and
cable/media sectors was also very positive. More
importantly, the Fund's lack of direct or indirect exposure
to Asia proved valuable.
The mortgage sector was the top-performing sector over the
last year. The Fund's 20-35% mortgage weighting for most of
the year helped performance. The recent tactical reduction
has so far neither added nor subtracted from returns in any
meaningful way.
Asset-backed securities, with their high quality,
incremental yield and low volatility, continued to post very
positive returns, on both an absolute and relative basis.
The Fund's core weighting of 15-20% was a positive
contributor to performance.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
Given our outlook for stronger-than-expected economic
growth, lower unemployment and rising inflation, followed by
higher interest rates, the Fund generally maintained a
defensive duration position. We were accurate in our
forecast of exceptional economic growth and lower
unemployment. However, we were too pessimistic on inflation
and, therefore, on the general direction of interest rates.
As a result, the Fund did not participate fully in the bond
market rally.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
We anticipate the financial crisis in Asia to have an impact
on the U.S. economy, affecting our markets in the third or
fourth quarter of 1998. When this occurs, we expect the
economy to slow, prompting the labor market to ease and the
Fed to reduce interest rates. However, we do not expect the
slowdown to be so severe as to cause a recession.
If, however, the Asian situation does not have a significant
impact and economic growth remains strong, then the Fed will
likely raise interest rates. We expect this to slow the
economy, causing rates to go back down. One way or the
other, we believe rates will ultimately decrease.
</TABLE>
24
<PAGE> 29
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
Between October 1997 and January 1998, corporate bonds
experienced poor performance. Yet with no recession or
deterioration in corporate bond credit quality or
fundamentals on the horizon, we believe corporate bonds
carry growth potential.
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
With the Fund's heavy exposure (75%) to corporate and
asset-backed securities, it is well positioned to capture
incremental yield versus U.S. Treasuries of comparable
maturities. The corporate sector holds promise, as economic
fundamentals remain positive, credit quality remains high,
supply has become more manageable and spreads remain wider
than they have been over much of the last 12 months. For
these reasons, we believe that spreads will tighten over the
coming months, producing solid relative returns. The
fundamentals of the asset-backed market (liquidity, quality,
yield and low volatility) make it a perfect substitute for
short-term U.S. Treasuries. We expect the asset-backed
portion of the portfolio to remain well diversified across
maturities, collateral and structure.
In the current low interest rate environment, the Fund's
tactical weighting in mortgages (5%) is at the low end of
its range. The general decline in mortgage rates has
revealed the true callability of the sector. We choose to
avoid the acceleration in prepayments and the negative
performance potential of the sector. Until we believe the
sector is once again attractive, we will place proceeds into
the corporate and asset-backed markets.
The remainder of the Fund (20%) is invested in U.S.
Treasuries for liquidity and duration-management strategies.
</TABLE>
25
<PAGE> 30
Nations
Strategic Fixed Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C> <C> <S> <C>
Mortgage-Backed Securities 5.8% TOP TEN HOLDINGS (AS A % OF NET ASSETS AS
Foreign Bonds 7.8% OF 3/31/98)
Other Assets and Liabilities (net) 9.8% -----------------------------------------
U.S. Treasury Obligations 11.3% 1 U.S. Treasury Notes 9.0%
Asset-Backed Securities 17.5% -----------------------------------------
Corporate Bonds and Notes 47.8% 2 Federal National Mortgage
Association (FNMA)
Certificates 3.7%
-----------------------------------------
3 U.S. Treasury Bond 7.500%
05/15/02 2.3%
-----------------------------------------
4 Auburn Hills Trust
Certificates, Deb.,
12.000% 05/01/20 2.1%
-----------------------------------------
5 Bell Atlantic Corp. 9.000%
08/01/31 1.6%
-----------------------------------------
6 Hydro-Quebec 9.000% 03/07/01 1.5%
-----------------------------------------
7 Government National Mortgage
Association (GNMA)
Certificates 1.3%
-----------------------------------------
8 IMC Home Equity Loan Trust
Series 1997-1, Class A3
6.820% 10/25/11 1.3%
-----------------------------------------
9 Standard Credit Card Master
Trust Series 1995-9, Series
B, 6.650% 10/07/07 1.3%
-----------------------------------------
10 Federated Department Stores,
Inc., Sr. Note, 10.000%
02/15/01 1.2%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998, ARE SUBJECT
TO CHANGE AND MAY NOT BE REPRESENTATIVE
OF CURRENT HOLDINGS.
26
<PAGE> 31
Nations
Strategic Fixed Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Lehman Aggregate Bond
(Fiscal Year Covered) Strategic Fixed Income $14,281 Index $14,803
<S> <C> <C>
Assumes the reinvestment of all distributions.
Oct. 30 1992 10000 10000
1992 10151 10161
10636 10581
10928 10862
11269 11145
1993 11245 11152
10928 10832
10801 10721
10861 10786
1994 10871 10827
11369 11373
12045 12066
12226 12303
1995 12750 12827
12436 12599
12456 12671
12665 12905
1996 13021 13293
12921 13218
13361 13704
13793 14159
1997 14124 14576
Mar. 31 1998 14281 14803
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period Strategic Fixed Lehman Aggregate Bond
(Fiscal Year Covered) Income $12,654 Index $13,875
<S> <C> <C>
Assumes the reinvestment of all distributions.
June 7 1993 10000 10000
10146 10181
10445 10447
1993 10406 10453
10097 10154
9963 10049
10003 10110
1994 9995 10148
10436 10660
11039 11310
11187 11532
1995 11647 12023
11342 11810
11342 11877
11495 12097
1996 11817 12460
11708 12390
12087 12845
12457 13272
1997 12731 13662
Mar. 31 1998 12654 13875
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(10/30/92 through 3/31/98) 6.80%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Strategic Fixed
Income Fund from the date each class of
shares was first offered. Figures for
the Lehman Aggregate Bond Index, an
unmanaged index comprised of the Lehman
Government/Corporate Index, the Asset-
Backed Securities Index and the
Mortgage-Backed Securities Index which
include U.S. Treasury issues, agency
issues, corporate bond issues and
mortgage-backed securities include
reinvestment of dividends. It is
unavailable for investment. The
performance shown reflects the
performance of Primary A and Investor B
Shares. The performance of Primary B,
Investor A and Investor C Shares may
vary based on the differences in sales
loads and fees paid by the shareholders
investing in each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC*
(6/7/93 through 3/31/98) 5.34% 5.01%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C> <C>
Inception Date 10/30/92 6/28/96 11/19/92 6/7/93 11/16/92
NAV CDSC*
- ----------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 10.53% 10.12% 10.30% 9.73% 5.73% 9.87%
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 7.90% NA 7.68% 7.17% 6.30% 7.32%
5 Years 6.07% NA 5.87% NA NA 5.46%
Since Inception 6.80% 7.64% 6.59% 5.34% 5.01% 6.22%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
27
<PAGE> 32
Nations
U.S. Government Bond
Fund Fixed Income Committee Commentary*
IN THE FOLLOWING INTERVIEW, THE FIXED INCOME COMMITTEE
PRESENTS ITS VIEWS ON NATIONS U.S. GOVERNMENT BOND
FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH
31, 1998 AND THEIR CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed The Fund is positioned to seek to maximize the long-term
by Boatmen's Capital returns available through the active management of
Management, Inc.'s Fixed Income high-quality fixed income securities. Although the Fund is
Committee. Boatmen's Capital fully discretionary with respect to duration and maturity
Management, Inc. is the structure, the average weighted maturity of the Fund will be
investment sub-adviser between five and 30 years. Consequently, at times, duration
to the Fund. may be significantly above or below standard broad market
INVESTMENT OBJECTIVE benchmarks such as the Lehman Government Bond Index.***
The Fund seeks total return and WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
preservation of capital by REPORTING PERIOD?
investing During the period, economic growth was well above the most
in U.S. government securities. optimistic expectations of long-term sustainable levels,
PERFORMANCE REVIEW productivity rates were high and unemployment rates were at
For the 12-month period ended 30-year lows. In addition, inflation continued to fall and
March 31, 1998, Nations U.S. budget deficits declined, providing a favorable backdrop for
Government Bond Fund Primary A financial assets.
Shares provided a total return In this economic environment, the U.S. Federal Reserve Board
of 9.90%.** (the Fed) opted to keep the Federal Funds rate steady at
5.5%. The benchmark 30-year U.S. Treasury bond started the
period at just over 7%, traded in a fairly tight range until
August 1997 and then declined in reaction to the Asian
financial crisis, ending the period at just under 6%. (Bond
yields typically move in the opposite direction of bond
prices, so that when yields go down, prices go up.)
Early in the reporting period, the economy experienced
impressive overall growth without signs of inflationary
pressures. However, in August 1997, the market retreated
somewhat as the unemployment rate continued to decline,
consumer confidence remained high and the U.S. dollar
declined from its then year-to-date highs. But with
continued favorable inflation reports, the market accurately
anticipated that the Fed would not act to raise interest
rates. Accordingly, bond yields declined slightly in
September 1997.
*The outlook of the Fixed Income Committee for this Fund may
differ from that presented for other Nations Funds mutual
funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
***The Lehman Government Bond Index is unmanaged and
represents the return of government bonds with an average
maturity of approximately nine years. It is unavailable for
investment.
Source for all statistical data -- Boatmen's Capital
Management, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
28
<PAGE> 33
Nations
U.S. Government Bond
Fund Fixed Income Committee Commentary continued...
<TABLE>
<S> <C>
In the final quarter of 1997, Asian stock markets plunged to
levels not seen in several years, creating fears of a
financial crisis that would affect the world's markets. As
investor confidence deteriorated, the U.S. bond market
benefited from a massive "flight to quality," with investors
selling off foreign holdings and buying U.S. bonds. Within
the bond market, investors fled from corporate,
mortgage-backed and asset-backed securities into U.S.
Treasuries. As a result, any fund with primary holdings in
U.S. Treasuries was well positioned.
In early 1998, Fed Chairman Alan Greenspan discussed the
possibility of disinflationary shocks resulting from the
problems in Asia. This caused the bond market yield curve to
steepen dramatically, reducing short-term bond yields
relative to long-term bond yields which also declined. In
February 1998, as the continued strength of the U.S. economy
again became a concern, the market experienced a sell-off
and investors revisited the possibility that the Fed might
raise interest rates to get ahead of inflation and influence
growth.
HOW DID YOU MANAGE THE FUND'S DURATION -- OR INTEREST RATE
RISK -- IN THIS ENVIRONMENT?+
At the beginning of the fiscal year, we felt that the
nation's strong economic growth rate, combined with the low
unemployment rate and surging consumer confidence, could
lead to inflationary pressures that would prompt the Fed to
raise interest rates.
While we were accurate in our forecast of exceptional
economic growth, we were incorrect on the direction of
inflation. The Fund's defensive stance on
duration -- investing in securities with shorter maturities
in preparation for higher interest rates -- hurt its overall
performance because this prevented the Fund from fully
participating in the bond market rally.
Early in the fourth quarter of 1997, as the magnitude of the
Asian economic crisis became apparent, we substantially
increased the duration of the Fund's securities as we
concluded that the U.S. economy would likely slow to a more
modest, sustainable growth rate over the course of 1998.
Likewise, we felt that inflationary pressures would remain
subdued, as import price deflation served to limit the
pricing power of domestic producers. Wage increases were
largely offset by surging productivity gains, and capital
spending was decelerating amid signs of excess global
capacity and the risk of a modest profit margin contraction.
The continuation of such an environment would likely allow
interest rates to decline further.
+Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
29
<PAGE> 34
Nations
U.S. Government Bond
Fund Fixed Income Committee Commentary continued...
<TABLE>
<S> <C>
Throughout 1997, the Fund maintained a "barbell structure",
owning issues with both relatively short and long maturities
as opposed to owning issues with medium maturities. However,
at the end of the reporting period, the Fund exhibited a
much more neutral structure -- investing in securities of
varying maturities -- relative to its benchmark, the Lehman
Government Bond Index. As of March 31, 1998, the Fund's
duration was 7.1 years.
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
Prior to January 1998, the yield curve had been flattening,
indicating that investors who took on a relatively low level
of risk by investing in short-term bonds earned income
comparable to that of more volatile 30-year U.S. Treasury
securities. In this environment, the Fund's strategy of
holding issues with both relatively short and long
maturities benefited performance. In addition, the Fund
invested heavily in U.S. Treasury securities, which
performed particularly well during this period of low
interest rates.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING
THE REST OF 1998.
We anticipate the financial crisis in Asia to have an impact
on the U.S. economy, affecting our markets in the third or
fourth quarter of 1998. When this occurs, we expect the
economy to slow and disinflation to prevail, prompting the
Fed to reduce interest rates. However, we do not expect the
impact to be so severe as to cause a recession.
If, however, the Asian situation does not have a significant
impact and economic growth remains strong, then the Fed will
likely raise interest rates. Ultimately, we expect this to
slow the economy, causing rates to go back down. One way or
the other, we believe interest rates will decrease.
</TABLE>
30
<PAGE> 35
Nations
U.S. Government Bond
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
1.0% Other Assets and
Liabilities (Net)
5.0% Mortgage-Backed
Securities
29.9% U.S. Treasury Notes
64.1% U.S. Treasury Bonds
</TABLE>
<TABLE>
<C> <S> <C>
TOP HOLDINGS (AS A % OF NET ASSETS AS OF
3/31/98)
-----------------------------------------
1 U.S. Treasury Bonds 64.1%
-----------------------------------------
2 U.S. Treasury Notes 29.9%
-----------------------------------------
3 Federal National Mortgage
(FNMA) Certificate 6.500%
06/01/03 5.0%
-----------------------------------------
THE TOP HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998, ARE SUBJECT
TO CHANGE AND MAY NOT BE REPRESENTATIVE
OF CURRENT HOLDINGS.
31
<PAGE> 36
Nations
U.S. Government Bond
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) U.S. Government Bond $13,927 Lehman Government Bond $13,586
Assumes the reinvestment of all distributions.
<S> <C> <C>
Nov. 7 1994 10000 10000
1994 10370 10042
10924 10515
11728 11167
11932 11365
1995 12522 11884
12172 11616
12232 11671
12396 11868
1996 12747 12214
12673 12114
13079 12534
13436 12955
1997 13821 13385
Mar. 31 1998 13927 13586
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period Lehman Government Bond
(Fiscal Year Covered) U.S. Government Bond $13,267 Index $13,586
Assumes the reinvestment of all distributions.
<S> <C> <C>
Nov. 10 1994 10000 10000
1994 10336 10042
10862 10515
11633 11167
11806 11365
1995 12348 11884
11973 11616
12013 11671
12143 11868
1996 12456 12214
12352 12114
12721 12534
13047 12955
1997 13393 13385
Mar. 31 1998 13267 13586
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(11/7/94 through 3/31/98) 10.24%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations U.S. Government Bond
Fund from the date each class of shares
was first offered. Figures for the
Lehman Government Bond Index, an
unmanaged index, represent the return
of government bonds with an average
maturity of approximately nine years,
include reinvestment of dividends. It
is unavailable for investment. The
performance shown reflects the
performance of Primary A and Investor B
Shares. The performance of Investor A
and Investor C Shares may vary based on
the differences in sales loads and fees
paid by the shareholders investing in
each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC* (11/10/94
through 3/31/98) 9.19% 8.71%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C>
Inception Date 11/7/94 2/7/95 11/10/94 9/19/97
NAV CDSC*
- ---------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 9.90% 9.51% 9.02% 4.02% NA
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 8.43% 8.19% 7.43% 6.57% NA
Since Inception 10.24% 8.59% 9.19% 8.71% 3.50%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
The performance shown reflects the performance of the Pilot U.S. Government
Securities Fund which was reorganized into Nations U.S. Government Bond Fund on
May 23, 1997.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
32
<PAGE> 37
Nations
Diversified Income
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. AHNRUD SHARES HIS VIEWS
ON NATIONS DIVERSIFIED INCOME FUND'S PERFORMANCE FOR THE
12-MONTH PERIOD ENDED MARCH 31, 1998 AND HIS CURRENT
OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
Mark S. Ahnrud, CFA, is Senior Our investment philosophy is biased toward total return,
Portfolio Manager of Nations recognizing that the combination of current income and price
Diversified Income Fund and a movement is ultimately more important than current income
Director of Fixed Income alone. We use a combination of investment
Management for TradeStreet strategies -- duration management (management of interest
Investment Associates, Inc., rate risk), sector rotation, security selection and yield
the investment sub-adviser to curve positioning -- to add value to the Fund over time. By
the Fund. using multiple strategies, we avoid making "big bets" and
INVESTMENT OBJECTIVE look for each strategy to add the potential for incremental
The Fund seeks total return income without any single strategy dominating returns. The
with an emphasis on current Fund invests in government securities and corporate bonds,
income by investing in a including high-yield corporate bonds. High-yield corporate
diversified portfolio of fixed bonds and government securities are not highly correlated to
income securities. one another; they react differently to changes in interest
PERFORMANCE REVIEW rates and the economy. This divergence in performance is the
For the 12-month period ended key to this part of the Fund's strategy, as the Fund
March 31, 1998, Nations balances credit risk and interest rate risk by allocating
Diversified Income Fund Primary assets to the different sectors as market conditions
A Shares provided a total warrant.
return of 11.07%.** WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
REPORTING PERIOD?
Early in the period, we were concerned about the strength of
the domestic economy and believed that the U.S. Federal
Reserve Board (the Fed) would be forced to raise interest
rates to slow growth. The 30-year U.S. Treasury bond began
the period yielding just over 7%, and the Fund was
positioned defensively (investing in bonds with relatively
short maturities in preparation for higher interest rates),
as we believed that yields would rise later in the year.
This economic strength was the result of a 30-year low in
unemployment rates, rising incomes, high levels of consumer
confidence and a rapidly rising equity market. But the
environment changed in the fiscal third quarter, as
continued low inflation and a rapidly diminishing federal
budget deficit combined with the anti-growth,
disinflationary shock waves emanating from Asia to push bond
yields down. As fear of the Fed raising interest rates
waned, the "flight to quality" trade drove prices higher.
The period ended with the 30-year U.S. Treasury yielding
just under 6%.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
33
<PAGE> 38
Nations
Diversified Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
At the beginning of the period, we maintained a defensive
posture in the portfolio because we were concerned that
strong economic growth and the tight labor market would lead
the Fed to raise interest rates due to concerns about rising
inflation.
The Fund was underweighted in the corporate bond sector for
much of the period, as we believed that this sector was
overvalued relative to U.S. Treasury securities. We didn't
believe that the incremental yield advantage from owning
corporate bonds justified the credit risk assumed in owning
this sector. This environment of low incremental yield
pick-up for owning corporate bonds over U.S. Treasuries
caused the Fund to maintain a relatively low weighting in
the high-yield corporate sector as well.
The Fund's exposure to the mortgage-backed sector was high
during the early part of the period, but as interest rates
began to decline during the fiscal third quarter, we reduced
the Fund's exposure based on increasing prepayment fears and
our outlook that interest rates would continue to decline.
With rates back near their 1993 lows, we expected a
significant upturn in refinancing activity in early 1998. We
had been willing to take on prepayment risk in the
trading-range environment we saw early in the period, but we
believed that as the yield on the 10-year U.S. Treasury bond
declined below 6.1%, the risks of continuing to hold on to
this sector were too great.
OUR DECISION TO UNDERWEIGHT THE WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S STRONG
FUND'S CORPORATE BOND EXPOSURE PERFORMANCE?***
PROVED SUCCESSFUL. Our decision to underweight the Fund's corporate bond
exposure proved successful. As the Asian crisis played out
during the fiscal third quarter, the resultant "flight to
quality" caused corporate bonds to lag the performance of
U.S. Treasury bonds. This caused the worst period of
relative corporate bond performance in the last 10 years.
We were then able to use this as an opportunity to increase
the Fund's exposure to the corporate bond sector, as we
didn't believe that the end of the credit cycle was in
sight. We raised both the Fund's investment-grade and
high-yield bond holdings, increasing the portfolio's income.
We emphasized the health care, cable/media and financial
services sectors in the portfolio, which performed well
during the period. Specifically, companies like Viacom Inc.,
News Corp. Ltd., HEALTHSOUTH Corp. and Morgan Stanley Group
experienced solid performance.
***Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
</TABLE>
34
<PAGE> 39
Nations
Diversif ied Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
Our defensive duration posture was the greatest hindrance to
performance during the period. While we extended duration
and had a much better second half of the year as interest
rates declined, it was not enough to recover the ground lost
during the fiscal second quarter.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
Later in 1998, either the fundamentally sound U.S. economy
will shrug off Asia's troubles, leading to a Fed tightening
of interest rates, or Asia will have a meaningful impact on
U.S. growth, further reducing inflation and raising the
probability that the Fed will ease interest rates. We are
positioned for the latter scenario, although our bullish
bias is tempered by the market's current overbought
condition, extreme bullish sentiment and the need for
further confirmation of a slowdown in the domestic economy.
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
We continue to favor the corporate bond sector over the
mortgage sector in this interest-rate environment. We are
more comfortable with the Fund owning corporate bonds, as we
are not forecasting a recession and believe that overall
corporate credit quality will continue to improve. We expect
to continue to increase the Fund's exposure to this sector
in the months ahead. The mortgage sector continues to look
unattractive to us, as the low interest-rate environment
will continue to result in significant prepayment activity.
</TABLE>
35
<PAGE> 40
Nations
Diversified Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
1.0% Foreign Bonds and Notes
2.3% Other Assets and Liabilities (Net)
2.7% Municipal Bonds
13.2% Mortgage-Backed Securities
35.1% U.S. Treasury Bonds
45.7% Corporate Bonds and Notes
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS (AS A % OF NET ASSETS AS
OF 3/31/98)
-----------------------------------------
1 U.S. Treasury Bonds 35.1%
-----------------------------------------
2 Federal National Mortgage
Association (FNMA)
Certificates 8.6%
-----------------------------------------
3 Government National Mortgage
Association (GNMA)
Certificates 4.6%
-----------------------------------------
4 GTE Corporation 7.900%
02/01/27 1.8%
-----------------------------------------
5 Nebraska Investment Finance
Authority, Taxable-Series B,
6.550% 09/01/07 1.7%
-----------------------------------------
6 Westpoint Stevens Inc., Sr.
Notes, 8.750% 12/15/01 1.6%
-----------------------------------------
7 PDV America Inc., Gtd. Sr.
Notes, 7.875% 08/01/03 1.6%
-----------------------------------------
8 Morgan Stanley Finance PLC.
Gtd., Sub. Deb.,
8.030% 02/28/17 1.5%
-----------------------------------------
9 Time Warner Entertainment
8.375% 07/15/33 1.5%
-----------------------------------------
10 Rogers Cablesystems Limited,
Deb., 10.000% 12/01/07 1.5%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT AS OF
MARCH 31, 1998, ARE SUBJECT TO CHANGE
AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS.
36
<PAGE> 41
Nations
Diversif ied Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Lehman Government Corporate Bond
(Fiscal Year Covered) Diversified Income $15,737 Index $14,886
Assumes the reinvestment of all distributions.
<S> <C> <C>
Oct. 30 1992 10000 10000
1992 10225 10163
10894 10636
11318 10955
11735 11317
1993 11828 11284
11512 10931
11344 10795
11442 10848
1994 11530 10888
12136 11431
13045 12172
13281 12405
1995 13940 12983
13497 12680
13543 12739
13812 12964
1996 14284 13360
14168 13245
14681 13727
15066 14208
1997 15511 14664
Mar. 31 1998 15737 14886
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period Lehman Government Corporate Bond
(Fiscal Year Covered) Diversified Income $13,450 Index $13,897
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10178 10227
10533 10565
1993 10597 10534
10295 10205
10125 10078
10194 10128
1994 10253 10165
10773 10671
11558 11364
11745 11581
1995 12305 12121
11891 11837
11910 11893
12123 12103
1996 12513 12473
12389 12365
12813 12815
13122 13264
1997 13481 13690
Mar. 31 1998 13450 13897
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(10/30/92 through 3/31/98) 8.73%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Diversified Income
Fund from the date each class of shares
was first offered. Figures for the
Lehman Government Corporate Bond Index,
an unmanaged index comprised of U.S.
Government, U.S. Treasury and agency
securities, corporate and yankee bonds,
include reinvestment of dividends. It
is unavailable for investment. The
performance shown reflects the
performance of Primary A and Investor B
Shares. The performance of Primary B,
Investor A and Investor C Shares may
vary based on the differences in sales
loads and fees paid by the shareholders
investing in each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC* (6/7/93
through
3/31/98) 6.68% 6.35%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C>
Inception Date 10/30/92 6/28/96 11/25/92 6/7/93 11/9/92
NAV CDSC*
- --------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 11.07% 10.29% 10.80% 10.18% 5.18% 10.27%
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 9.05% NA 8.77% 8.21% 7.35% 8.35%
5 Years 7.63% NA 7.41% NA NA 6.92%
Since Inception 8.73% 8.26% 8.46% 6.68% 6.35% 8.10%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales changes.
37
<PAGE> 42
Nations
Global Government Income
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. RIMMER SHARES HIS VIEWS
ON NATIONS GLOBAL GOVERNMENT INCOME FUND'S PERFORMANCE
FOR THE 12-MONTH PERIOD ENDED MARCH 31, 1998 AND HIS
CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
Mark Rimmer is Principal We believe that long-term analysis of economic
Portfolio Manager of Nations trends -- rather than short- term tactical models or
Global Government Income Fund specific issue selection through credit analysis -- is the
and an International Fixed key to successful investing in the global bond markets.
Income Fund Manager for Therefore, our investment process is top-down, strategic and
Gartmore Global Partners, driven by macroeconomics. The Fund emphasizes investments of
investment sub-adviser to the high credit quality with the objective of adding value by
Fund. identifying and taking advantage of interest rate and
INVESTMENT OBJECTIVE currency trends across global markets.
The Fund seeks total return by
investing primarily in WHAT WERE GLOBAL ECONOMIC AND MARKET CONDITIONS LIKE DURING
high-quality debt securities THE REPORTING PERIOD?
issued by governments, banks Over the 12 months ended March 31, 1998, global bond prices
and supranational entities rose significantly in all major markets. The rally in global
located throughout the world. bonds has been fueled in part by the so-called "new
PERFORMANCE REVIEW paradigm," which has allowed levels of steady economic
For the 12-month period ended growth that do not trigger inflation, particularly in the
March 31, 1998, Nations Global United States. The absence of inflation in the new paradigm
Government Income Fund Primary is attributed to improved productivity and technological
A Shares provided a total change. Another major factor driving bond market performance
return of 3.38%. was the financial crisis in Asia, which led to expectations
of slower global economic growth and the possibility of
disinflationary conditions.
Expressed in local currency terms, most world bond markets
provided attractive returns for the period, but these
returns were reduced when translated into U.S. dollar terms,
as the dollar strengthened against most overseas currencies.
The U.S. economy continued to grow at a robust pace of over
3%, and the unemployment rate fell below 5%, but this did
not trigger the inflationary pressures that would normally
be expected. As inflation remained subdued, the U.S. Federal
Reserve Board (the Fed) kept the Federal Funds rate
unchanged at 5.5%, sparking a rally in the U.S. bond market.
The yield on the 30-year U.S. Treasury bond declined
sharply, from just over 7% at the start of the period to
just under 6% at the end of the period. (Bond yields
typically move in the opposite direction of bond prices, so
that when yields go down, prices go up.)
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
Source for all statistical data -- Gartmore Global Partners.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INVESTING IN INTERNATIONAL INVESTMENTS MAY INVOLVE SPECIAL
RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS
ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS,
AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH
FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS.
</TABLE>
38
<PAGE> 43
Nations
Global Government Income
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
Other bond markets also rallied impressively, with 10-year
German yields falling to all-time lows below 5%. The
Continental European economies continued to grow at a
relatively weak pace, and unemployment remained high,
keeping inflationary pressures subdued. Higher-yielding
European bond markets such as Italy, Spain and Sweden
continued to provide the best returns, benefiting from the
near certainty that European Economic and Monetary Union
(EMU) would proceed as planned in January 1999.
Although the United Kingdom's economy grew at a solid pace,
U.K. bonds still performed well. In fact, the U.K. was the
period's top-performing bond market in U.S. dollar terms,
since the pound was the only major currency to appreciate
against the dollar. In Japan, the economy remained feeble,
causing the benchmark Japanese government bond yield to hit
a record low of 1.5%.
WHERE WERE THE FUND'S HOLDINGS CONCENTRATED?**
The Fund maintained a slightly underweight position in U.S.
bonds relative to the benchmark, JP Morgan Global Government
Bond Index+, although overweightings in Australia and Canada
raised the Fund's dollar-bloc currency exposure close to the
benchmark weighting. The duration of the Fund's U.S. bond
holdings was close to that of the Index.
At the beginning of the period, the Fund held a neutral
position in European bonds. Over the 12 months, however, we
raised the Fund's exposure to Europe, principally at the
expense of the Japanese allocation, as we expected the yen
to weaken. Overall, the European bond holdings emphasized
core markets such as Germany and France, although the Fund
held an overweight position in the U.K. and in
higher-yielding Spanish and European Currency Unit
(ECU)-denominated bonds.++ During the period, we moved to a
defensive stance on the Fund's duration in Europe because we
anticipated recovery in the European economies.
**Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
+The JP Morgan Global Government Bond Index is an unmanaged,
capitalization-weighted index that tracks government bonds
issued in 13 countries located in the United States, Europe
and the Far East. It is unavailable for investment.
++ECU (European Currency Unit): A synthetic currency unit
representing a "basket" or composite of certain European
currencies. The value of the ECU changes daily and is
calculated using the average value of currencies in Europe's
Exchange Rate Mechanism (a system that sets target ranges
for currency exchange rates between participating
countries).
</TABLE>
39
<PAGE> 44
Nations
Global Government Income
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
Relative to the Index, the Fund had a neutral position in
Japanese bonds at the start of the period and was
concentrated in shorter-term securities. However, we reduced
this to a substantially underweight stance during the
period.
WHAT INVESTMENT DECISIONS HAD THE MOST IMPACT ON THE FUND'S
PERFORMANCE?
In terms of overall duration, the Fund was positioned short
of the Index for the period. Since this was a time of
declining bond yields -- which would be of greatest benefit
to a portfolio of longer duration -- the performance of the
Fund suffered versus the benchmark. The Fund's duration
position reflected our view that most of the good news about
low inflation had already been priced into bond markets. In
addition, we expected inflationary pressures to grow as the
U.S. economy remained strong and Europe was poised to
recover, worsening the outlook for short-term interest rates
both in the United States and Europe. We were correct in
forecasting firm economies for both regions, but inflation
did not rise as we had anticipated. As a result, short-term
U.S. interest rates were unchanged during the period, while
in Germany, they were raised marginally in October 1997.
The duration of the Fund's U.S. bond holdings was generally
in line with the Index for much of the period, and these
holdings performed in line with the Index. However, the
Fund's allocation to the U.S. market was somewhat
underweight. Also detracting from performance was an
overweight stance in both Australia and Canada, which
underperformed the United States, primarily because of
currency weakness.
OUR DECISION TO UNDERWEIGHT Our strategy of overweighting core European bond markets
JAPANESE BONDS OVER THE PERIOD detracted from performance, as did the strategy of
PROVED SUCCESSFUL IN ADDING emphasizing shorter-term securities that did not benefit as
VALUE. fully from the rally in the bond markets. Our decision to
underweight Japanese bonds over the period proved successful
in adding value.
WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE?
We maintained a position close to neutral with regard to the
Fund's allocation to dollar-bloc currencies (currencies of
United States, Canada and Australia) over the period. The
Fund started the period overweighted in dollar-bloc
currencies and had shifted to a neutral weighting by the end
of the period. Within the dollar bloc, we underweighted the
U.S. dollar and overweighted both the Australian and
Canadian dollars. This had a negative impact on performance,
as both of these currencies depreciated somewhat versus the
U.S. dollar. However, we mitigated this effect by reducing
the Fund's Canadian exposure over the period and placing a
defensive currency hedge on the Fund's Australian bond
position. The U.S. dollar appreciated quite significantly
versus all currencies except the British pound. The Fund
</TABLE>
40
<PAGE> 45
Nations
Global Government Income
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
started the period with a neutral weighting in the pound but
moved to a slightly overweight position later in the period.
WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE
COMING YEAR?
Following the sharp rally in global bond markets during the
period, attractive near-term opportunities for the Fund may
be limited. However, we believe that both U.S. and U.K.
bonds represent fair value. In the U.K., the Monetary Policy
Committee is gaining credibility by maintaining high
interest rates to subdue inflation. In the United States,
the bond market is well supported by subdued inflation and
the likelihood that the Fed will not raise interest rates
for several months (assuming that the Fed's next move will
be to tighten, which may or may not be the case). In
addition, optimism that U.S. fiscal policy will result in a
balanced federal budget for fiscal year 1999 has contributed
to a favorable environment for U.S. Treasury issues.
In Japan, we expect little investment opportunity in the
bond market. While it is possible that the Japanese
government could introduce a meaningful fiscal package,
recent efforts to energize the Japanese economy through
fiscal policy have been largely ineffective.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
Given the relatively favorable outlook in the U.S. and U.K.,
the Fund is maintaining a benchmark weighting in these
markets in terms of duration.
The Fund is overweighted in European currencies, but we are
cautious on the outlook for European bonds and are
emphasizing shorter-term securities. Among the
higher-yielding bond markets, the Fund is underweighted in
Italy but is overweighted in both Denmark and Spain.
Because of generally unfavorable conditions in Japan, the
Fund is underweighted in Japanese bonds -- although we
believe the yen may have further to fall. While the outlook
for growth in Japan appears to be poor, there may be an
opportunity for the yen to appreciate versus the U.S. dollar
if a substantial fiscal package is introduced to stimulate
the economy. Intervention by the Bank of Japan, along with
an improving trade balance, could also support the currency.
</TABLE>
41
<PAGE> 46
Nations
Global Government Income
Fund
<TABLE>
<S> <C>
Elsewhere, we believe that many of the emerging bond markets
may perform well, particularly Mexico, Argentina and South
Africa. However, because the Fund may invest only up to 5%
of its assets in below-investment-grade debt, the Fund's
ability to take advantage of these markets is fairly
limited. We also believe opportunities may exist in some of
the peripheral European markets such as Greece and
Hungary -- especially Greece, which recently joined Europe's
Exchange Rate Mechanism with an eye toward participating in
Economic and Monetary Union at some point in the future.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
29.4% Other Foreign Bonds and Notes,
U.S. Treasury Obligations
and Net Other Assets
and Liabilities
4.4% Italy
4.5% Denmark
4.7% Spain
4.7% Netherlands
4.9% Australia
5.3% Poland
6.2% Finland
8.7% Great Britain
8.8% Canada
8.9% Austria
9.5% Germany
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 U.S. Treasury Bonds 10.2%
-----------------------------------------
2 Republic of Finland, 8.000%
04/07/03 6.2%
-----------------------------------------
3 Government of Poland, 7.125%
07/01/04 5.3%
-----------------------------------------
4 New South Wales Treasury
Corporation, 7.000% 04/01/04 4.9%
-----------------------------------------
5 Government of the
Netherlands, 6.500% 01/15/99 4.7%
-----------------------------------------
6 Province of Ontario, 5.000%
02/15/01 4.7%
-----------------------------------------
7 Kingdom of Denmark, 6.000%
12/10/99 4.5%
-----------------------------------------
8 BMW Capital plc, 6.250%
08/14/00 4.5%
-----------------------------------------
9 KFW International Finance,
7.500% 04/21/05 4.5%
-----------------------------------------
10 Government of Austria, 8.000%
06/17/02 4.4%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998,
ARE SUBJECT TO CHANGE AND MAY NOT
BE REPRESENTATIVE OF CURRENT
HOLDINGS.
42
<PAGE> 47
Nations
Global Government Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
JP
Measurement Period Morgan Global Government Bond
(Fiscal Year Covered) Global Government $11,319 Index $11,038
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 30 1995 10000 10000
10169 9988
1995 10636 10325
10503 10143
10707 10205
11067 10493
1996 11379 10779
10949 10357
11175 10662
11268 10845
1997 11258 10930
Mar. 31 1998 11319 11038
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period JP
(Fiscal Year Covered) Global Government $10,736 Morgan Global Government Bond $11,038
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 30 1995 10000 10000
10146 9988
1995 10586 10325
10427 10143
10603 10205
10933 10493
1996 11213 10779
10763 10357
10957 10662
11023 10845
1997 10990 10930
Mar. 31 1998 10736 11038
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(6/30/95 through 3/31/98) 4.61%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Global Government
Income Fund from the date each class of
shares was first offered. Figures for
the JP Morgan Global Government Bond
Index, an unmanaged
capitalization-weighted index that
tracks government bonds issued in 13
countries located in the United States,
Europe and the Far East, include
reinvestment of dividends. It is
unavailable for investment. The
performance shown reflects the
performance of Primary A and Investor B
Shares. The performance of Primary B,
Investor A and Investor C Shares may
vary based on the differences in sales
loads and fees paid by the shareholders
investing in each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC*
(6/30/95 through 3/31/98) 3.62% 2.62%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C> <C>
Inception Date 6/30/95 6/28/96 6/30/95 6/30/95 6/30/95
NAV CDSC*
- ----------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 3.38% 3.20% 3.12% 2.45% (2.50)% 2.63%
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Since Inception 4.61% 2.92% 4.35% 3.62% 2.62% 3.92%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
43
<PAGE> 48
NATIONS FUNDS
Nations Short-Term Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 31.9%
$10,300,000 Banc One Credit Card Master Trust,
Series 1994-C, Class A,
7.800% 11/15/98.................... $ 10,403,000
7,900,000 BankBoston Revenue, RV Trust, Series
1997-1, Class A7,
6.480% 07/15/08.................... 7,972,828
11,000,000 Chase Manhattan Auto Owner Trust,
Series 1996-C, Class A4,
6.150% 03/15/02.................... 11,048,070
7,000,000 Discover Card Master Trust, Series
1995-2, Class A,
6.550% 02/15/03.................... 7,083,090
8,677,626 EQCC Home Equity Loan Trust, Series
1996-2, Class A2,
6.700% 09/15/08.................... 8,725,082
4,000,000 Fingerhut Metris Master Trust,
Series 1996-1, Class A,
6.450% 02/20/02.................... 4,025,000
6,000,000 Green Tree Financial Corporation,
Series 1996-9, Class A2,
6.250% 01/15/28.................... 6,005,580
6,350,000 Household Affinity Credit Card
Master Trust I, Series 1993-1,
Class B,
5.300% 09/15/00.................... 6,306,312
10,500,000 IMC Home Equity Loan Trust, Series
1997-1, Class A3,
6.820% 10/25/11.................... 10,549,140
3,938,698 Keystone Auto Grantor Trust, Series
1996-B, Class A,
6.150% 04/15/03**.................. 3,948,545
10,400,000 Premier Auto, Series 1997-2, Class
A5,
6.320% 03/06/02.................... 10,487,672
5,500,000 Prime Credit Card Master Trust,
Series 1992-2, Class B2,
7.950% 11/15/02.................... 5,644,375
4,904,168 Sears Credit Account Master Trust,
Series 1995-4, Class A,
6.250% 01/15/03.................... 4,910,299
10,300,000 Spiegel Master Trust, Series 1995-A,
Class A,
7.500% 09/15/04.................... 10,591,297
5,150,000 Standard Credit Card Master Trust,
Series 1993-3, Class A,
5.500% 01/07/99.................... 5,132,284
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $112,532,276)................ 112,832,574
------------
CORPORATE BONDS AND NOTES -- 55.8%
BANKING -- 5.3%
9,600,000 First Chicago NBD Corporation, Sr.
Notes,
6.250% 07/21/00.................... 9,654,624
9,000,000 Union Planters National Bank, Notes,
6.470% 10/29/99.................... 9,069,210
------------
18,723,834
------------
BROKERAGE -- 9.7%
3,400,000 Goldman Sachs Group, L.P., Notes,
5.900% 01/15/03**.................. 3,332,000
8,475,000 Lehman Brothers Holdings Inc., MTN,
6.850% 10/08/99.................... 8,570,937
8,800,000 Paine Webber Group
7.700% 02/11/00.................... 9,057,752
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
BROKERAGE -- (CONTINUED)
$10,000,000 Salomon Smith Barney Hldgs Inc.
7.980% 03/01/00.................... $ 10,333,000
3,000,000 Travelers Group
7.000% 05/15/99.................... 3,027,900
------------
34,321,589
------------
CAPTIVE FINANCE -- 1.3%
4,500,000 AT&T Capital Corporation, MTN,
6.590% 08/04/00.................... 4,527,585
------------
FINANCIAL -- 21.3%
7,100,000 Aristar, Inc., Notes,
6.125% 12/01/00.................... 7,088,285
7,000,000 Avco Financial Services,
5.750% 01/23/01.................... 6,693,470
9,300,000 Banponce Financial Corporation, MTN,
6.560% 04/22/99.................... 9,353,382
11,000,000 Chrysler Financial Corporation,
Notes,
6.375% 01/28/00.................... 11,066,000
7,000,000 Dean Witter Discover and Company,
MTN,
7.580% 06/11/01.................... 7,280,630
4,500,000 ERAC USA Finance,
7.500% 06/15/03.................... 4,742,145
6,500,000 Finova Capital Corporation,
6.250% 08/15/00.................... 6,516,835
1,950,000 Fletcher Challenge Finance USA,
9.800% 06/15/98.................... 1,964,917
5,000,000 General Motors Acceptance
Corporation, MTN,
7.375% 06/22/00.................... 5,136,850
8,850,000 Heller Financial, Inc., MTN,
6.510% 09/20/99.................... 8,918,764
4,500,000 Norwest Financial Inc., Sr. Notes,
8.375% 01/15/00.................... 4,580,775
1,850,000 PACCAR Financial Corporation,
5.910% 10/15/99.................... 1,853,829
------------
75,195,882
------------
INDEPENDENT FINANCE -- 2.3%
North American Mortgage Company,
MTN:
2,500,000 5.800% 11/02/98..................... 2,495,575
5,500,000 5.840% 11/04/98..................... 5,491,420
------------
7,986,995
------------
INDUSTRIAL -- 10.7%
6,000,000 Comdisco, Inc., MTN,
6.500% 06/15/00.................... 6,045,060
3,786,000 Hertz Corporation,
7.000% 04/15/01.................... 3,858,313
8,140,000 News America Holdings Inc., Sr.
Notes,
7.500% 03/01/00.................... 8,330,313
6,250,000 PDV America, Inc., Sr. Notes,
7.750% 08/01/00.................... 6,442,937
10,000,000 Time Warner Inc.-PATS,
4.900% 07/29/99**.................. 9,809,100
3,340,000 USA Waste Services, Inc., Notes
6.500% 12/15/02.................... 3,341,971
------------
37,827,694
------------
</TABLE>
44
<PAGE> 49
NATIONS FUNDS
Nations Short-Term Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 2.1%
$ 7,300,000 Sears, Roebuck & Company, MTN,
6.230% 07/12/00.................... $ 7,326,061
------------
UTILITY -- ELECTRIC -- 3.1%
8,299,000 Columbia Gas System, Series A,
6.390% 11/28/00.................... 8,349,375
2,500,000 Transcont Gas Pipeline,
8.875% 09/15/02.................... 2,748,075
------------
11,097,450
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $196,493,104)................ 197,007,090
============
FOREIGN BONDS AND NOTES -- 4.3%
8,000,000 Banco Latinoamericano,
7.000% 09/24/99**.................. 8,039,600
7,000,000 Corporacion Andina De Fomento,
Eurobonds,
6.625% 10/14/98**.................. 7,023,100
------------
TOTAL FOREIGN BONDS AND NOTES
(Cost $15,024,834).................. 15,062,700
------------
MORTGAGE-BACKED SECURITY -- 3.7%
(Cost $13,190,284)
13,063,888 Federal National Mortgage
Association (FNMA) Certificate,
6.000% 11/01/03.................... 12,881,386
------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- 2.4%
(Cost $8,652,089)
U.S. Treasury Notes
$ 8,500,000 6.250% 08/31/00..................... $ 8,618,235
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
----------
<C> <S> <C>
INVESTMENT COMPANY -- 8.9%
(Cost 31,403,574)
31,403,574 Nations Cash Reserves(a)............. 31,403,574
------------
TOTAL INVESTMENTS
(Cost $377,296,161*)....................... 107.0% 377,805,559
OTHER ASSETS AND LIABILITIES (NET)......... (7.0) (24,562,336)
----- ------------
NET ASSETS................................. 100.0% $353,243,223
==== ===========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $1,390,138 and gross
depreciation of $893,498 for federal income tax purposes. At March 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$377,308,919.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
45
<PAGE> 50
NATIONS FUNDS
Nations Short-Intermediate Government Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT GUARANTEED BOND -- 0.2%
(Cost $1,290,444)
$ 1,280,000 Second Attransco Tanker
Corporation, Series A,
8.500% 06/15/02................... $ 1,306,367
------------
MORTGAGE-BACKED SECURITIES -- 22.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) CERTIFICATES -- 7.0%
7,155 6.500% 09/01/03.................... 7,146
7,109,001 9.000% 04/01/16.................... 7,575,067
GOLD:
9,906,430 6.500% 12/01/12.................... 9,940,410
32,987,617 7.000% 12/01/07 -- 12/01/25 (2
Pools)............................ 33,551,908
------------
51,074,531
------------
FEDERAL HOUSING AUTHORITY (FHA)
CERTIFICATES -- 0.2%
1,300,985 6.000% 07/15/04.................... 1,298,942
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 10.2%
24,890,190 6.500% 04/01/26 -- 02/01/28 (2
Pools)............................ 24,615,821
16,540,262 7.500% 11/01/26 -- 02/01/27 (3
Pools)............................ 16,958,897
15,000,000 7.500% 12/31/26 TBA+............... 15,379,650
15,914,249 8.500% 04/01/17.................... 16,796,694
------------
73,751,062
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 4.6%
7,500,000 7.000% 03/01/24 TBA+............... 7,575,000
21,594,812 7.500% 02/15/24 -- 04/15/26 (3
Pools)............................ 22,158,074
3,499,025 8.500% 02/15/05 -- 08/15/08 (27
Pools)............................ 3,707,532
------------
33,440,606
------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $158,002,943)............... 159,565,141
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 74.0%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 4.4%
32,000,000 6.625% 03/12/08.................... 31,855,040
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 9.7%
48,500,000 6.620% 11/13/07.................... 48,958,312
20,000,000 6.650% 11/14/07.................... 20,193,800
1,700,000 8.150% 05/11/98.................... 1,698,769
------------
70,850,881
------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES -- 55.5%
$114,000,000 5.875% 01/31/99.................... $114,285,000
20,000,000 6.250% 03/31/99.................... 20,134,400
169,500,000 6.375% 04/30/99++.................. 170,903,460
23,000,000 5.625% 12/31/99.................... 23,010,810
46,000,000 5.500% 02/28/03.................... 45,726,760
8,000,000 6.125% 08/15/07.................... 8,227,520
20,000,000 5.500% 02/15/08.................... 19,756,200
------------
402,044,150
------------
U.S. TREASURY BOND -- 4.4%
31,300,000 6.125% 11/15/27.................... 32,097,211
------------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS
(Cost $535,452,908)................ 536,847,282
------------
SHORT TERM INVESTMENTS -- 4.3%
30,000,000 Federal Home Loan Bank Discount
Note
5.475%** 04/24/98................. 29,896,500
Student Loan Marketing Association
FRN
500,000 4.625%***06/07/98.................. 499,240
1,000,000 5.408%***08/02/99.................. 997,660
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $31,395,966)................ 31,393,400
------------
<CAPTION>
SHARES
- -----------
<C> <S> <C>
INVESTMENT COMPANY -- 1.5%
(Cost $11,037,215)
11,037,215 Nations Cash Reserves(a)........... 11,037,215
------------
TOTAL INVESTMENTS(Cost $737,179,476*)..... 102.0% 740,149,405
OTHER ASSETS AND LIABILITIES (NET)........ (2.0) (14,954,918)
----- ------------
NET ASSETS................................ 100.0% $725,194,487
==== ===========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $3,840,105 and gross
depreciation of $900,360 for federal income tax purposes. At March 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$737,209,660.
** Rate represents annualized yield at date of purchase.
*** Variable rate note. The interest rate shown reflects the rate in effect at
March 31, 1998.
+ Security purchased on a when-issued or delayed delivery basis.
++ At March 31, 1998, a portion of this security was pledged to cover collateral
requirements for TBA securities.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
46
<PAGE> 51
NATIONS FUNDS
Nations Government Securities Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 61.9%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) CERTIFICATES -- 2.2%
$ 245,274 7.500% 8/01/08 -- 06/01/09 (2
Pools)............................. $ 253,470
661,416 8.000% 08/01/07 -- 5/01/17 (4
Pools)............................. 685,919
527,632 8.500% 02/01/08 -- 6/01/17 (5
Pools)............................. 552,876
481,594 9.000% 05/01/09 -- 12/01/16 (2
Pools)............................. 511,772
500,132 9.500% 09/01/20 -- 6/01/21 (4
Pools)............................. 543,011
60,168 10.00% 07/01/01..................... 63,458
------------
2,610,506
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 36.5%
11,105,202 5.500% 11/01/08 -- 5/01/09 (6
Pools)............................. 10,829,237
4,934,138 6.000% 12/01/27..................... 4,762,973
9,757,763 6.500% 01/01/08 -- 2/01/28 (2
Pools)............................. 9,699,138
10,562,302 7.000% 07/01/27 -- 9/01/27 (2
Pools)............................. 10,761,093
1,930,288 7.050% 10/01/12..................... 1,998,967
3,698,857 7.450% 05/01/07..................... 3,943,294
193,201 8.000% 04/01/06..................... 199,529
165,046 8.250% 04/01/09..................... 172,780
530,073 8.500% 12/01/11 -- 7/01/21 (3
Pools)............................. 556,573
------------
42,923,584
------------
FREDDIE MAC CERTIFICATES -- 6.0%
7,000,000 Series 1999, Class PB
6.300% 01/15/17..................... 7,028,420
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 17.1%
19,571,148 6.500% 11/15/27..................... 19,436,498
348,917 7.000% 06/15/23..................... 353,278
130,278 10.500% 12/15/20.................... 146,074
106,812 11.750% 10/15/00 -- 12/15/00 (2
Pools)............................. 113,575
------------
20,049,425
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
II (GNMA II) CERTIFICATE -- 0.1%
55,578 11.000% 10/20/20.................... 63,063
------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $72,541,624)................. 72,674,998
------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL BONDS -- 14.0%
$ 7,060,000 Chicago, Illinois, Public Building,
7.000% 01/01/07.................... $ 7,485,012
1,315,000 Portsmouth, Virginia, Taxable Ref.,
6.630% 07/15/14.................... 1,333,607
7,500,000 Texas State Department of Housing
and Community Affairs, Single
Family Revenue, (Teams-Taxable-
Mortgage), Series C, (MBIA
Insured), 6.800% 09/01/29.......... 7,617,000
------------
TOTAL MUNICIPAL BONDS
(Cost $16,112,641).................. 16,435,619
------------
U.S. TREASURY OBLIGATIONS -- 23.9%
U.S. TREASURY BOND -- 17.0%
19,500,000 6.125% 11/15/27..................... 19,996,665
------------
U.S. TREASURY STRIP -- 6.9%
20,000,000 Principal only, 05/15/13............ 8,109,000
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $28,079,628).................. 28,105,665
------------
SHARES
- ----------
INVESTMENT COMPANY -- 1.0%
(Cost $1,140,325)
1,140,325 Nations Cash Reserves(a)............ 1,140,325
------------
TOTAL INVESTMENTS
(Cost $117,874,218*)....................... 100.8% 118,356,607
OTHER ASSETS AND LIABILITIES (NET)........ (0.8) (924,967)
----- ------------
NET ASSETS................................ 100.0% $117,431,640
===== ============
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $711,628 and gross
depreciation of $229,239 for federal income tax purposes. At March 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$117,874,218.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
47
<PAGE> 52
NATIONS FUNDS
Nations Strategic Fixed Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 17.5%
$15,000,000 BankBoston RV Asset Backed Trust,
Series1997-1, Class A5,
6.350% 10/15/05.................. $ 15,049,219
10,000,000 Discover Card Master Trust I,
6.050% 08/18/08.................. 9,803,100
8,579,000 Discover Card Master Trust, Series
1996-3, Class B,
6.250% 08/18/08.................. 8,420,803
10,750,000 Dominion Capital Trust I,
7.830% 12/01/27**................ 10,986,070
18,934,775 EQCC Home Equity Loan Trust Series
1996-2, Class A2,
6.700% 09/15/08.................. 19,038,324
10,279,865 First Alliance Mortgage Loan
Trust, Series 1994-2, Class A1,
7.625% 07/25/25.................. 10,554,531
7,500,000 First Plus Home Loan Trust, Series
1997-3, Class A4,
6.800% 03/10/12.................. 7,598,400
15,000,000 Ford Auto Trust, Series 1998-A,
Class B,
5.950% 10/15/02.................. 14,953,050
10,000,000 Ford Credit Auto Owner Trust,
Series 1997-B, Class CTFS,
6.650% 04/15/03.................. 10,106,250
IMC Home Equity Loan Trust:
22,000,000 Series 1997-1, Class A3,
6.820% 10/25/11.................. 22,102,960
15,000,000 Series 1997-7, Class A3,
6.540% 11/20/12.................. 15,028,050
Metris Master Trust:
10,000,000 Series 1996-1, Class A,
6.450% 02/20/02.................. 10,062,500
20,000,000 Series 1996-1, Class B,
6.800% 02/20/02.................. 20,187,400
15,000,000 Series 1997-1, Class B,
7.110% 10/20/05.................. 15,398,400
10,000,000 Olympic Automobile Receivables
Trust, Series 1996-C, Class A4,
6.800% 03/15/02.................. 10,107,800
11,625,000 Premier Auto Trust, Series 1998-1,
Class B,
5.920% 10/06/04.................. 11,559,551
10,000,000 Prime Credit Card Master Trust,
Series 1992-2, Class B2,
7.950% 11/15/02.................. 10,262,500
10,250,000 Spiegel Master Trust, Series
1994-B, Class A,
8.150% 06/15/04.................. 10,618,365
21,300,000 Standard Credit Card Master Trust,
Series 1995-9, Class B,
6.650% 10/07/07.................. 21,519,603
10,000,000 Toyota Auto Lease Trust Series
1997-A, Class A2,
6.350% 04/26/04.................. 10,062,500
WFS Financial Owner Trust:
15,000,000 Series 1997-B, Class CTFS,
6.550% 10/20/04.................. 15,150,000
10,000,000 Series 1997-C, Class A3,
6.100% 03/20/02.................. 10,000,000
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES -- (CONTINUED)
$10,000,000 World Financial Network Credit
Card Master Trust, Series 1996-B,
6.950% 04/15/06.................. $ 10,364,063
--------------
TOTAL ASSET-BACKED SECURITIES
(Cost $296,900,214).............. 298,933,439
--------------
CORPORATE BONDS AND NOTES -- 47.8%
BANKING AND FINANCE -- 21.2%
11,750,000 American RE Corp,
7.450% 12/15/26.................. 12,660,390
10,600,000 Avco Financial Services,
5.750% 01/23/01.................. 10,135,826
20,000,000 Banponce Financial Corporation,
MTN,
6.550% 10/10/00.................. 20,132,800
10,000,000 Bayerische LBK NY Branch,
6.625% 06/25/07.................. 10,319,500
15,000,000 Bear Stearns Companies, Inc., Sr.
Notes,
6.750% 05/01/01.................. 15,224,700
10,000,000 Conseco Finance TR II,
8.700% 11/15/26.................. 11,120,500
10,000,000 Donaldson, Lufkin and Jenrette,
MTN,
6.310% 05/26/00.................. 10,051,000
12,500,000 FCB/NC Capital Trust I,
8.050% 03/01/28**................ 12,612,250
10,000,000 First Union Corporation,
6.400% 04/01/08.................. 9,970,700
10,000,000 First Union Institutional Capital
Trust I,
8.040% 12/01/26.................. 10,585,300
15,000,000 First USA Bank, Notes,
6.580% 03/17/05.................. 15,253,050
15,000,000 General Electric Capital
Corporation, MTN,
8.650% 05/15/09.................. 18,231,300
9,650,000 GMAC,
8.750% 07/15/05.................. 10,971,374
15,000,000 Goldman Sachs Group LP,
6.625% 12/01/04**................ 15,007,050
10,000,000 Goldman Sachs Group L.P., Notes,
6.600% 07/15/02**................ 10,117,100
20,000,000 International Bank Recon &
Development,
5.625% 03/17/03.................. 19,852,000
15,000,000 Lehman Brothers Holdings, MTN,
6.650% 11/08/00.................. 15,145,350
15,000,000 Lehman Brothers Inc., Sr. Sub.
Notes,
7.250% 04/15/03.................. 15,493,650
10,000,000 Liberty Mutual, Notes,
7.875% 10/15/26**................ 10,874,200
10,000,000 MBIA Inc.,
7.150% 07/15/27.................. 10,412,200
13,000,000 Morgan Stanley Dean Witter,
6.090% 03/09/11.................. 13,027,170
</TABLE>
48
<PAGE> 53
NATIONS FUNDS
Nations Strategic Fixed Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCE -- (CONTINUED)
$10,000,000 New England Mutual, Notes,
7.875% 02/15/24**................ $ 10,881,900
10,000,000 Paine Webber Group Inc., MTN,
7.300% 10/15/03.................. 10,468,300
14,150,000 Salomon Inc., MTN,
6.625% 11/30/00.................. 14,297,726
12,000,000 Travelers, 6.450% 10/18/99**...... 12,055,080
11,000,000 Union Planters Bank,
6.500% 03/15/18.................. 10,919,700
15,000,000 Union Planters Trust Cap,
8.200% 12/15/26.................. 15,699,300
10,000,000 Wells Fargo Capital, 7.960%
12/15/26......................... 10,584,400
--------------
362,103,816
--------------
ENTERTAINMENT -- 2.4%
15,000,000 Time Warner Inc., Notes,
6.100% 12/30/01**................ 14,740,050
10,000,000 Time Warner Inc.,
7.750% 06/15/05.................. 10,566,400
15,000,000 Time Warner Inc.,
8.110% 08/15/06.................. 16,322,100
--------------
41,628,550
--------------
INDUSTRIAL -- 14.2%
22,585,000 Auburn Hills Trust Certificates,
Deb.,
12.000% 05/01/20................. 35,978,131
10,000,000 Dresser Industries Inc.,
7.600% 08/15/99.................. 11,119,900
10,000,000 Ford Motor Company,
7.400% 11/01/46.................. 10,591,400
10,000,000 Georgia-Pacific,
9.875% 11/01/21.................. 11,249,300
15,500,000 GTE Corp.,
6.600% 09/22/05.................. 15,515,190
15,000,000 IBM Corp.,
6.500% 01/15/28.................. 14,687,400
10,000,000 McDonald's Corp.,
7.310% 09/15/27.................. 10,144,700
News America Holdings, Inc.:
8,500,000 10.125% 10/15/12.................. 9,919,160
Sr. Notes,
10,000,000 9.500% 07/15/24................... 12,454,300
PDV America, Inc.:
Gtd. Sr. Notes:
10,000,000 7.750% 08/01/00................... 10,308,700
15,000,000 7.875% 08/01/03................... 15,591,600
10,000,000 Sr. Notes.,
7.250% 08/01/98.................. 10,029,200
10,000,000 Raytheon Company,
6.750% 08/15/07.................. 10,175,100
11,500,000 Tele-Commun Inc.,
7.375% 02/15/00.................. 11,712,750
15,000,000 USA Waste Services Inc.,
7.125% 10/01/07.................. 15,478,500
10,000,000 Viacom Inc.,
7.750% 06/01/05.................. 10,487,500
10,000,000 Xerox Capital Trust I,
8.000% 02/01/27.................. 10,476,000
15,000,000 Zurich Capital Trust I,
8.376% 06/01/37**................ 16,266,750
--------------
242,185,581
--------------
OIL -- 0.6%
10,000,000 Enterprise, 6.700% 09/15/07....... 10,163,000
--------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
RETAIL -- 2.1%
$18,850,000 Federated Department Stores, Inc.,
Sr. Notes,
10.00% 02/15/01.................. $ 20,629,063
15,000,000 Sears Roebuck Acceptance
Corporation, MTN,
6.690% 04/30/01.................. 15,232,500
--------------
35,861,563
--------------
RETAIL -- FOOD -- 0.6%
10,000,000 Safeway Inc., Sr. Notes,
7.000% 09/15/07.................. 10,266,100
--------------
TRANSPORTATION -- 1.7%
Erac USA Finance Company:
14,750,000 6.950% 03/01/04**................. 14,992,047
15,000,000 6.625% 02/15/05**................. 14,922,150
--------------
29,914,197
--------------
TRANSPORTATION -- RAILROAD -- 0.6%
10,000,000 Norfolk Southern Corp, 7.350%
05/15/07......................... 10,643,200
--------------
UTILITY -- 0.6%
10,000,000 Carolina Power and Light,
6.800% 08/15/07.................. 10,337,200
--------------
UTILITY -- TELEPHONE -- 3.8%
Bell Atlantic Corp.:
25,000,000 9.000% 08/01/31................... 28,002,000
13,000,000 9.375% 07/15/31................... 14,703,130
6,100,000 Bell South Telecommunications,
8.250% 07/01/32................... 6,707,987
15,000,000 GTE Florida, Inc.,
6.860% 02/01/28................... 15,070,800
--------------
64,483,917
--------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $806,996,692).............. 817,587,124
--------------
FOREIGN BONDS -- 7.8%
14,500,000 AB Spintab,
7.500% 08/14/49**................ 14,914,410
10,000,000 Abbey National PLC,
7.350% 10/29/49.................. 10,487,100
10,000,000 Associates Corporation,
6.75% 10/31/01................... 10,150,000
15,000,000 Banco Latino Americano,
7.000% 9/24/99**................. 15,074,250
10,000,000 Banco Latino Americano,
7.230% 04/17/00**................ 10,233,100
15,000,000 Bank of Scotland,
7.000%, 11/29/49**............... 14,997,000
10,000,000 British Telecommunications,
7.000% 05/23/07.................. 10,609,600
24,500,000 Hydro-Quebec, 9.000% 03/07/01..... 26,286,785
10,000,000 Province of Quebec,
7.000% 01/30/07.................. 10,409,500
10,000,000 Skandinaviska Enskilda FRN,
8.125% 09/06/49**................ 10,728,400
--------------
TOTAL FOREIGN BONDS
(Cost $133,220,111).............. 133,890,145
--------------
</TABLE>
49
<PAGE> 54
NATIONS FUNDS
Nations Strategic Fixed Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 5.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) CERTIFICATES -- 0.8%
Gold,
$ 7,928,112 7.500% 09/12/26................... $ 8,126,314
4,963,883 8.500% 11/01/26................... 5,182,592
--------------
13,308,906
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 3.7%
20,000,000 7.180% 10/01/03................... 20,306,200
4,610,323 7.000% 09/01/11................... 4,692,894
13,681,400 8.000% 09/15/25................... 14,215,796
12,701,677 6.500% 04/01/26................... 12,578,598
11,883,466 7.000% 11/01/27................... 11,998,498
--------------
63,791,986
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 1.3%
17,348,531 7.500% 10/15/23................... 17,825,443
3,849,093 8.500% 02/15/25................... 4,069,184
--------------
21,894,627
--------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $96,742,100)............... 98,995,519
--------------
U.S. TREASURY OBLIGATIONS -- 11.3%
U.S. TREASURY BOND -- 2.3%
37,500,000 7.500% 05/15/02................... 39,996,000
--------------
U.S. TREASURY NOTES -- 9.0%
98,000,000 7.500% 10/31/99................... 100,755,760
22,000,000 7.875% 08/15/01................... 23,474,660
29,500,000 5.625% 12/31/02................... 29,449,260
--------------
153,679,680
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $194,681,672).............. 193,675,680
--------------
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANY -- 8.2%
(Cost $141,099,001)
141,099,001 Nations Cash Reserves(a).......... $ 141,099,001
--------------
TOTAL INVESTMENTS
(Cost $1,669,639,790*).................. 98.4% 1,684,180,908
OTHER ASSETS AND
LIABILITIES (NET)....................... 1.6 27,468,912
----- --------------
NET ASSETS............................... 100.0% $1,711,649,820
==== ============
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $18,059,581 and gross
depreciation of $3,758,722 for federal income tax purposes. At March 31,
1998, the aggregate cost of securities for federal income tax purposes was
$1,669,880,049.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
50
<PAGE> 55
NATIONS FUNDS
Nations U.S. Government Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- 94.0%
U.S. TREASURY BONDS -- 64.1%
$97,325,000 6.250% 02/15/07..................... $100,685,632
28,950,000 8.000% 11/15/21..................... 36,083,570
32,020,000 6.625% 02/15/27..................... 34,741,700
------------
171,510,902
------------
U.S. TREASURY NOTES -- 29.9%
6,220,000 6.250% 05/31/00..................... 6,299,678
49,155,000 6.500% 08/31/01..................... 50,414,351
23,360,000 5.750% 08/15/03..................... 23,443,862
------------
80,157,891
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $254,095,012)................ 251,668,793
------------
MORTGAGE-BACKED SECURITIES -- 5.0%
(Cost $13,518,902)
FEDERAL NATIONAL MORTGAGE (FNMA)
CERTIFICATES -- 5.0%
13,400,124 6.500% 06/01/03..................... 13,496,738
------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE
AMOUNT VALUE
<C> <S> <C>
INVESTMENT COMPANY -- 0.2%
(Cost $527,298)
527,298 Nations Cash Reserves(a)............ $ 527,298
------------
TOTAL INVESTMENTS
(Cost $268,141,212*)...................... 99.2% 265,692,829
OTHER ASSETS AND LIABILITIES (NET)........ 0.8 1,998,314
----- ------------
NET ASSETS................................ 100.0% $267,691,143
==== ===========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $116,732 and gross
depreciation of $2,628,140 for federal income tax purposes. At March 31,
1998, the aggregate cost of securities for federal income tax purposes was
$268,204,237.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
51
<PAGE> 56
NATIONS FUNDS
Nations Diversified Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 45.7%
BANKING AND FINANCE -- 15.4%
$ 2,850,000 Amsouth Bank of Alabama 6.450%
02/01/18............................ $ 2,808,704
4,200,000 Conseco, Finance TR III 8.796%
04/01/27............................ 4,690,224
4,100,000 Dominion Capital Trust I 7.830%
12/01/27**.......................... 4,190,036
4,025,000 Erac USA Finance Company 6.625%
02/15/05**.......................... 4,004,110
3,500,000 FCB/NB Capital Trust I 8.050%
03/01/28**.......................... 3,531,430
3,500,000 First Nationwide Escrow, Sr. Sub
Notes, 10.625% 10/01/03............. 3,928,750
4,315,000 Great Western Financial 8.206%
02/01/27............................ 4,567,428
3,000,000 Leucadia National Corporation, Sr.
Sub. Notes, 8.250% 06/15/05......... 3,249,960
4,890,000 Morgan Stanley Finance PLC., Gtd.
Sub. Deb., 8.030% 02/28/17.......... 5,195,625
3,940,000 Paine Webber Group, Inc., Sr. Notes,
7.625% 10/15/08..................... 4,207,802
2,200,000 Salomon, Inc., Sr. Notes, 6.700%
07/05/00............................ 2,226,972
2,500,000 Security Pacific Corporation, Sub.
Notes, 11.000% 03/01/01............. 2,811,125
3,480,000 Union Planters Trust 6.500%
03/15/18............................ 3,454,596
3,865,000 Western Financial Savings Bank, Sub.
Deb., 8.500% 07/01/03............... 3,756,587
------------
52,623,349
------------
BROADCASTING -- 1.5%
4,510,000 Time Warner Entertainment 8.375%
07/15/33............................ 5,173,286
------------
CONTAINERS -- 1.4%
4,500,000 BWAY Corporation, Sr. Sub. Notes,
10.250% 04/15/07**.................. 4,927,500
------------
ENERGY -- 1.6%
Occidental Petroleum Corporation:
2,000,000 Sr. Deb., 10.125% 09/15/09........... 2,528,880
2,450,000 Sr. Deb., 9.250% 08/01/19............ 2,980,621
------------
5,509,501
------------
GAS -- 1.1%
3,430,000 Louis Dreyfus Natural Gas
Corporation, Sr. Sub. Notes, 9.250%
06/15/04............................ 3,755,850
------------
HEALTH CARE -- 3.6%
2,100,000 Genesis Health Ventures Inc., Sr.
Sub. Notes, 9.250% 10/01/06......... 2,194,500
Tenet Healthcare Corporation:
2,715,000 Sr. Notes,
8.000% 01/15/05..................... 2,782,875
3,100,000 Sr. Sub. Notes,
10.125% 03/01/05.................... 3,394,500
3,795,000 Quorum Health Group, Inc., Sr. Sub.
Notes, 8.750% 11/01/05.............. 4,003,725
------------
12,375,600
------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INDUSTRIAL -- 11.6%
$ 2,000,000 Auburn Hills Trust Certificates,
Deb., 12.000% 05/01/20.............. $ 3,186,020
4,710,000 Barrett Resources Corporation, Sr.
Notes, 7.550% 02/01/07.............. 4,874,615
2,600,000 Fisher Scientific International, Sr.
Notes, 7.125% 12/15/05.............. 2,454,426
3,850,000 Georgia-Pacific Corporation, 9.500%
12/01/11............................ 4,707,126
2,000,000 Harris Corporation, Notes, 10.375%
12/01/18............................ 2,146,400
5,225,000 PDV America Inc., Gtd. Sr. Notes,
7.875% 08/01/03..................... 5,431,074
3,375,000 Raytheon Co., 7.375% 07/15/25........ 3,356,100
3,535,000 USA Waste Services Inc, 7.125%
12/15/17............................ 3,547,266
4,395,000 Viacom Inc., Sr. Notes, 7.750%
06/01/05............................ 4,609,256
5,240,000 Westpoint Stevens Inc., Sr. Notes,
8.750% 12/15/01..................... 5,449,600
------------
39,761,883
------------
MEDIA -- 1.0%
3,500,000 Primedia Inc 7.6250% 04/01/08**...... 3,395,000
------------
PUBLISHING -- 1.4%
4,190,000 News America Holdings Inc., Gtd.
Deb., 10.125% 10/15/12.............. 4,889,562
------------
TELECOMMUNICATIONS -- 5.8%
5,675,000 GTE Corporation 7.900% 02/01/27...... 6,016,124
2,000,000 Jones Intercable, Inc., Sr. Notes,
9.625% 03/15/02..................... 2,140,000
3,925,000 Martin Marietta Technology 7.750%
04/15/23............................ 4,038,668
2,750,000 Paramount Communication 7.500%
07/15/23............................ 2,651,578
4,500,000 Rogers Cablesystems Limited, Deb.,
10.000% 12/01/07.................... 4,983,750
------------
19,830,120
------------
TRANSPORTATION -- 1.3%
3,625,000 Federal Express Corporation, Notes,
9.650% 06/15/12..................... 4,529,728
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $154,906,295)................. 156,771,379
------------
MUNICIPAL BONDS -- 2.7%
3,520,000 Massachusetts State Port Authority
Revenue, Taxable-Ref-Series-C,
6.350% 07/01/07..................... 3,480,154
5,925,000 Nebraska Investment Finance
Authority, Single Family Housing
Revenue, Taxable-Series-B,
6.550% 09/01/07..................... 5,947,515
------------
TOTAL MUNICIPAL BONDS
(Cost $9,430,604)................... 9,427,669
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE> 57
NATIONS FUNDS
Nations Diversified Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS AND NOTES -- 1.0% (Cost $3,473,650)
$ 3,475,000 United Mexican States., Senior Notes,
8.625% 03/12/08..................... $ 3,457,625
------------
MORTGAGE-BACKED SECURITIES -- 13.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 8.6%
8,628,465 6.500% 05/01/26 -- 05/01/27 (3
pools).............................. 8,534,184
19,710,046 7.000% 05/01/11 -- 04/01/27 (4
pools).............................. 20,030,801
987,203 9.000% 05/01/27...................... 1,046,435
------------
29,611,420
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 4.6%
7,564,919 8.000% 07/15/24 -- 09/15/24 (2
pools).............................. 7,834,381
3,578,258 7.500% 08/15/26...................... 3,668,823
3,807,192 9.000% 08/15/26...................... 4,076,055
------------
15,579,259
------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $43,965,838).................. 45,190,679
------------
U.S. TREASURY OBLIGATIONS -- 35.1%
U.S. TREASURY BONDS:
11,250,000 13.750% 08/15/04..................... 16,006,613
70,000,000 9.125% 05/15/09...................... 81,713,800
6,080,000 10.625% 08/15/15..................... 9,118,115
13,010,000 6.250% 08/15/23...................... 13,410,448
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $119,849,525)................. 120,248,976
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANY -- 0.4%
(Cost $1,423,589)
1,423,589 Nations Cash Reserves (a)........... $ 1,423,589
------------
TOTAL INVESTMENTS
(Cost 333,049,501*)........................ 98.1% 336,519,917
OTHER ASSETS AND LIABILITIES (NET)......... 1.9 6,604,528
----- ------------
NET ASSETS................................. 100.0% $343,124,445
==== ===========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $3,410,371 and gross
depreciation of $187,210 for federal income tax purposes. At March 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$333,296,756.
** Security exempt from registration under Rule 144A of the 1933 Act. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers.
(a) Money market mutual fund registered under the Investment Company Act of
1940, as amended, and sub-advised by TradeStreet Investment Associates, Inc.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE> 58
NATIONS FUNDS
Nations Global Government Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MARCH 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN BONDS AND NOTES -- 88.0%
AUSTRALIA -- 4.9%
AUD 2,000,000 New South Wales Treasury
Corporation,
7.000% 04/01/04............... $ 1,403,178
-----------
AUSTRIA -- 8.9%
DEM 2,100,000 Government of Austria,
8.000% 06/17/02............... 1,278,779
USD 1,200,000 KFW International Finance,
7.500% 04/21/05............... 1,296,000
-----------
2,574,779
-----------
BELGIUM -- 4.3%
USD 1,250,000 Kingdom of Belgium,
5.500% 11/05/03............... 1,229,688
-----------
CANADA -- 8.8%
CAD 1,580,000 Government of Canada,
8.500% 03/01/00............... 1,183,037
DEM 2,450,000 Province of Ontario,
5.000% 02/15/01............... 1,342,850
-----------
2,525,887
-----------
DENMARK -- 4.5%
DKK 9,000,000 Kingdom of Denmark,
6.000% 12/10/99............... 1,310,123
-----------
FINLAND -- 6.2%
GBP 1,000,000 Republic of Finland,
8.000% 04/07/03............... 1,775,485
-----------
FRANCE -- 3.2%
ECU 850,000 French Treasury Bill (BTAN 5
Year Issue), 5.000%
03/16/99...................... 920,617
-----------
GERMANY -- 9.5%
DEM 2,250,000 DSL Finance NV,
5.000% 01/23/01............... 1,242,469
DEM 1,000,000 Federal Republic of Germany,
6.500% 07/04/27............... 620,613
DEM 1,500,000 LKB Baden-Wuettemberg Finance,
6.625% 08/20/03............... 879,880
-----------
2,742,962
-----------
GREAT BRITAIN -- 8.7%
USD 1,300,000 BMW Capital plc,
6.250% 08/14/00............... 1,301,625
GBP 600,000 United Kingdom Treasury,
8.000% 09/27/13............... 1,212,184
-----------
2,513,809
-----------
ITALY -- 4.4%
ITL 2,200,000,000 Italian Government,
7.500% 10/01/99............... 1,256,505
-----------
MEXICO -- 3.7%
USD 1,000,000 Mexican Global Bond,
9.750% 02/06/01............... 1,059,375
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C>
NETHERLANDS -- 4.7%
NLG 2,800,000 Government of the Netherlands,
6.500% 01/15/99............... $ 1,368,782
-----------
POLAND -- 5.3%
USD 1,500,000 Government of Poland,
7.125% 07/01/04............... 1,542,428
-----------
SPAIN -- 4.7%
Government of Spain:
ESP 170,000,000 7.800% 10/31/99................ 1,139,861
ESP 25,000,000 12.250% 03/25/00............... 182,486
-----------
1,322,347
-----------
SUPRANATIONAL -- 2.5%
JPY 90,000,000 World Bank,
4.500% 06/20/00............... 731,071
-----------
UNITED STATES -- 3.7%
JPY 140,000,000 Federal National Mortgage
Association (FNMA) -- Global,
2.000% 12/20/99............... 1,073,692
-----------
TOTAL FOREIGN BONDS AND NOTES
(Cost $26,297,450)............ 25,350,728
-----------
U.S. TREASURY OBLIGATIONS -- 10.2%
U.S. TREASURY BONDS:
USD 1,000,000 6.250% 02/15/07................ 1,034,519
USD 1,750,000 6.625% 02/15/27................ 1,899,502
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,832,492)............. 2,934,021
-----------
TOTAL INVESTMENTS
(Cost $29,129,942*)....................... 98.2% 28,284,749
OTHER ASSETS AND
LIABILITIES (NET)......................... 1.8 513,503
----- -----------
NET ASSETS................................. 100.0% $28,798,252
===== ===========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $397,101 and gross
depreciation of $1,242,294 for federal income tax purposes. At March 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$29,129,942.
Comprehensive Abbreviation listing for all 3/31/98 Nations Government &
Corporate Bond Funds.
ABBREVIATIONS:
<TABLE>
<S> <C>
ADR American Depositary Receipt
FRN Floating Rate Note
Gold Payments are on accelerated 45 day payment cycle instead
of regular 75 day cycle.
MTN Medium Term Note
TBA To Be Announced
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE> 59
NATIONS FUNDS
Nations Global Government Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS MARCH 31, 1998
<TABLE>
<CAPTION>
CONTRACT TO SELL
---------------------------------------------------- NET UNREALIZED
MATURITY LOCAL VALUE IN IN EXCHANGE APPRECIATION
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/20/98 1,500,000 AUD.......................... $ 990,269 $1,006,515 $16,246
-------
Net Unrealized Appreciation of Forward Foreign Exchange Contracts................ $16,246
=======
</TABLE>
ABBREVIATIONS OF CURRENCY
THAT ISSUE IS HELD IN:
<TABLE>
<S> <C>
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschmark
DKK Danish Krona
ECU European Currency Unit
ESP Spanish Peseta
GBP Great Britain Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherland Guilder
USD United States Dollar
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE> 60
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 1998
<TABLE>
<CAPTION>
SHORT- STRATEGIC
SHORT-TERM INTERMEDIATE GOVERNMENT FIXED
INCOME GOVERNMENT SECURITIES INCOME
--------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value. See accompanying schedules........... $377,805,559 $740,149,405 $118,356,607 $1,684,180,908
Cash........................................................ 869 17 19,192 99
Short-term investments held as collateral for loaned
securities................................................ 2,008,332 99,431,070 -- 27,097,550
Interest and dividend receivable............................ 3,613,135 9,974,554 1,047,786 24,524,248
Net unrealized appreciation of forward foreign exchange
contracts................................................. -- -- -- --
Receivable for Fund shares sold............................. 539,604 3,346,723 362,478 11,771,394
Receivable for investment securities sold................... -- -- -- 20,537,598
Unamortized organization costs.............................. -- -- -- --
Prepaid expenses and other assets........................... 74,225 8,124 13,909 8,743
------------ ------------ ------------ --------------
Total Assets........................................ 384,041,724 852,909,893 119,799,972 1,768,120,540
------------ ------------ ------------ --------------
LIABILITIES:
Payable for Fund shares redeemed............................ 26,761,087 1,622,855 698,698 3,662,755
Payable for investment securities purchased................. -- 22,987,500 1,047,243 17,320,949
Dividends payable........................................... 1,672,432 3,106,340 414,421 6,971,537
Collateral on securities loaned............................. 2,008,332 99,431,070 -- 27,097,550
Investment advisory fee payable............................. 96,932 247,792 50,176 671,748
Administration fee payable.................................. 32,311 61,951 10,035 144,352
Shareholder servicing and distribution fees payable......... 9,023 44,369 73,344 22,054
Transfer agent fees payable................................. 34,536 30,035 4,074 116,038
Custodian fees payable...................................... 14,555 9,108 6,467 22,261
Accrued Trustees'/Directors' fees and expenses.............. 14,817 32,550 5,798 64,843
Accrued expenses and other payables......................... 154,476 141,836 58,076 376,633
------------ ------------ ------------ --------------
Total Liabilities................................... 30,798,501 127,715,406 2,368,332 56,470,720
------------ ------------ ------------ --------------
NET ASSETS.................................................. $353,243,223 $725,194,487 $117,431,640 $1,711,649,820
============ ============ ============ ==============
Investments, at cost........................................ $377,296,161 $737,179,476 $117,874,218 $1,669,639,790
============ ============ ============ ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE> 61
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
U.S. GLOBAL
GOVERNMENT DIVERSIFIED GOVERNMENT
BOND INCOME INCOME
- ---------------------------------------------
<S> <C> <C> <C>
$265,692,829 $336,519,917 $28,284,749
359 962 61,129
51,621,137 4,782,009 --
2,531,400 6,534,243 770,520
-- -- 16,246
123,611 1,237,149 672
317,502 -- --
1,350 -- 77,818
6,023 -- 598
------------ ------------ -----------
320,294,211 349,074,280 29,211,732
------------ ------------ -----------
239,476 195,599 261,928
-- -- --
585,388 604,187 52,843
51,621,137 4,782,009 --
95,140 143,031 19,486
22,858 28,606 2,784
4,196 117,438 3,142
5,045 11,015 7,059
-- 2,811 1,770
1,687 13,750 15,873
28,141 51,389 48,595
------------ ------------ -----------
52,603,068 5,949,835 413,480
------------ ------------ -----------
$267,691,143 $343,124,445 $28,798,252
============ ============ ===========
$268,141,212 $333,049,501 $29,129,942
============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE> 62
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
SHORT- STRATEGIC
SHORT-TERM INTERMEDIATE GOVERNMENT FIXED
INCOME GOVERNMENT SECURITIES INCOME
----------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Paid-in capital............................................. $358,944,992 $735,459,173 $125,238,908 $1,692,625,085
Undistributed net investment income/(distributions in excess
of net investment income)................................. 6,369 33,132 (340,498) 244,855
Accumulated net realized gain/(loss) on investments sold.... (6,217,536) (13,267,747) (7,949,159) 4,238,762
Net unrealized appreciation/(depreciation) of investments... 509,398 2,969,929 482,389 14,541,118
------------ ------------ ------------ --------------
$353,243,223 $725,194,487 $117,431,640 $1,711,649,820
============ ============ ============ ==============
NET ASSETS:
Primary A Shares............................................ $331,961,427 $663,832,555 $75,795,897 $1,681,990,472
Primary B Shares............................................ 10 261,446 10 10
Investor A Shares........................................... 13,687,531 49,477,929 8,509,472 26,054,221
Investor B Shares........................................... 4,602,478 9,814,537 32,391,222 2,662,201
Investor C Shares........................................... 2,991,777 1,808,020 735,039 942,916
SHARES OUTSTANDING:
Primary A Shares............................................ 33,975,210 161,176,426 7,653,532 167,724,635
Primary B Shares............................................ 1 63,478 1 1
Investor A Shares........................................... 1,400,731 12,013,219 859,220 2,597,956
Investor B Shares........................................... 471,001 2,382,950 3,270,649 265,480
Investor C Shares........................................... 306,167 438,982 74,216 94,052
PRIMARY A SHARES:
Net asset value, offering and redemption price per share.... $9.77 $4.12 $9.90 $10.03
PRIMARY B SHARES:
Net asset value, offering and redemption price per share.... $9.77 $4.12 $9.90 $10.03
INVESTOR A SHARES:
Net asset value, offering and redemption price per share.... $9.77 $4.12 $9.90 $10.03
INVESTOR B SHARES:
Net asset value and offering price per share*............... $9.77 $4.12 $9.90 $10.03
INVESTOR C SHARES:
Net asset value, offering and redemption price per share.... $9.77 $4.12 $9.90 $10.03
</TABLE>
- ---------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge excluding Short-Term Income which has no
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE> 63
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) MARCH 31, 1998
<TABLE>
<CAPTION>
U.S. GLOBAL
GOVERNMENT DIVERSIFIED GOVERNMENT
BOND INCOME INCOME
- -----------------------------------------------
<S> <C> <C> <C>
$264,083,767 $338,694,486 $30,409,749
27,418 38,184 (809,209)
6,028,341 921,359 46,832
(2,448,383) 3,470,416 (849,120)
------------ ------------ -----------
$267,691,143 $343,124,445 $28,798,252
============ ============ ===========
$263,427,712 $263,840,413 $14,200,356
-- 11 10
1,927,267 11,946,163 14,425,441
1,004,352 65,248,213 162,865
1,331,812 2,089,645 9,580
25,404,604 25,018,947 1,463,408
-- 1 1
185,867 1,132,243 1,486,466
96,829 6,187,179 16,783
128,438 198,147 987
$10.37 $10.55 $9.70
-- $10.55 $9.70
$10.37 $10.55 $9.70
$10.37 $10.55 $9.70
$10.37 $10.55 $9.70
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE> 64
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
SHORT-
SHORT-TERM INTERMEDIATE GOVERNMENT
INCOME GOVERNMENT SECURITIES
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest.................................................... $21,105,114 $41,087,998 $ 7,749,541
Dividends................................................... 49,413 280,875 49,774
Securities lending.......................................... 2,676 230,357 65,841
----------- ----------- -----------
Total investment income................................. 21,157,203 41,599,230 7,865,156
----------- ----------- -----------
EXPENSES:
Investment advisory fee..................................... 2,012,097 4,063,003 767,133
Administration fee.......................................... 335,350 677,167 121,297
Transfer agent fees......................................... 235,961 464,165 114,419
Custodian fees.............................................. 41,370 56,853 51,028
Legal and audit fees........................................ 49,819 75,126 50,006
Registration and filing fees................................ 119,462 82,239 76,791
Trustees'/Directors' fees and expenses...................... 9,228 16,777 2,032
Amortization of organization costs.......................... 2,016 -- --
Interest expense............................................ 280 -- 2,821
Other....................................................... 73,657 55,331 15,799
----------- ----------- -----------
Subtotal................................................ 2,879,240 5,490,661 1,201,326
Shareholder servicing and distribution fees:
Primary B Shares.......................................... 1,642 43,035 2,961
Investor A Shares......................................... 17,958 88,874 25,326
Investor B Shares......................................... 17,290 74,499 273,428
Investor C Shares......................................... 12,192 38,548 10,159
Fees waived by investment adviser........................... (1,006,049) (1,354,334) (160,648)
----------- ----------- -----------
Total expenses.......................................... 1,922,273 4,381,283 1,352,552
Fees reduced by credits allowed by the custodian............ (7,677) -- (4,319)
----------- ----------- -----------
Net expenses............................................ 1,914,596 4,381,283 1,348,233
----------- ----------- -----------
NET INVESTMENT INCOME....................................... 19,242,607 37,217,947 6,516,923
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities................................................ 720,476 11,733,289 5,089,950
Forward foreign exchange contracts........................ -- -- --
Foreign currencies and other net assets................... -- -- --
----------- ----------- -----------
Net realized gain/(loss) on investments..................... 720,476 11,733,289 5,089,950
----------- ----------- -----------
Net change in unrealized appreciation/(depreciation) of:
Securities (Note 10)...................................... 1,879,366 7,138,825 1,541,240
Forward foreign exchange contracts, foreign currencies and
other net assets........................................ -- -- --
----------- ----------- -----------
Net change in unrealized appreciation/(depreciation) of
investments............................................... 1,879,366 7,138,825 1,541,240
----------- ----------- -----------
Net realized and unrealized gain/(loss) on investments...... 2,599,842 18,872,114 6,631,190
----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $21,842,449 $56,090,061 $13,148,113
=========== =========== ===========
</TABLE>
- ---------------
(a) Represents financial information for the Pilot U.S. Government Securities
Fund, which was reorganized into U.S. Government Bond on May 23, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE> 65
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
----------------------------------------
STRATEGIC FOR THE PERIOD FOR THE PERIOD GLOBAL
FIXED MAY 17, 1997 TO SEPTEMBER 1, 1996 DIVERSIFIED GOVERNMENT
INCOME MARCH 31, 1998 TO MAY 16, 1997(a) INCOME INCOME
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 98,765,966 $ 8,441,401 $6,646,384 $20,086,015 $2,172,754
1,450,143 15,923 -- 78,482 --
141,936 26,392 -- 538 3,773
------------ ----------- ---------- ----------- ----------
100,358,045 8,483,716 6,646,384 20,165,035 2,176,527
------------ ----------- ---------- ----------- ----------
9,149,399 869,202 552,504 1,728,012 288,379
1,524,900 148,492 129,920 288,002 41,197
1,091,260 86,401 24,130 177,740 28,552
164,070 15,556 9,220 30,222 11,462
150,787 37,685 33,836 44,068 36,728
384,997 78,741 16,980 99,186 49,264
36,793 2,291 3,560 6,757 15,732
2,354 270 13,662 2,354 34,618
1,879 -- -- -- 3,419
197,484 14,017 3,372 24,641 33,471
------------ ----------- ---------- ----------- ----------
12,703,923 1,252,655 787,184 2,400,982 542,822
88,031 -- -- 767 1
30,753 2,909 1,701 28,987 36,794
17,772 5,441 11,063 552,378 1,457
7,045 6,274 -- 19,667 68
(1,760,101) (385,271) (125,674) (288,002) --
------------ ----------- ---------- ----------- ----------
11,087,423 882,008 674,274 2,714,779 581,142
(19,151) (11) -- -- --
------------ ----------- ---------- ----------- ----------
11,068,272 881,997 674,274 2,714,779 581,142
------------ ----------- ---------- ----------- ----------
89,289,773 7,601,719 5,972,110 17,450,256 1,595,385
------------ ----------- ---------- ----------- ----------
35,163,861 6,490,514 923,301 4,926,075 (970,895)
-- -- -- -- 300,778
-- -- -- -- (80,371)
------------ ----------- ---------- ----------- ----------
35,163,861 6,490,514 923,301 4,926,075 (750,488)
------------ ----------- ---------- ----------- ----------
22,748,534 (2,480,110) 1,508,806 6,007,873 760,228
-- -- -- -- (124,528)
------------ ----------- ---------- ----------- ----------
22,748,534 (2,480,110) 1,508,806 6,007,873 635,700
------------ ----------- ---------- ----------- ----------
57,912,395 4,010,404 2,432,107 10,933,948 (114,788)
------------ ----------- ---------- ----------- ----------
147,202,168
$ $11,612,123 $8,404,217 $28,384,204 $1,480,597
============ =========== ========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE> 66
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT-TERM INCOME SHORT-INTERMEDIATE GOVERNMENT
---------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
3/31/98 3/31/97 3/31/98 3/31/97
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income.............................. $ 19,242,607 $ 11,901,922 $ 37,217,947 $ 26,750,446
Net realized gain/(loss) on investments............ 720,476 14,435 11,733,289 (9,570,325)
Net change in unrealized
appreciation/(depreciation) of investments....... 1,879,366 (1,766,538) 7,138,825 826,615
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations....................................... 21,842,449 10,149,819 56,090,061 18,006,736
Distributions to shareholders from net investment
income:
Primary A Shares................................. (18,262,282) (10,929,771) (33,403,952) (22,214,271)
Primary B Shares................................. (25,268) (24,362) (632,936) (363,390)
Investor A Shares................................ (499,072) (296,338) (2,412,795) (2,674,564)
Investor B Shares................................ (270,227) (357,900) (426,846) (623,578)
Investor C Shares................................ (185,785) (265,655) (341,416) (513,751)
Distributions to shareholders from net realized
gain on investments:
Primary A Shares................................. -- -- -- --
Primary B Shares................................. -- -- -- --
Investor A Shares................................ -- -- -- --
Investor B Shares................................ -- -- -- --
Investor C Shares................................ -- -- -- --
Distributions to shareholders from capital:
Primary A Shares................................. -- -- -- --
Primary B Shares................................. -- -- -- --
Investor A Shares................................ -- -- -- --
Investor B Shares................................ -- -- -- --
Investor C Shares................................ -- -- -- --
Net increase/(decrease) in net assets from Fund
share transactions:
Primary A Shares................................. 148,145,075 3,091,273 276,196,678 (22,025,851)
Primary B Shares................................. (960,504) 957,004 (17,237,058) 17,251,586
Investor A Shares................................ 7,430,557 3,387,681 5,707,537 (13,976,457)
Investor B Shares................................ (1,040,816) (1,747,931) (1,291,845) (2,780,531)
Investor C Shares................................ (1,106,495) (2,014,986) (6,740,416) (3,303,160)
------------ ------------ ------------ ------------
Net increase/(decrease) in net assets.............. 155,067,632 1,948,834 275,507,012 (33,217,231)
NET ASSETS:
Beginning of year.................................. 198,175,591 196,226,757 449,687,475 482,904,706
------------ ------------ ------------ ------------
End of year........................................ $353,243,223 $198,175,591 $725,194,487 $449,687,475
============ ============ ============ ============
Undistributed net investment income/(distributions
in excess of net investment income) at end of
year............................................. $ 6,369 $ 6,396 $ 33,132 $ 33,130
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE> 67
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES STRATEGIC FIXED INCOME
------------------------------ --------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
3/31/98 3/31/97 3/31/98 3/31/97
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 6,516,923 $ 6,795,585 $ 89,289,773 $ 56,841,576
5,089,950 (3,826,282) 35,163,861 (17,609,800)
1,541,240 478,228 22,748,534 479,199
------------ ------------ -------------- ------------
13,148,113 3,447,531 147,202,168 39,710,975
(4,157,969) (3,299,326) (87,058,382) (54,960,385)
(30,884) (23,959) (963,023) (701,691)
(547,021) (629,297) (849,655) (388,702)
(1,711,136) (2,442,823) (120,779) (124,213)
(69,913) (122,250) (53,079) (35,613)
-- -- -- (10,984,337)
-- -- -- (168,447)
-- -- -- (77,228)
-- -- -- (26,485)
-- -- -- (8,604)
-- (26,548) -- (61,284)
-- (214) -- (836)
-- (5,279) -- (449)
-- (22,014) -- (156)
-- (1,067) -- (43)
19,204,402 (1,923,011) 678,168,657 150,300,620
(793,139) 768,845 (30,369,790) 29,855,538
(1,939,625) (1,489,221) 19,368,328 104,418
(8,342,082) (10,856,535) 461,451 (313,787)
(1,184,302) (659,366) (170,945) 790,529
------------ ------------ -------------- ------------
13,576,444 (17,284,534) 725,614,951 152,909,820
103,855,196 121,139,730 986,034,869 833,125,049
------------ ------------ -------------- ------------
$117,431,640 $103,855,196 $1,711,649,820 $986,034,869
============ ============ ============== ============
$ (340,498) $ (340,498) $ 244,855 --
============ ============ ============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE> 68
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
----------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED
3/31/98 5/16/97(a) 8/31/96(a)
----------------------------------------------
<S> <C> <C> <C>
Net investment income....................................... $ 7,601,719 $ 5,972,110 $ 7,859,179
Net realized gain/(loss) on investments..................... 6,490,514 923,301 6,920,545
Change in unrealized appreciation/(depreciation) of
investments............................................... (2,480,110) 1,508,806 (9,917,288)
------------ ------------ ------------
Net increase in net assets resulting from operations........ 11,612,123 8,404,217 4,862,436
Distributions to shareholders from net investment income:
Primary A Shares.......................................... (7,479,447) (5,885,069) (7,807,800)
Primary B Shares.......................................... -- -- --
Investor A Shares......................................... (57,056) (36,240) (17,876)
Investor B Shares......................................... (30,781) (50,801) (33,503)
Investor C Shares......................................... (35,507) -- --
Distributions to shareholders in excess of net investment
income:
Primary A Shares.......................................... -- -- --
Primary B Shares.......................................... -- -- --
Investor A Shares......................................... -- -- --
Investor B Shares......................................... -- -- --
Investor C Shares......................................... -- -- --
Distributions to shareholders from net realized gain on
investments:
Primary A Shares.......................................... (1,853,373) (7,085,032) (5,585,839)
Primary B Shares.......................................... -- -- --
Investor A Shares......................................... (15,510) (55,087) (6,785)
Investor B Shares......................................... (67) (76,740) (18,425)
Investor C Shares......................................... (18,330) -- --
Distributions to shareholders in excess of net realized gain
on investments:
Primary A Shares.......................................... -- -- --
Primary B Shares.......................................... -- -- --
Investor A Shares......................................... -- -- --
Investor B Shares......................................... -- -- --
Investor C Shares......................................... -- -- --
Net increase/(decrease) in net assets from Fund share
transactions:
Primary A Shares.......................................... 113,222,671 7,694,223 16,336,652
Primary B Shares.......................................... -- -- --
Investor A Shares......................................... 1,179,952 156,503 563,000
Investor B Shares......................................... (514,847) 343,817 1,150,000
Investor C Shares......................................... 1,336,055 -- --
------------ ------------ ------------
Net increase/(decrease) in net assets....................... 117,345,883 3,409,791 9,441,860
NET ASSETS:
Beginning of period......................................... 150,345,260 146,935,469 137,493,609
------------ ------------ ------------
End of period............................................... $267,691,143 $150,345,260 $146,935,469
============ ============ ============
Undistributed net investment income/(distributions in excess
of net investment income) at end of period................ $ 27,418 $ 22,072 $ 22,072
============ ============ ============
</TABLE>
- ---------------
(a) Represents financial information for the Pilot U.S. Government Securities
Fund, which was reorganized into U.S. Government Bond on May 23, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE> 69
NATIONS FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DIVERSIFIED GLOBAL GOVERNMENT
INCOME INCOME
------------------------------ -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
3/31/98 3/31/97 3/31/98 3/31/97
---------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 17,450,256 $ 12,837,273 $ 1,595,385 $ 1,926,329
4,926,075 (3,799,025) (750,488) 953,513
6,007,873 106,386 635,700 (1,284,681)
------------ ------------ ------------ -----------
28,384,204 9,144,634 1,480,597 1,595,161
(12,928,710) (7,049,444) (815,497) (1,249,093)
(8,952) (1,757) (2) (2,462)
(696,915) (820,865) (430,054) (667,922)
(3,658,511) (4,654,890) (3,600) (6,474)
(157,057) (222,986) (225) (378)
-- -- -- (250,244)
-- -- -- (547)
-- -- -- (142,043)
-- -- -- (1,679)
-- -- -- (85)
-- (1,246,521) (79,019) (428,196)
-- (481) (1) (876)
-- (146,959) (42,420) (242,140)
-- (932,648) (445) (2,622)
-- (42,737) (26) (143)
-- -- (220,077) --
-- -- (3) --
-- -- (126,360) --
-- -- (1,367) --
-- -- (79) --
104,266,369 90,247,006 (13,819,987) 4,327,824
(50,425) 41,228 (5,076) 5,828
(208,562) (1,295,769) (552,026) 650,979
(8,189,999) (11,813,564) (28,531) 4,661
(1,373,401) (16,833) 448 606
------------ ------------ ------------ -----------
105,378,041 71,187,414 (14,643,750) 3,590,155
237,746,404 166,558,990 43,442,002 39,851,847
------------ ------------ ------------ -----------
$343,124,445 $237,746,404 $ 28,798,252 $43,442,002
============ ============ ============ ===========
$ 38,184 $ 38,073 $ (809,209) $ (38,979)
============ ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE> 70
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY
<TABLE>
<CAPTION>
SHORT-TERM INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
---------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 6,440,533 $ 62,959,042 6,396,691 $ 62,280,237
Issued in exchange for assets of NationsBank Common Trust
Short Term Income Fund (Note 10)........................ 28,299,082 275,916,054 -- --
Issued as reinvestment of dividends....................... 381,141 3,717,052 611,423 5,939,306
Redeemed.................................................. (19,897,070) (194,447,073) (6,692,510) (65,128,270)
----------- ------------- ---------- ------------
Net increase.............................................. 15,223,686 $ 148,145,075 315,604 $ 3,091,273
=========== ============= ========== ============
PRIMARY B SHARES:
Sold...................................................... 8,840 $ 86,014 100,331 $ 975,313
Issued as reinvestment of dividends....................... 1,325 12,904 1,896 18,454
Redeemed.................................................. (108,608) (1,059,422) (3,783) (36,763)
----------- ------------- ---------- ------------
Net increase/(decrease)................................... (98,443) $ (960,504) 98,444 $ 957,004
=========== ============= ========== ============
INVESTOR A SHARES:
Sold...................................................... 1,373,289 $ 13,399,387 536,576 $ 5,205,410
Issued as reinvestment of dividends....................... 47,447 462,639 27,926 271,789
Redeemed.................................................. (657,492) (6,431,469) (214,856) (2,089,518)
----------- ------------- ---------- ------------
Net increase.............................................. 763,244 $ 7,430,557 349,646 $ 3,387,681
=========== ============= ========== ============
INVESTOR B SHARES:
Sold...................................................... 117,953 $ 1,153,739 62,794 $ 611,334
Issued as reinvestment of dividends....................... 23,694 231,240 31,742 308,758
Redeemed.................................................. (242,749) (2,425,795) (274,315) (2,668,023)
----------- ------------- ---------- ------------
Net decrease.............................................. (101,102) $ (1,040,816) (179,779) $ (1,747,931)
=========== ============= ========== ============
INVESTOR C SHARES:
Sold...................................................... 131,913 $ 1,284,002 63,175 $ 614,207
Issued as reinvestment of dividends....................... 12,143 118,242 19,749 192,097
Redeemed.................................................. (257,751) (2,508,739) (290,139) (2,821,290)
----------- ------------- ---------- ------------
Net decrease.............................................. (113,695) $ (1,106,495) (207,215) $ (2,014,986)
=========== ============= ========== ============
</TABLE>
- ---------------
(a) Short-Term Income's Primary B Shares commenced operations on June 28, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE> 71
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE GOVERNMENT
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
----------------------------- ------------------------------
SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 27,054,932 $111,320,548 25,588,345 $ 103,176,037
Issued in exchange for:
Pilot Shares of Pilot Intermediate U.S. Government
Securities Fund (Note 10)............................. 57,272,980 230,814,630 -- --
Assets of NationsBank Common Trust Short Intermediate
U.S. Government Fund (Note 10)........................ 67,260,858 275,769,517 -- --
Issued as reinvestment of dividends....................... 1,029,442 4,167,373 1,947,196 7,858,690
Redeemed.................................................. (84,345,071) (345,875,390) (32,906,576) (133,060,578)
----------- ------------ ----------- -------------
Net increase/(decrease)................................... 68,273,141 $276,196,678 (5,371,035) $ (22,025,851)
=========== ============ =========== =============
PRIMARY B SHARES:
Sold...................................................... 840,675 $ 3,495,042 4,641,662 $ 18,801,947
Issued as reinvestment of dividends....................... 120,593 498,967 73,779 298,014
Redeemed.................................................. (5,153,407) (21,231,067) (459,824) (1,848,375)
----------- ------------ ----------- -------------
Net increase/(decrease)................................... (4,192,139) $(17,237,058) 4,255,617 $ 17,251,586
=========== ============ =========== =============
INVESTOR A SHARES:
Sold...................................................... 3,995,687 $ 16,124,885 485,750 $ 1,962,420
Issued in exchange for:
Class A Shares of Pilot Intermediate U.S. Government
Securities Fund (Note 10)............................. 342,822 1,381,763 -- --
Issued as reinvestment of dividends....................... 402,086 1,663,870 457,633 1,847,025
Redeemed.................................................. (3,360,282) (13,462,981) (4,410,571) (17,785,902)
----------- ------------ ----------- -------------
Net increase/(decrease)................................... 1,380,313 $ 5,707,537 (3,467,188) $ (13,976,457)
=========== ============ =========== =============
INVESTOR B SHARES:
Sold...................................................... 141,180 $ 569,384 181,291 $ 727,752
Issued as reinvestment of dividends....................... 70,567 288,667 90,867 366,792
Redeemed.................................................. (529,703) (2,149,896) (959,850) (3,875,075)
----------- ------------ ----------- -------------
Net decrease.............................................. (317,956) $ (1,291,845) (687,692) $ (2,780,531)
=========== ============ =========== =============
INVESTOR C SHARES:
Sold...................................................... 22,479 $ 90,688 157,558 $ 632,641
Issued as reinvestment of dividends....................... 45,516 186,844 86,331 348,458
Redeemed.................................................. (1,715,530) (7,017,948) (1,061,848) (4,284,259)
----------- ------------ ----------- -------------
Net decrease.............................................. (1,647,535) $ (6,740,416) (817,959) $ (3,303,160)
=========== ============ =========== =============
</TABLE>
- ---------------
(a) Short-Intermediate Government's Primary B Shares commenced operations on
June 28, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE> 72
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 1,577,661 $ 15,624,260 1,744,975 $ 16,536,475
Issued in exchange for assets of NationsBank Common Trust
Mortgage Backed Securities Fund (Note 10)............... 4,714,190 45,209,085 -- --
Issued as reinvestment of dividends....................... 22,160 214,489 36,054 344,081
Redeemed.................................................. (4,264,966) (41,843,432) (1,963,478) (18,803,567)
---------- ------------ ---------- ------------
Net increase/(decrease)................................... 2,049,045 $ 19,204,402 (182,449) $ (1,923,011)
========== ============ ========== ============
PRIMARY B SHARES:
Sold...................................................... 10,667 $ 103,477 84,339 $ 805,378
Issued as reinvestment of dividends....................... 555 5,426 577 5,502
Redeemed.................................................. (91,699) (902,042) (4,438) (42,035)
---------- ------------ ---------- ------------
Net increase/(decrease)................................... (80,477) $ (793,139) 80,478 $ 768,845
========== ============ ========== ============
INVESTOR A SHARES:
Sold...................................................... 224,590 $ 2,193,536 35,068 $ 337,119
Issued as reinvestment of dividends....................... 31,491 306,127 40,328 385,010
Redeemed.................................................. (446,492) (4,439,288) (231,727) (2,211,350)
---------- ------------ ---------- ------------
Net decrease.............................................. (190,411) $ (1,939,625) (156,331) $ (1,489,221)
========== ============ ========== ============
INVESTOR B SHARES:
Sold...................................................... 65,241 $ 645,920 85,775 $ 815,971
Issued as reinvestment of dividends....................... 103,618 1,005,175 152,150 1,452,183
Redeemed.................................................. (1,032,559) (9,993,177) (1,373,092) (13,124,689)
---------- ------------ ---------- ------------
Net decrease.............................................. (863,700) $ (8,342,082) (1,135,167) $(10,856,535)
========== ============ ========== ============
INVESTOR C SHARES:
Sold...................................................... 409 $ 3,971 3,497 $ 33,160
Issued as reinvestment of dividends....................... 4,273 41,480 7,277 69,445
Redeemed.................................................. (125,939) (1,229,753) (79,815) (761,971)
---------- ------------ ---------- ------------
Net decrease.............................................. (121,257) $ (1,184,302) (69,041) $ (659,366)
========== ============ ========== ============
</TABLE>
- ---------------
(a) Government Securities' Primary B Shares commenced operations on June 28,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE> 73
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 47,819,004 $ 478,100,259 43,888,161 $ 428,802,189
Issued in exchange for:
Primary A Shares of Peachtree Bond Fund (Note 10)....... -- -- 6,826,942 67,043,140
Pilot Shares of Pilot Diversified Bond Fund (Note 10)... 9,934,893 96,657,323 -- --
Assets of NationsBank Common Trust Strategic Fixed
Income Fund (Note 10)................................. 99,909,128 987,102,187 -- --
Assets of NationsBank Common Trust Fixed Income Fund for
Personal Trusts (Note 10)............................. 2,475,616 24,459,089 -- --
Issued as reinvestment of dividends....................... 2,278,928 22,602,308 3,413,891 33,535,767
Redeemed.................................................. (93,155,105) (930,752,509) (38,662,065) (379,080,476)
----------- ------------- ----------- -------------
Net increase.............................................. 69,262,464 $ 678,168,657 15,466,929 $ 150,300,620
=========== ============= =========== =============
PRIMARY B SHARES:
Sold...................................................... 318,549 $ 3,146,856 3,696,662 $ 36,307,617
Issued as reinvestment of dividends....................... 63,134 622,337 62,778 616,546
Redeemed.................................................. (3,419,418) (34,138,983) (721,704) (7,068,625)
----------- ------------- ----------- -------------
Net increase/(decrease)................................... (3,037,735) $ (30,369,790) 3,037,736 $ 29,855,538
=========== ============= =========== =============
INVESTOR A SHARES:
Sold...................................................... 2,649,116 $ 26,507,092 271,643 $ 2,666,104
Issued in exchange for:
Class A Shares of Pilot Diversified Bond Fund (Note
10)..................................................... 18,369 178,746 -- --
Issued as reinvestment of dividends....................... 62,915 628,208 38,529 378,759
Redeemed.................................................. (792,039) (7,945,718) (299,293) (2,940,445)
----------- ------------- ----------- -------------
Net increase.............................................. 1,938,361 $ 19,368,328 10,879 $ 104,418
=========== ============= =========== =============
INVESTOR B SHARES:
Sold...................................................... 76,609 $ 771,651 17,220 $ 170,471
Issued in exchange for:
Class B Shares of Pilot Diversified Bond Fund (Note
10)..................................................... 35,367 344,002 -- --
Issued as reinvestment of dividends....................... 10,132 100,816 12,584 123,689
Redeemed.................................................. (75,910) (755,018) (61,936) (607,947)
----------- ------------- ----------- -------------
Net increase/(decrease)................................... 46,198 $ 461,451 (32,132) $ (313,787)
=========== ============= =========== =============
INVESTOR C SHARES:
Sold...................................................... 145,121 $ 1,445,818 114,761 $ 1,123,112
Issued as reinvestment of dividends....................... 5,012 49,792 4,392 43,199
Redeemed.................................................. (167,077) (1,666,555) (38,322) (375,782)
----------- ------------- ----------- -------------
Net increase/(decrease)................................... (16,944) $ (170,945) 80,831 $ 790,529
=========== ============= =========== =============
</TABLE>
- ---------------
(a) Strategic Fixed Income's Primary B Shares commenced operations on June 28,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE> 74
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, 1998(a) MAY 16, 1997(b) AUGUST 31, 1996(b)
------------------------- ------------------------- -------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold........................................ 13,486,805 $139,973,452 2,306,447 $ 23,888,312 3,091,000 $ 33,654,652
Issued as reinvestment of dividends......... 102,328 1,062,109 42,084 436,204 23,000 261,000
Redeemed.................................... (2,714,526) (27,812,890) (1,599,474) (16,630,293) (1,590,000) (17,579,000)
---------- ------------ ---------- ------------ ---------- ------------
Net increase................................ 10,874,607 $113,222,671 749,057 $ 7,694,223 1,524,000 $ 16,336,652
========== ============ ========== ============ ========== ============
INVESTOR A SHARES:
Sold........................................ 168,236 $ 1,745,963 52,309 $ 567,880 64,000 $ 690,000
Issued as reinvestment of dividends......... 4,440 46,265 8,666 89,844 1,000 16,000
Redeemed.................................... (58,768) (612,276) (49,048) (501,221) (13,000) (143,000)
---------- ------------ ---------- ------------ ---------- ------------
Net increase................................ 113,908 $ 1,179,952 11,927 $ 156,503 52,000 $ 563,000
========== ============ ========== ============ ========== ============
INVESTOR B SHARES:
Sold........................................ 97,985 $ 1,028,827 37,746 $ 400,061 106,000 $ 1,160,000
Issued as reinvestment of dividends......... 1,972 20,504 10,431 108,295 4,000 42,000
Redeemed.................................... (153,192) (1,564,178) (15,714) (164,539) (5,000) (52,000)
---------- ------------ ---------- ------------ ---------- ------------
Net increase/(decrease)..................... (53,235) $ (514,847) 32,463 $ 343,817 105,000 $ 1,150,000
========== ============ ========== ============ ========== ============
INVESTOR C SHARES:
Sold........................................ 145,639 $ 1,515,940 -- $ -- -- $ --
Issued as reinvestment of dividends......... 2,434 25,368 -- -- -- --
Redeemed.................................... (19,635) (205,253) -- -- -- --
---------- ------------ ---------- ------------ ---------- ------------
Net increase................................ 128,438 $ 1,336,055 -- $ -- -- $ --
========== ============ ========== ============ ========== ============
</TABLE>
- ---------------
(a) U.S. Government Bond's Investor C Shares commenced operations on September
19, 1997.
(b) Represents financial information for the Pilot U.S. Government Securities
Fund which was reorganized into U.S. Government Bond on May 23, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE> 75
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
DIVERSIFIED INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 12,274,930 $128,837,471 9,326,149 $ 95,819,147
Issued as reinvestment of dividends....................... 880,599 9,155,029 682,648 7,030,327
Redeemed.................................................. (3,172,731) (33,726,131) (1,220,878) (12,602,468)
---------- ------------ ---------- ------------
Net increase.............................................. 9,982,798 $104,266,369 8,787,919 $ 90,247,006
========== ============ ========== ============
PRIMARY B SHARES:
Sold...................................................... 22,649 $ 233,191 3,788 $ 38,990
Issued as reinvestment of dividends....................... 759 7,894 217 2,238
Redeemed.................................................. (27,412) (291,510) -- --
---------- ------------ ---------- ------------
Net increase/(decrease)................................... (4,004) $ (50,425) 4,005 $ 41,228
========== ============ ========== ============
INVESTOR A SHARES:
Sold...................................................... 301,996 $ 3,115,237 340,595 $ 3,519,242
Issued as reinvestment of dividends....................... 43,407 451,661 50,590 521,584
Redeemed.................................................. (366,234) (3,775,460) (518,078) (5,336,595)
---------- ------------ ---------- ------------
Net decrease.............................................. (20,831) $ (208,562) (126,893) $ (1,295,769)
========== ============ ========== ============
INVESTOR B SHARES:
Sold...................................................... 520,892 $ 5,490,202 419,468 $ 4,343,211
Issued as reinvestment of dividends....................... 210,972 2,204,296 334,274 3,456,153
Redeemed.................................................. (1,528,376) (15,884,497) (1,901,187) (19,612,928)
---------- ------------ ---------- ------------
Net decrease.............................................. (796,512) $ (8,189,999) (1,147,445) $(11,813,564)
========== ============ ========== ============
INVESTOR C SHARES:
Sold...................................................... 57,148 $ 602,548 103,490 $ 1,066,332
Issued as reinvestment of dividends....................... 9,962 103,767 18,494 190,859
Redeemed.................................................. (199,464) (2,079,716) (123,059) (1,274,024)
---------- ------------ ---------- ------------
Net decrease.............................................. (132,354) $ (1,373,401) (1,075) $ (16,833)
========== ============ ========== ============
</TABLE>
- ---------------
(a) Diversified Income's Primary B Shares commenced operations on June 28, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE> 76
NATIONS FUNDS
- --------------------------------------------------------------------------------
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
GLOBAL GOVERNMENT INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(a)
---------------------------- -------------------------
SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY A SHARES:
Sold...................................................... 53,379 $ 523,871 649,206 $ 6,647,355
Issued as reinvestment of dividends....................... 97,162 951,096 154,032 1,570,912
Redeemed.................................................. (1,560,422) (15,294,954) (387,483) (3,890,443)
---------- ------------ -------- -----------
Net increase/(decrease)................................... (1,409,881) $(13,819,987) 415,755 $ 4,327,824
========== ============ ======== ===========
PRIMARY B SHARES:
Sold...................................................... -- $ -- 13,113 $ 132,884
Issued as reinvestment of dividends....................... -- -- 298 3,090
Redeemed.................................................. (526) (5,076) (12,884) (130,146)
---------- ------------ -------- -----------
Net increase/(decrease)................................... (526) $ (5,076) 527 $ 5,828
========== ============ ======== ===========
INVESTOR A SHARES:
Sold...................................................... 17,222 $ 168,469 69,887 $ 714,152
Issued as reinvestment of dividends....................... 2,053 20,101 2,747 28,266
Redeemed.................................................. (75,581) (740,596) (8,928) (91,439)
---------- ------------ -------- -----------
Net increase/(decrease)................................... (56,306) $ (552,026) 63,706 $ 650,979
========== ============ ======== ===========
INVESTOR B SHARES:
Sold...................................................... 51 $ 501 3,210 $ 31,111
Issued as reinvestment of dividends....................... 551 5,396 995 10,579
Redeemed.................................................. (3,538) (34,428) (3,615) (37,029)
---------- ------------ -------- -----------
Net increase/(decrease)................................... (2,936) $ (28,531) 590 $ 4,661
========== ============ ======== ===========
INVESTOR C SHARES:
Sold...................................................... 11 $ 107 -- $ --
Issued as reinvestment.................................... 35 341 59 606
Redeemed.................................................. -- -- -- --
---------- ------------ -------- -----------
Net increase.............................................. 46 $ 448 59 $ 606
========== ============ ======== ===========
</TABLE>
- ---------------
(a) Global Government Income's Primary B Shares commenced operations on June 28,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE> 77
[THIS PAGE INTENTIONALLY LEFT BLANK.]
73
<PAGE> 78
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET INCREASE/ DISTRIBUTIONS
NET ASSET NET REALIZED (DECREASE) IN DIVIDENDS IN EXCESS
VALUE NET AND UNREALIZED NET ASSET FROM NET OF NET DISTRIBUTIONS
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT INVESTMENT FROM
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INCOME
PRIMARY A SHARES:
Year ended 03/31/1998...... $ 9.68 $0.56 $ 0.09 $ 0.65 $(0.56) -- --
Year ended 03/31/1997#..... 9.76 0.58 (0.08) 0.50 (0.58) -- --
Period ended
03/31/1996(a)#........... 9.84 0.20 (0.08) 0.12 (0.20) -- --
Year ended 11/30/1995#..... 9.48 0.61 0.36 0.97 (0.61) -- --
Year ended 11/30/1994#..... 10.01 0.50 (0.51) (0.01) (0.48) $(0.02) $(0.02)
Year ended 11/30/1993...... 9.75 0.53 0.26 0.79 (0.53) -- --
Period ended 11/30/1992*... 10.00 0.09 (0.25) (0.16) (0.09) -- --
PRIMARY B SHARES:
Year ended 03/31/1998...... $ 9.68 $0.53 $ 0.09 $ 0.62 $(0.53) -- --
Period ended
03/31/1997*#............. 9.71 0.41 (0.03) 0.38 (0.41) -- --
INVESTOR A SHARES:
Year ended 03/31/1998...... $ 9.68 $0.54 $ 0.09 $ 0.63 $(0.54) -- --
Year ended 03/31/1997#..... 9.76 0.56 (0.08) 0.48 (0.56) -- --
Period ended
03/31/1996(a)#........... 9.84 0.19 (0.08) 0.11 (0.19) -- --
Year ended 11/30/1995#..... 9.48 0.59 0.36 0.95 (0.59) -- --
Year ended 11/30/1994#..... 10.01 0.48 (0.51) (0.03) (0.46) $(0.02) $(0.02)
Year ended 11/30/1993...... 9.75 0.51 0.26 0.77 (0.51) -- --
Period ended 11/30/1992*... 10.00 0.08 (0.26) (0.18) (0.07) -- --
INVESTOR B SHARES:
Year ended 03/31/1998...... $ 9.68 $0.53 $ 0.09 $ 0.62 $(0.53) -- --
Year ended 03/31/1997#..... 9.76 0.55 (0.08) 0.47 (0.55) -- --
Period ended
03/31/1996(a)#........... 9.84 0.19 (0.08) 0.11 (0.19) -- --
Year ended 11/30/1995#..... 9.48 0.57 0.36 0.93 (0.57) -- --
Year ended 11/30/1994#..... 10.01 0.47 (0.51) (0.04) (0.45) $(0.02) $(0.02)
Period ended 11/30/1993*... 9.94 0.22 0.07 0.29 (0.22) -- --
INVESTOR C SHARES:
Year ended 03/31/1998...... $ 9.68 $0.53 $ 0.09 $ 0.62 $(0.53) -- --
Year ended 03/31/1997#..... 9.76 0.55 (0.08) 0.47 (0.55) -- --
Period ended
03/31/1996(a)#........... 9.84 0.19 (0.08) 0.11 (0.19) -- --
Year ended 11/30/1995#..... 9.48 0.57 0.36 0.93 (0.57) -- --
Year ended 11/30/1994#..... 10.01 0.46 (0.51) (0.05) (0.44) $(0.02) $(0.02)
Year ended 11/30/1993...... 9.75 0.48 0.26 0.74 (0.48) -- --
Period ended 11/30/1992*... 10.00 0.08 (0.26) (0.18) (0.07) -- --
</TABLE>
- ---------------
* Short-Term Income's Primary A, Primary B, Investor A, Investor B and
Investor C Shares commenced operations on September 30, 1992, June 28, 1996,
October 2, 1992, June 7, 1993 and October 2, 1992, respectively.
+ 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 net investment income has been calculated using the monthly average
share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) Amount is less than $1,000.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE> 79
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.56) $ 9.77 6.89% $331,961 0.56%(b)(c) 5.75% 66% 0.86%(c)
(0.58) 9.68 5.25 181,455 0.55(b) 5.97 172 0.85
(0.20) 9.76 1.19 179,957 0.55+ 6.07+ 73 0.88+
(0.61) 9.84 10.48 169,291 0.56 6.32 224 0.86
(0.52) 9.48 (0.11) 176,712 0.50 5.23 293 0.82
(0.53) 10.01 8.26 201,738 0.37 5.27 121 0.79
(0.09) 9.75 (1.58)+++ 190,680 0.30+ 5.54+ 45 0.90+
$(0.53) $ 9.77 6.58% $ 0(d) 0.91%(b)(c) 5.40% 66% 1.21%(c)
(0.41) 9.68 3.95 953 0.90(b)+ 5.62+ 172 1.20+
$(0.54) $ 9.77 6.67% $ 13,688 0.76%(b)(c) 5.55% 66% 1.06%(c)
(0.56) 9.68 5.04 6,169 0.75(b) 5.77 172 1.05
(0.19) 9.76 1.13 2,810 0.75+ 5.87+ 73 1.08+
(0.59) 9.84 10.29 2,969 0.76 6.12 224 1.06
(0.50) 9.48 (0.33) 2,490 0.71 5.02 293 1.03
(0.51) 10.01 8.03 11,205 0.57 5.07 121 0.99
(0.07) 9.75 (1.81)+++ 254 0.45+ 5.39+ 45 1.05+
$(0.53) $ 9.77 6.51% $ 4,602 0.91%(b)(c) 5.40% 66% 1.21%(c)
(0.55) 9.68 4.89 5,536 0.90(b) 5.62 172 1.20
(0.19) 9.76 1.08 7,339 0.90+ 5.72+ 73 1.23+
(0.57) 9.84 10.10 8,873 0.91 5.97 224 1.21
(0.49) 9.48 (0.46) 16,550 0.85 4.88 293 1.17
(0.22) 10.01 2.96 39,861 0.72+ 4.92+ 121 1.14+
$(0.53) $ 9.77 6.51% $ 2,992 0.91%(b)(c) 5.40% 66% 1.21%(c)
(0.55) 9.68 4.89 4,063 0.90(b) 5.62 172 1.20
(0.19) 9.76 1.07 6,121 0.90+ 5.72+ 73 1.23+
(0.57) 9.84 10.08 6,056 0.91 5.97 224 1.21
(0.48) 9.48 (0.51) 8,102 0.89 4.84 293 1.21
(0.48) 10.01 7.73 19,851 0.87 4.77 121 1.29
(0.07) 9.75 (1.82)+++ 6,747 0.80+ 5.04+ 45 1.40+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE> 80
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET
INCREASE/
NET ASSET NET REALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-INTERMEDIATE GOVERNMENT
PRIMARY A SHARES:
Year ended 03/31/1998...................... $3.99 $0.23 $ 0.13 $ 0.36 $(0.23) --
Year ended 03/31/1997#..................... 4.07 0.23 (0.08) 0.15 (0.23) --
Period ended 03/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#..................... 3.93 0.24 0.21 0.45 (0.24)(a) --
Year ended 11/30/1994...................... 4.28 0.23 (0.33) (0.10) (0.23)(a) $(0.02)
Year ended 11/30/1993...................... 4.16 0.23 0.14 0.37 (0.23) (0.02)
Year ended 11/30/1992...................... 4.17 0.28 (0.01) 0.27 (0.28) --
Period ended 11/30/1991*................... 4.00## 0.10 0.17 0.27 (0.10) --
PRIMARY B SHARES:
Year ended 03/31/1998...................... $3.99 $0.21 $ 0.13 $ 0.34 $(0.21) --
Period ended 03/31/1997*#.................. 4.02 0.16 (0.03) 0.13 (0.16) --
INVESTOR A SHARES:
Year ended 03/31/1998...................... $3.99 $0.22 $ 0.13 $ 0.35 $(0.22) --
Year ended 03/31/1997#..................... 4.07 0.22 (0.08) 0.14 (0.22) --
Period ended 03/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#..................... 3.93 0.23 0.21 0.44 (0.23)(a) --
Year ended 11/30/1994...................... 4.28 0.22 (0.33) (0.11) (0.22)(a) $(0.02)
Year ended 11/30/1993...................... 4.16 0.22 0.14 0.36 (0.22) (0.02)
Year ended 11/30/1992...................... 4.17 0.27 (0.01) 0.26 (0.27) --
Period ended 11/30/1991*................... 4.00## 0.10 0.17 0.27 (0.10) --
INVESTOR B SHARES:
Year ended 03/31/1998...................... $3.99 $0.20 $ 0.13 $ 0.33 $(0.20) --
Year ended 03/31/1997#..................... 4.07 0.20 (0.08) 0.12 (0.20) --
Period ended 03/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#..................... 3.93 0.21 0.21 0.42 (0.21)(a) --
Year ended 11/30/1994...................... 4.28 0.20 (0.33) (0.13) (0.20)(a) $(0.02)
Period ended 11/30/1993*................... 4.26 0.09 0.02 0.11 (0.09) --
INVESTOR C SHARES:
Year ended 03/31/1998...................... $3.99 $0.20 $ 0.13 $ 0.33 $(0.20) --
Year ended 03/31/1997#..................... 4.07 0.21 (0.08) 0.13 (0.21) --
Period ended 03/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#..................... 3.93 0.22 0.21 0.43 (0.22)(a) --
Year ended 11/30/1994...................... 4.28 0.20 (0.33) (0.13) (0.20)(a) $(0.02)
Year ended 11/30/1993...................... 4.16 0.20 0.14 0.34 (0.20) (0.02)
Period ended 11/30/1992*................... 4.19 0.10 (0.03) 0.07 (0.10) --
</TABLE>
- ---------------
* Short-Intermediate Government's Primary A, Primary B, Investor A, Investor
B and Investor C Shares commenced operations on August 1, 1991, June 28,
1996, August 5, 1991, June 7, 1993 and June 17, 1992, respectively.
+ 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 net investment income has been calculated using the monthly
average share method.
## Nations Short-Intermediate Government'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).
### Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less
than 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE> 81
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.23) $4.12 9.11% $663,833 0.61% 5.53% 538% 0.81%
(0.23) 3.99 3.72 371,118 0.63(c)(d) 5.73 529 0.83(d)
(0.07) 4.07 0.07 399,915 0.63+ 5.32+ 189 0.86+
(0.24) 4.14 11.70 425,200 0.60 5.88 328 0.80
(0.25) 3.93 (2.23) 433,278 0.59 5.76 133 0.80
(0.25) 4.28 9.03 443,426 0.55 5.40 92 0.79
(0.28) 4.16 6.70+++ 360,497 0.37 6.48 25 0.77
(0.10) 4.17 6.81+++ 158,435 0.08+ 7.21+ 11 0.82+
$(0.21) $4.12 8.74% $ 261 0.96% 5.18%% 538% 1.16%
(0.16) 3.99 3.31 16,980 0.98(c)(d)+ 5.38+ 529 1.18(d)+
$(0.22) $4.12 8.89% $ 49,478 0.81% 5.33% 538% 1.01%
(0.22) 3.99 3.51 42,468 0.83(c)(d) 5.53 529 1.03(d)
(0.07) 4.07 0.00### 57,381 0.83+ 5.12+ 189 1.06+
(0.23) 4.14 11.48 64,848 0.80 5.68 328 1.00
(0.24) 3.93 (2.41) 77,128 0.77 5.58 133 0.98
(0.24) 4.28 8.85 173,449 0.70 5.25 92 0.94
(0.27) 4.16 6.61 188,624 0.48 6.34 25 0.88
(0.10) 4.17 6.81+++ 53,874 0.08+ 7.21+ 11 0.82+
$(0.20) $4.12 8.35% $ 9,815 1.34% 4.80% 538% 1.54%
(0.20) 3.99 3.10 10,788 1.23(c)(d) 5.13 529 1.43(d)
(0.07) 4.07 (0.13) 13,789 1.23+ 4.72+ 189 1.46+
(0.21) 4.14 11.02 14,893 1.20 5.28 328 1.40
(0.22) 3.93 (2.81) 10,974 1.19 5.16 133 1.40
(0.09) 4.28 2.65 8,847 1.15+ 4.80+ 92 1.39+
$(0.20) $4.12 8.45% $ 1,808 1.31% 4.83% 538% 1.51%
(0.21) 3.99 3.21 8,334 1.13(c)(d) 5.23 529 1.33(d)
(0.07) 4.07 (0.10) 11,820 1.13+ 4.82+ 189 1.36+
(0.22) 4.14 11.15 13,206 1.10 5.38 328 1.30
(0.22) 3.93 (2.80) 16,725 1.17 5.18 133 1.38
(0.22) 4.28 8.20 31,440 1.30 4.65 92 1.54
(0.10) 4.16 1.64+++ 24,352 1.18+ 4.80+ 25 1.44+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE> 82
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET INCREASE/ DISTRIBUTIONS DISTRIBUTIONS
NET ASSET NET REALIZED (DECREASE) DIVIDENDS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET OF NET OF NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT SECURITIES
PRIMARY A SHARES:
Year ended 03/31/1998...... $ 9.39 $0.55 $ 0.51 $ 1.06 $(0.55) -- --
Year ended 03/31/1997#..... 9.67 0.60 (0.30) 0.30 (0.58) -- --
Period ended
03/31/1996(a)#........... 9.86 0.52 (0.19) 0.33 (0.50) $(0.02) --
Year ended 05/31/1995#..... 9.80 0.64 0.06 0.70 (0.60) -- --
Year ended 05/31/1994...... 10.46 0.64 (0.61) 0.03 (0.58) (0.02) $(0.05)
Year ended 05/31/1993#..... 10.36 0.71 0.13 0.84 (0.70) -- (0.04)
Year ended 05/31/1992...... 10.05 0.74 0.37 1.11 (0.77) -- (0.03)
Period ended 05/31/1991*... 10.00 0.10 0.02 0.12 (0.07) -- --
PRIMARY B SHARES:
Year ended 03/31/1998...... $ 9.39 $0.51 $ 0.51 $ 1.02 $(0.51) -- --
Period ended
03/31/1997*#............. 9.51 0.40 (0.12) 0.28 (0.40) -- --
INVESTOR A SHARES:
Year ended 03/31/1998...... $ 9.39 $0.52 $ 0.51 $ 1.03 $(0.52) -- --
Year ended 03/31/1997#..... 9.67 0.58 (0.30) 0.28 (0.56) -- --
Period ended
03/31/1996(a)#........... 9.86 0.50 (0.19) 0.31 (0.48) $(0.02) --
Year ended 05/31/1995#..... 9.80 0.61 0.06 0.67 (0.57) -- --
Year ended 05/31/1994...... 10.46 0.62 (0.61) 0.01 (0.56) (0.02) $(0.05)
Year ended 05/31/1993#..... 10.36 0.66 0.16 0.82 (0.68) -- (0.04)
Year ended 05/31/1992...... 10.05 0.71 0.38 1.09 (0.75) -- (0.03)
Period ended 05/31/1991*... 10.01 0.09 0.02 0.11 (0.07) -- --
INVESTOR B SHARES:
Year ended 03/31/1998...... $ 9.39 $0.47 $ 0.51 $ 0.98 $(0.47) -- --
Year ended 03/31/1997#..... 9.67 0.54 (0.30) 0.24 (0.52) -- --
Period ended
03/31/1996(a)#........... 9.86 0.47 (0.19) 0.28 (0.45) $(0.02) --
Year ended 05/31/1995#..... 9.80 0.58 0.06 0.64 (0.54) -- --
Period ended 05/31/1994*... 10.49 0.54 (0.64) (0.10) (0.49) (0.01) $(0.05)
INVESTOR C SHARES:
Year ended 03/31/1998...... $ 9.39 $0.48 $ 0.51 $ 0.99 $(0.48) -- --
Year ended 03/31/1997#..... 9.67 0.55 (0.30) 0.25 (0.53) -- --
Period ended
03/31/1996(a)#........... 9.86 0.47 (0.19) 0.28 (0.45) $(0.02) --
Year ended 05/31/1995#..... 9.80 0.57 0.06 0.63 (0.53) -- --
Year ended 05/31/1994...... 10.46 0.55 (0.61) (0.06) (0.50) (0.01) $(0.05)
Period ended
05/31/1993*#............. 10.52 0.59 0.02 0.61 (0.63) -- (0.04)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Government Securities' Primary A, Primary B, Investor A,
Investor B and Investor C Shares commenced operations on
April 11, 1991, June 28, 1996, April 17, 1991, June 7, 1993
and July 6, 1992, respectively.
+ 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 net investment income has been calculated using
the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to this, the
fiscal year end was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense
ratio was less than 0.01%.
(d) The effect of the credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or
expense reimbursements, was less than 0.01%.
(e) Amount is less than $1,000.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE> 83
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF RATIO OF
TOTAL OPERATING NET INVESTMENT OPERATING
DISTRIBUTIONS DIVIDENDS NET ASSET NET ASSETS EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
FROM AND VALUE TOTAL END OF PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
CAPITAL DISTRIBUTIONS END OF PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.55) $ 9.90 11.65% $75,796 0.85%(c)(d) 5.63% 303% 0.99%(d)
--
(0.58) 9.39 3.18 52,606 0.80 6.28 468 0.94
$(0.00)(b)
(0.52) 9.67 3.41 55,962 0.80+ 6.36+ 199 0.95+
--
(0.64) 9.86 7.55 39,909 0.76 6.69 413 0.94
(0.04)
(0.69) 9.80 0.06 44,536 0.73 6.08 56 0.94
(0.04)
(0.74) 10.46 8.37 40,472 0.85 6.67 103 1.00
--
(0.80) 10.36 11.43+++ 42,256 1.06 7.15 130 1.72
--
(0.07) 10.05 1.19+++ 10,047 1.10+ 7.18+ 5 1.69+++
--
$(0.51) $ 9.90 11.23% $ 0(e) 1.35%(c)(d) 5.13% 303% 1.49%(d)
--
(0.40) 9.39 2.90 755 1.30+ 5.78+ 468 1.44+
$(0.00)(b)
$(0.52) $ 9.90 11.37% $ 8,509 1.10%(c)(d) 5.38% 303% 1.24%(d)
--
(0.56) 9.39 2.92 9,852 1.05 6.03 468 1.19
$(0.00)(b)
(0.50) 9.67 3.20 11,662 1.05+ 6.11+ 199 1.20+
--
(0.61) 9.86 7.29 10,928 1.01 6.44 413 1.19
(0.04)
(0.67) 9.80 (0.11) 14,044 0.90 5.91 56 1.11
(0.04)
(0.72) 10.46 8.18 15,354 1.00 6.52 103 1.15
--
(0.78) 10.36 11.18+++ 3,326 1.31 6.90 130 1.97
--
(0.07) 10.05 1.07+++ 661 1.35+ 7.22+ 5 1.94+++
--
$(0.47) $ 9.90 10.78% $32,391 1.63%(c)(d) 4.85% 303% 1.77%(d)
--
(0.52) 9.39 2.51 38,807 1.45 5.63 468 1.59
$(0.00)(b)
(0.47) 9.67 2.85 50,958 1.45+ 5.71+ 199 1.60+
--
(0.58) 9.86 6.86 56,155 1.41 6.04 413 1.59
(0.04)
(0.59) 9.80 (1.09) 56,313 1.38+ 5.43+ 56 1.59+
(0.04)
$(0.48) $ 9.90 10.84% $ 735 1.58%(c)(d) 4.90% 303% 1.72%(d)
--
(0.53) 9.39 2.67 1,835 1.30 5.78 468 1.44
$(0.00)(b)
(0.47) 9.67 2.83 2,558 1.48+ 5.68+ 199 1.63+
--
(0.57) 9.86 6.76 2,945 1.51 5.94 413 1.69
(0.04)
(0.60) 9.80 (0.69) 5,265 1.48 5.33 56 1.69
(0.04)
(0.67) 10.46 5.37 5,998 1.60+ 5.92+ 103 1.75+
--
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE> 84
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET NET INCREASE/ DISTRIBUTIONS
ASSET NET REALIZED (DECREASE) IN DIVIDENDS IN EXCESS DISTRIBUTIONS
VALUE NET AND UNREALIZED NET ASSET FROM NET OF NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STRATEGIC FIXED INCOME
PRIMARY A SHARES:
Year ended 03/31/1998...... $ 9.62 $0.58 $ 0.41 $ 0.99 $(0.58) -- --
Year ended 03/31/1997#..... 9.93 0.58 (0.20) 0.38 (0.58) -- $(0.11)
Period ended
03/31/1996(a)............ 10.22 0.19 (0.29) (0.10) (0.19) -- --
Year ended 11/30/1995...... 9.32 0.59 0.90 1.49 (0.59) -- --
Year ended 11/30/1994...... 10.55 0.53 (0.89) (0.36) (0.51) $(0.02) (0.34)
Year ended 11/30/1993...... 9.94 0.56 0.62 1.18 (0.56) -- (0.01)
Period ended 11/30/1992*... 10.00 0.05 (0.06) (0.01) (0.05) -- --
PRIMARY B SHARES:
Year ended 03/31/1998...... $ 9.62 $0.55 $ 0.41 $ 0.96 $(0.55) -- --
Period ended
03/31/1997*#............. 9.81 0.41 (0.08) 0.33 (0.41) -- $(0.11)
INVESTOR A SHARES:
Year ended 03/31/1998...... $ 9.62 $0.56 $ 0.41 $ 0.97 $(0.56) -- --
Year ended 03/31/1997#..... 9.93 0.56 (0.20) 0.36 (0.56) -- $(0.11)
Period ended
03/31/1996(a)............ 10.22 0.18 (0.29) (0.11) (0.18) -- --
Year ended 11/30/1995...... 9.32 0.57 0.90 1.47 (0.57) -- --
Year ended 11/30/1994...... 10.55 0.51 (0.89) (0.38) (0.49) $(0.02) (0.34)
Year ended 11/30/1993...... 9.94 0.54 0.62 1.16 (0.54) -- (0.01)
Period ended 11/30/1992*... 9.99 0.01 (0.06) (0.05) -- -- --
INVESTOR B SHARES:
Year ended 03/31/1998...... $ 9.62 $0.51 $ 0.41 $ 0.92 $(0.51) -- --
Year ended 03/31/1997#..... 9.93 0.52 (0.20) 0.32 (0.52) -- $(0.11)
Period ended
03/31/1996(a)............ 10.22 0.16 (0.29) (0.13) (0.16) -- --
Year ended 11/30/1995...... 9.32 0.53 0.90 1.43 (0.53) -- --
Year ended 11/30/1994...... 10.55 0.47 (0.89) (0.42) (0.45) $(0.02) (0.34)
Period ended 11/30/1993*... 10.39 0.21 0.17 0.38 (0.21) -- (0.01)
INVESTOR C SHARES:
Year ended 03/31/1998...... $ 9.62 $0.52 $ 0.41 $ 0.93 $(0.52) -- --
Year ended 03/31/1997#..... 9.93 0.53 (0.20) 0.33 (0.53) -- $(0.11)
Period ended
03/31/1996(a)............ 10.22 0.17 (0.29) (0.12) (0.17) -- --
Year ended 11/30/1995...... 9.32 0.54 0.90 1.44 (0.54) -- --
Year ended 11/30/1994...... 10.55 0.47 (0.89) (0.42) (0.45) $(0.02) (0.34)
Year ended 11/30/1993...... 9.94 0.48 0.62 1.10 (0.48) -- (0.01)
Period ended 11/30/1992*... 9.97 0.02 (0.04) (0.02) (0.01) -- --
</TABLE>
- ---------------
* Strategic Fixed Income's Primary A, Primary B, Investor A, Investor B and
Investor C Shares commenced operations on October 30, 1992, June 28, 1996,
November 19, 1992, June 7, 1993 and November 16, 1992, respectively.
+ 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 net investment income has been calculated using the monthly average
share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements was less than
0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
(e) Amount is less than $1,000.
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE> 85
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DISTRIBUTIONS DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
FROM AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
CAPITAL DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $(0.58) $10.03 10.53% $1,681,990 0.72%(c)(d) 5.86% 244% 0.83%(d)
$(0.00)(b) (0.69) 9.62 3.90 947,277 0.71(c) 5.98 368 0.81(d)
-- (0.19) 9.93 (1.04) 823,890 0.72+ 5.49+ 133 0.83+
-- (0.59) 10.22 16.45 823,098 0.71 6.05 228 0.81
-- (0.87) 9.32 (3.58) 550,697 0.68 5.43 307 0.76
-- (0.57) 10.55 12.05 545,538 0.61 5.40 161 0.77
-- (0.05) 9.94 (0.11)+++ 581,329 0.26+ 6.15+ 12 0.86+
-- $(0.55) $10.03 10.12% $ 0(e) 1.22%(c)(d) 5.36% 244% 1.33%(d)
$(0.00)(b) (0.52) 9.62 3.35 29,235 1.21(c)+ 5.48+ 368 1.31(d)+
-- $(0.56) $10.03 10.30% $ 26,054 0.92%(c)(d) 5.66% 244% 1.03%(d)
$(0.00)(b) (0.67) 9.62 3.70 6,345 0.91(c) 5.78 368 1.01(d)
-- (0.18) 9.93 (1.11) 6,440 0.92+ 5.29+ 133 1.03+
-- (0.57) 10.22 16.22 6,662 0.91 5.85 228 1.01
-- (0.85) 9.32 (3.76) 967 0.86 5.25 307 0.94
-- (0.55) 10.55 11.88 1,138 0.76 5.25 161 0.92
-- -- 9.94 (0.49)+++ 113 0.40+ 6.00+ 12 1.00+
-- $(0.51) $10.03 9.73% $ 2,662 1.47%(c)(d) 5.11% 244% 1.58%(d)
$(0.00)(b) (0.63) 9.62 3.23 2,109 1.36(c) 5.33 368 1.46(d)
-- (0.16) 9.93 (1.26) 2,496 1.37+ 4.84+ 133 1.48+
-- (0.53) 10.22 15.70 2,578 1.36 5.40 228 1.46
-- (0.81) 9.32 (4.21) 2,145 1.33 4.78 307 1.41
-- (0.22) 10.55 3.64 1,620 1.26+ 4.75+ 161 1.42+
-- $(0.52) $10.03 9.87% $ 943 1.42%(c)(d) 5.16% 244% 1.53%(d)
$(0.00)(b) (0.64) 9.62 3.38 1,068 1.21(c) 5.48 368 1.31(d)
-- (0.17) 9.93 (1.22) 299 1.22+ 4.99+ 133 1.33+
-- (0.54) 10.22 15.87 227 1.21 5.55 228 1.31
-- (0.81) 9.32 (4.14) 41 1.43 4.68 307 1.51
-- (0.49) 10.55 11.20 65 1.36 4.65 161 1.52
-- (0.01) 9.94 (0.22)+++ 84 1.03+ 5.40+ 12 1.63+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE> 86
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED NET INCREASE DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT BOND
PRIMARY A SHARES*:
Period ended 03/31/1998................ $10.19 $0.48 $ 0.31 $0.79 $(0.48) $(0.13)
Period ended 05/16/1997................ 10.53 0.41 0.17 0.58 (0.41) (0.51)
Year ended 08/31/1996.................. 11.20 0.61 (0.22) 0.39 (0.61) (0.45)
Period ended 08/31/1995(b)............. 10.00 0.56 1.20 1.76 (0.56)
INVESTOR A SHARES*:
Period ended 03/31/1998................ $10.20 $0.46 $ 0.30 $0.76 $(0.46) $(0.13)
Period ended 05/16/1997................ 10.54 0.39 0.17 0.56 (0.39) (0.51)
Year ended 08/31/1996.................. 11.19 0.59 (0.20) 0.39 (0.59) (0.45)
Period ended 08/31/1995(b)............. 10.48 0.37 0.71 1.08 (0.37) --
INVESTOR B SHARES*:
Period ended 03/31/1998................ $10.19 $0.41 $ 0.31 $0.72 $(0.41) $(0.13)
Period ended 05/16/1997................ 10.52 0.34 0.18 0.52 (0.34) (0.51)
Year ended 08/31/1996.................. 11.19 0.51 (0.22) 0.29 (0.51) (0.45)
Period ended 08/31/1995(b)............. 10.05 0.46 1.14 1.60 (0.46) --
INVESTOR C SHARES**:
Period ended 03/31/1998................ $10.41 $0.25 $ 0.09 $0.34 $(0.25) $(0.13)
</TABLE>
- ---------------
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Pilot Shares, Class A Shares and Class B Shares, which were
reorganized into the Primary A Shares, Investor A Shares and Investor B
Shares, respectively, as of May 23, 1997.
** Investor C Shares commenced operations on September 19, 1997.
+ 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 the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
(b) Primary A Shares, Investor A Shares and Investor B Shares commenced
operations on November 7, 1994, February 7, 1995 and November 10, 1994,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
82
<PAGE> 87
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.61) $10.37 7.84% $263,428 0.60%(a)+ 5.26%+ 188% 0.86%(a)+
(0.92) 10.19 5.62 148,082 0.62+ 5.60+ 58 0.77+
(1.06) 10.53 3.46 145,066 0.65 5.61 87 0.82
(0.56) 11.20 18.03 137,261 0.62+ 6.45+ 132 0.87+
$(0.59) $10.37 7.51% $ 1,927 0.85%(a)+ 5.01%+ 188% 1.11%(a)+
(0.90) 10.20 5.44 734 0.87+ 5.35+ 58 1.07+
(1.04) 10.54 3.44 632 0.85 5.44 87 1.07
(0.37) 11.19 10.41 87 0.82+ 5.76+ 132 1.12+
$(0.54) $10.37 7.14% $ 1,004 1.40%(a)+ 4.46%+ 188% 1.66%(a)+
(0.85) 10.19 4.99 1,529 1.62+ 4.60+ 58 1.77+
(0.96) 10.52 2.43 1,237 1.65 4.60 87 1.82
(0.46) 11.19 16.19 146 1.62+ 5.19+ 132 1.87+
$(0.38) $10.37 3.50% $ 1,332 1.45%(a)+ 4.41%+ 188% 1.71%(a)+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE> 88
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET INCREASE/
NET ASSET NET REALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVERSIFIED INCOME
PRIMARY A SHARES:
Year ended 03/31/1998............. $10.11 $0.65 $ 0.44 $ 1.09 $(0.65) --
Year ended 03/31/1997#............ 10.42 0.69 (0.18) 0.51 (0.69) $(0.13)
Period ended 03/31/1996(b)........ 10.82 0.23 (0.40) (0.17) (0.23) --
Year ended 11/30/1995............. 9.67 0.73 1.15 1.88 (0.73) --
Year ended 11/30/1994#............ 10.88 0.74 (1.06) (0.32) (0.74)(a) (0.15)
Year ended 11/30/1993#............ 9.97 0.78 0.91 1.69 (0.78) --
Period ended 11/30/1992*.......... 10.00 0.06 (0.03) 0.03 (0.06) --
PRIMARY B SHARES:
Year ended 03/31/1998............. $10.11 $0.58 $ 0.44 $ 1.02 $(0.58) --
Period ended 03/31/1997*#......... 10.28 0.47 (0.04) 0.43 (0.47) $(0.13)
INVESTOR A SHARES:
Year ended 03/31/1998............. $10.11 $0.63 $ 0.44 $ 1.07 $(0.63) --
Year ended 03/31/1997#............ 10.42 0.66 (0.18) 0.48 (0.66) $(0.13)
Period ended 03/31/1996(b)........ 10.82 0.22 (0.40) (0.18) (0.22) --
Year ended 11/30/1995............. 9.67 0.71 1.15 1.86 (0.71) --
Year ended 11/30/1994#............ 10.88 0.72 (1.06) (0.34) (0.72)(a) (0.15)
Year ended 11/30/1993#............ 9.96 0.76 0.92 1.68 (0.76) --
Period ended 11/30/1992*.......... 10.02 0.01 (0.06) (0.05) (0.01) --
INVESTOR B SHARES:
Year ended 03/31/1998............. $10.11 $0.57 $ 0.44 $ 1.01 $(0.57) --
Year ended 03/31/1997#............ 10.42 0.61 (0.18) 0.43 (0.61) $(0.13)
Period ended 03/31/1996(b)........ 10.82 0.21 (0.40) (0.19) (0.21) --
Year ended 11/30/1995............. 9.67 0.66 1.15 1.81 (0.66) --
Year ended 11/30/1994#............ 10.88 0.67 (1.06) (0.39) (0.67)(a) (0.15)
Period ended 11/30/1993*#......... 10.59 0.30 0.29 0.59 (0.30) --
INVESTOR C SHARES:
Year ended 03/31/1998............. $10.11 $0.58 $ 0.44 $ 1.02 $(0.58) --
Year ended 03/31/1997#............ 10.42 0.63 (0.18) 0.45 (0.63) $(0.13)
Period ended 03/31/1996(b)........ 10.82 0.21 (0.40) (0.19) (0.21) --
Year ended 11/30/1995............. 9.67 0.66 1.15 1.81 (0.66) --
Year ended 11/30/1994#............ 10.88 0.67 (1.06) (0.39) (0.67)(a) (0.15)
Year ended 11/30/1993#............ 9.96 0.70 0.92 1.62 (0.70) --
Period ended 11/30/1992*.......... 9.93 0.03 0.02 0.05 (0.02) --
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Diversified Income's Primary A, Primary B, Investor A,
Investor B and Investor C Shares commenced operations on
October 30, 1992, June 28, 1996, November 25, 1992, June 7,
1993 and November 9, 1992, respectively.
+ 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 net investment income has been calculated using
the monthly average share method.
(a) Includes distribution in excess of less than $0.01 per
share.
(b) Fiscal year end changed to March 31. Prior to this, the
fiscal year end was November 30.
(c) The effect of the fees reduced by credits allowed by the
custodian on the operating expense ratio, with and without
waivers and/or expense reimbursements was less than 0.01%.
(d) Amount is less than $1,000.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
84
<PAGE> 89
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.65) $10.55 11.07% $263,840 0.73%(c) 6.27% 203% 0.83%(c)
(0.82) 10.11 4.97 152,070 0.75(c) 6.73 278 0.85(c)
(0.23) 10.42 (1.59) 65,081 0.77+ 6.49+ 69 0.87+
(0.73) 10.82 20.11 64,800 0.80 7.03 96 0.93
(0.89) 9.67 (3.05) 22,298 0.74 7.31 144 0.95
(0.78) 10.88 17.40 28,553 0.55 7.02 86 0.95
(0.06) 9.97 0.32+++ 23,962 0.25+ 7.76+ 46 0.85+
$(0.58) $10.55 10.29% $ 0(d) 1.23%(c) 5.77% 203% 1.33%(c)
(0.60) 10.11 4.22 41 1.25(c)+ 6.23+ 278 1.35(c)+
$(0.63) $10.55 10.80% $ 11,946 0.98%(c) 6.02% 203% 1.08%(c)
(0.79) 10.11 4.71 11,662 1.00(c) 6.48 278 1.10(c)
(0.22) 10.42 (1.67) 13,332 1.02+ 6.24+ 69 1.12+
(0.71) 10.82 19.82 13,150 1.05 6.78 96 1.18
(0.87) 9.67 (3.26) 10,819 0.96 7.09 144 1.17
(0.76) 10.88 17.32 13,291 0.70 6.87 86 1.10
(0.01) 9.96 (0.49)+++ 18 0.40+ 7.61+ 46 1.00+
$(0.57) $10.55 10.18% $ 65,248 1.55%(c) 5.45% 203% 1.65%(c)
(0.74) 10.11 4.18 70,631 1.50(c) 5.98 278 1.60(c)
(0.21) 10.42 (1.83) 84,692 1.52+ 5.74+ 69 1.62+
(0.66) 10.82 19.22 90,887 1.55 6.28 96 1.68
(0.82) 9.67 (3.77) 55,058 1.49 6.56 144 1.70
(0.30) 10.88 5.58 24,630 1.30+ 6.27+ 86 1.70+
$(0.58) $10.55 10.27% $ 2,090 1.46%(c) 5.54% 203% 1.56%(c)
(0.76) 10.11 4.44 3,343 1.25(c) 6.23 278 1.35(c)
(0.21) 10.42 (1.77) 3,454 1.33+ 5.93+ 69 1.43+
(0.66) 10.82 19.22 3,582 1.55 6.28 96 1.68
(0.82) 9.67 (3.77) 2,636 1.49 6.56 144 1.70
(0.70) 10.88 16.65 3,633 1.30 6.27 86 1.70
(0.02) 9.96 0.54+++ 149 1.00+ 7.01+ 46 1.60+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
85
<PAGE> 90
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED NET INCREASE DIVIDENDS
VALUE NET AND UNREALIZED IN NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON ASSET VALUE INVESTMENT
OF PERIOD INCOME INVESTMENTS FROM OPERATIONS INCOME
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL GOVERNMENT INCOME
PRIMARY A SHARES
Year ended 03/31/1998#................................ $ 9.79 $0.39 $(0.06) $ 0.33 $(0.31)
Year ended 03/31/1997#................................ 10.07 0.47 (0.03) 0.44 (0.46)
Period ended 03/31/1996**............................. 10.00 0.39 0.11 0.50 (0.37)
PRIMARY B SHARES
Year ended 03/31/1998#................................ $ 9.79 $0.39 $(0.06) $ 0.33 $(0.31)
Period ended 03/31/1997**#............................ 10.13 0.43 (0.22) 0.21 (0.32)
INVESTOR A SHARES
Year ended 03/31/1998#................................ $ 9.79 $0.36 $(0.06) $ 0.30 $(0.28)
Year ended 03/31/1997#................................ 10.07 0.44 (0.02) 0.42 (0.45)
Period ended 03/31/1996**............................. 10.00 0.37 0.11 0.48 (0.35)
INVESTOR B SHARES
Year ended 03/31/1998#................................ $ 9.79 $0.30 $(0.06) $ 0.24 $(0.22)
Year ended 03/31/1997#................................ 10.07 0.36 (0.02) 0.34 (0.38)
Period ended 03/31/1996**............................. 10.00 0.32 0.11 0.43 (0.30)
INVESTOR C SHARES
Year ended 03/31/1998#................................ $ 9.79 $0.32 $(0.06) $ 0.26 $(0.24)
Year ended 03/31/1997#................................ 10.07 0.42 (0.03) 0.39 (0.42)
Period ended 03/31/1996**............................. 10.00 0.33 0.11 0.44 (0.31)
</TABLE>
- ---------------
** Global Government Income's Primary A, Investor A, Investor B and Investor C
Shares commenced operations on June 30, 1995. Global Government Income
Primary B Shares commenced operations on June 28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly average
shares method.
(a) The effect of interest expense on the operating expense ratio was 0.01%.
(b) Amount is less than $1,000.
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE> 91
NATIONS FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
DISTRIBUTIONS DISTRIBUTIONS TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT
FROM NET IN EXCESS OF DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO
REALIZED NET REALIZED AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER
CAPITAL GAINS CAPITAL GAINS DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.03) $(0.08) $(0.42) $ 9.70 3.38% $14,200 1.31%(a) 3.97% 120%
(0.16) (0.10) (0.72) 9.79 4.25 28,130 1.26 4.60 100
(0.04) (0.02) (0.43) 10.07 5.03 24,753 1.32+ 5.17+ 213
$(0.03) $(0.08) $(0.42) $ 9.70 3.20% $ 0(b) 1.81%(a) 3.47% 120%
(0.16) (0.07) (0.55) 9.79 1.93 5 1.76+ 4.10+ 100
$(0.03) $(0.08) $(0.39) $ 9.70 3.12% $14,425 1.56%(a) 3.72% 120%
(0.16) (0.09) (0.70) 9.79 3.99 15,104 1.51 4.35 100
(0.04) (0.02) (0.41) 10.07 4.84 14,898 1.57+ 4.92+ 213
$(0.03) $(0.08) $(0.33) $ 9.70 2.45% $ 163 2.21%(a) 3.07% 120%
(0.16) (0.08) (0.62) 9.79 3.22 193 2.26 3.60 100
(0.04) (0.02) (0.36) 10.07 4.27 193 2.32+ 4.17+ 213
$(0.03) $(0.08) $(0.35) $ 9.70 2.63% $ 10 2.03%(a) 3.24% 120%
(0.16) (0.09) (0.67) 9.79 3.73 9 1.76 4.10 100
(0.04) (0.02) (0.37) 10.07 4.40 9 2.16+ 4.33+ 213
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE> 92
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Nations Fund Trust (the "Trust"), Nations Fund, Inc. (the "Company") and Nations
Fund Portfolios, Inc. ("Nations Portfolios") are each registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
investment company. At March 31, 1998, the Trust offered thirty-seven separate
portfolios, the Company offered eight separate portfolios and Nations Portfolios
offered three separate portfolios (each a "Fund" and collectively, the "Funds").
Information presented in these financial statements pertains only to the United
States and global government and corporate bond portfolios of the Trust, the
Company and Nations Portfolios. The financial statements for the other
portfolios of the Trust, the Company and Nations Portfolios are presented under
separate cover. The Funds currently offer five classes of shares: Primary A
Shares, Primary B Shares, Investor A Shares, Investor B Shares (formerly
Investor N Shares) and Investor C Shares. Shareholders of a Fund have equal
voting rights on matters affecting all shareholders of the Fund. In addition,
each class of shares of a Fund has exclusive voting rights on matters that
relate solely to its class and separate voting rights on matters in which the
interests of one class of shares differ from the interests of any other class.
1. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Funds in the preparation of
their financial statements.
Securities Valuation: The Funds' portfolio securities are valued using broker
quotations or prices provided by a pricing service approved by the Board of
Trustees/Directors. Certain securities are valued using broker quotations that
are based on a matrix pricing system which considers such factors as security
prices, yields and maturities. The value of mortgage-backed securities can be
significantly affected by changes in interest rates. The valuation of
international securities which trade on foreign exchanges are provided by an
independent pricing service approved by the Board of Trustees/Directors of each
Fund. Certain securities may be valued by one or more principal market makers.
Securities for which market quotations are not readily available are valued by
the investment adviser under the supervision of the Board of Trustees/Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost.
Dollar Roll Transactions: Certain Funds may enter into dollar roll transactions
with financial institutions to take advantage of opportunities in the mortgage
market. Dollar roll transactions consist of the sale by the Fund of
mortgage-backed or other asset-backed securities, with a commitment to purchase
similar, but not identical, securities at a future date, at the same price. The
Funds are paid a fee as consideration for entering into a commitment to purchase
the securities. This fee accrues as income over the duration of the dollar roll
contract. 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 in addition to the proceeds of a dollar roll sale may not exceed
transaction costs.
Foreign Currency Translation: The books and records of the Global Government
Income Fund are maintained in U.S. dollars. Foreign currencies, investments and
other assets and liabilities are translated into U.S. dollars at the exchange
rates prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of such
transactions. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date of investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of a Fund and the amounts actually received. The
effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statements of Operations from the effects
of changes in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
Forward Foreign Currency Transactions: Generally, the Global Government Income
Fund may 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
88
<PAGE> 93
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
U.S. exchange rate of the transaction, with such period being a short-dated
contract covering the period between transaction date and settlement date; and
(ii) when the investment adviser or sub-adviser believes that the currency of a
particular foreign country may experience a substantial movement against the
U.S. dollar. Forward foreign currency contracts are valued at the forward rate
and are marked-to-market daily. The change in market value is recorded by the
Fund as an unrealized gain or loss. When the contract is closed or offset with
the same counterparty, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed or offset.
Forward foreign currency contracts will be used primarily to protect the Fund
from adverse currency movements and will generally not be entered into for terms
greater than one year. The use of forward foreign currency contracts does not
eliminate fluctuations in the underlying prices of the Fund's investment
securities, however, it does establish a rate of exchange that can be achieved
in the future. The use of forward contracts involves the risk that anticipated
currency movements will not be accurately predicted. A forward contract would
limit the risk of loss due to a decline in the value of a particular currency,
however, it also would limit any potential gain that might result should the
value of the currency increase instead of decrease. These contracts may involve
market risk in excess of the unrealized gain or loss reflected in the Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risks if
counterparties to the contracts are unable to meet the terms of their contracts.
The counterparty risk exposure is, therefore, closely monitored and contracts
are only executed with high credit quality financial institutions.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Realized gains and losses are computed
based on the specific identification of the securities sold. Interest income,
adjusted for accretion of discounts and amortization of premiums, is earned from
settlement date and is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Each Fund's investment income and realized and
unrealized gains and losses are allocated among its classes based upon the
relative net assets of each class of shares.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets
with a current value at least equal to the amount of its when-issued purchase
commitments.
Stripped mortgage-backed securities are derivative multi-class mortgage
securities structured so that one class receives most, if not all, of the
principal from the mortgage assets, while the other class receives most, if not
all, of the interest and the remainder of the principal. If the underlying
mortgage assets experience greater than anticipated repayments of principal, a
Fund may fail to fully recoup its initial investment in an interest-only
security. The fair market value of these securities is unusually volatile in
response to changes in interest rates.
Dividends and Distributions to Shareholders: It is the policy of each Fund to
declare dividends from net investment income daily and to pay such dividends
monthly. Each Fund will distribute net realized capital gains (including net
short-term capital gains), annually after the fiscal year in which the capital
gains were earned, unless offset by any available capital loss carryforward.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles.
Certain reclassifications are made to each Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryforwards) under Federal income tax regulations. These reclassifications are
due to different book and tax accounting for foreign currency, amortization of
organization costs and the Fund's use of the tax accounting practice known as
equalization.
89
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NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reclassifications for the year ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
INCREASE/
(DECREASE) INCREASE/
INCREASE/ UNDISTRIBUTED (DECREASE)
(DECREASE) NET ACCUMULATED
PAID-IN INVESTMENT NET REALIZED
CAPITAL INCOME GAIN/(LOSS)
------------------------------------------
<S> <C> <C> <C>
Short-Intermediate Government..... 1,448,942 -- (1,448,942)
Government Securities............. 2,565,227 -- (2,565,227)
Strategic Fixed Income............ 11,997,718 -- (11,997,718)
U.S. Government Bond.............. (804,538) 6,418 798,120
Diversified Income................ 242,075 -- (242,075)
Global Government Income.......... (34,085) (1,116,237) 1,150,322
</TABLE>
Federal Income Tax: Each Fund intends to continue to qualify as a regulated
investment company by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no Federal income or excise tax provision is applicable. The Global Government
Income Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Global
Government Income Fund will accrue such taxes and recoveries as applicable,
based upon its current interpretation of tax rules and regulations that exist in
the markets in which it invests.
Expenses: General expenses of the Trust, the Company or Nations Portfolios are
allocated to the relevant Funds based upon their relative net assets. Operating
expenses directly attributable to a Fund or class of shares are charged to such
Fund's or class's operations. Expenses of each Fund not directly attributable to
the operations of any class of shares are prorated among the classes based on
the relative net assets of each class of shares. The Funds bear all costs in
connection with their organization, including the fees and expenses of
registering and qualifying their shares for distribution under Federal and state
securities regulations. All such costs are being amortized on a straight-line
basis over a period of five years from commencement of operations.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED
PARTY TRANSACTIONS
Each of the Trust, the Company and Nations Portfolios has, on behalf of the
Funds, entered into an investment advisory agreement (the "Investment Advisory
Agreements") with NationsBanc Advisors, Inc. ("NBAI"), a wholly-owned subsidiary
of NationsBank, N.A. ("NationsBank"), pursuant to which NBAI provides investment
advisory services to the Funds. Under the terms of these Investment Advisory
Agreements, NBAI is entitled to receive an advisory fee, calculated daily and
payable monthly based on the following annual rates multiplied by the average
daily net assets of each Fund:
<TABLE>
<CAPTION>
ANNUAL
RATE
------
<S> <C>
Short-Term Income, Short-Intermediate Government,
Strategic Fixed Income, U.S. Government Bond,
Diversified Income..................................... 0.60%
Global Government Income................................ 0.70%
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
NET ASSETS NET ASSETS NET ASSETS
UP TO BETWEEN $100 EXCEEDING
$100 MILLION AND $250 MILLION $250 MILLION
----------------------------------------------
<S> <C> <C> <C>
Government Securities...... 0.65% 0.55% 0.50%
</TABLE>
Each of the Trust and the Company has, on behalf of its Funds, except for U.S.
Government Bond Fund and Global Government Income Fund, entered into a
sub-advisory agreement with NBAI and TradeStreet Investment Associates, Inc.
("TradeStreet"), a wholly-owned subsidiary of NationsBank, pursuant to which
TradeStreet is entitled to receive a sub-advisory fee from NBAI at the annual
rate of 0.15% of each Fund's average daily net assets.
Boatmen's Capital Management, Inc. ("Boatmen's"), a wholly-owned subsidiary of
NationsBank, serves as investment sub-adviser to the U.S. Government Bond Fund.
For services provided pursuant to a sub-advisory agreement, NBAI pays Boatmen's
a sub-advisory fee at the annual rate of 0.15% of the average daily net assets
of the U.S. Government Bond Fund.
Nations Portfolios has, on behalf of the Global Government Income Fund, entered
into a sub-advisory agreement with NBAI and Gartmore Global Partners
("Gartmore"). 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, an indirect wholly-owned subsidiary of Gartmore Investment
Management plc ("Gartmore plc"), which is a United Kingdom ("U.K.") holding
company for a leading U.K. based international fund management group of
companies. National Westminster Bank plc and its affiliated entities own 100% of
the equity of Gartmore plc. For services provided pursuant to the sub-advisory
agreement, NBAI pays Gartmore a sub-advisory fee at the
90
<PAGE> 95
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
annual rate of 0.54% of the average daily net assets of the Global Government
Income Fund.
Stephens Inc. ("Stephens") serves as the administrator of the Trust, the Company
and Nations Portfolios. First Data Investor Services Group, Inc. ("First Data"),
a wholly-owned subsidiary of First Data Corporation, serves as the
co-administrator of the Trust, the Company and Nations Portfolios. Stephens and
First Data are entitled to receive a combined fee, computed daily and paid
monthly, at the annual rate of 0.10% of each Fund's average daily net assets.
Effective November 18, 1997, NBAI became the sub-administrator of the Trust, the
Company and Nations Portfolios pursuant to a sub-administration with Stephens.
Prior to that date, NationsBank served as sub-administrator. For the year ended
March 31, 1998, Stephens earned $1,747,798 from the Funds for its administration
services, of which $116,444 and $197,575 was paid to NBAI and NationsBank,
respectively, for their services as sub-administrator.
The investment adviser, sub-adviser and administrator may, from time to time,
voluntarily reduce their fees payable by each Fund. For the period ended March
31, 1998, fee waivers were as follows:
<TABLE>
<CAPTION>
FEES WAIVED
BY ADVISER
-----------
<S> <C>
Short-Term Income................................... $1,006,049
Short-Intermediate Government....................... 1,354,334
Government Securities............................... 160,648
Strategic Fixed Income.............................. 1,760,101
U.S. Government Bond................................ 385,271
Diversified Income.................................. 288,002
</TABLE>
NationsBank of Texas, N.A. ("NationsBank of Texas") served as custodian of the
Trust's and the Company's assets and, for the year ended March 31, 1998, earned
$33,277 for providing such services. The Bank of New York ("BONY") serves as
custodian for Nations Portfolio's assets and sub-custodian for the other Funds.
For the year ended March 31, 1998, expenses of the Funds were reduced by $31,158
under expense offset arrangements with BONY. Custodian fees reported in the
Statements of Operations exclude these credits. The Funds could have invested a
portion of the assets utilized in connection with the expense offset
arrangements in an income producing asset if they had not entered into such
arrangements.
First Data serves as the transfer agent for the Funds' shares. NationsBank of
Texas served as the sub-transfer agent for the Primary Shares of the Funds and,
for the year ended March 31, 1998, earned approximately $36,342 for providing
such services.
Stephens serves as distributor of the Funds' shares. For the year ended March
31, 1998, the Funds were informed that the distributor received $375,118 in
contingent deferred sales charges from shares which were subject to such
charges. A substantial portion of these fees are paid to affiliates of
NationsBank and NBAI.
The Trust, the Company and Nations Portfolios pay each unaffiliated Trustee or
Director an annual fee of $1,000 ($3,000 for the Chairman of the Board), plus
$500 per Fund and an additional $1,000 for each in-person board meeting, and
$500 for each telephonic board meeting attended. The Trust, the Company and
Nations Portfolios also reimburse expenses incurred by each unaffiliated Trustee
or Director in attending such meetings.
The Trust's, the Company's and Nations Portfolio's eligible Trustees or
Directors may participate in non-qualified deferred compensation and retirement
plans which may be terminated at any time. All benefits provided under these
plans are unfunded and any payments to plan participants are paid solely out of
the Funds' assets. Income earned on each plan participant's deferral account is
tied to the rate of return of the eligible mutual funds selected by the
participants or, if no funds are selected, to the rate of return of Nations
Treasury Fund, a portfolio of the Company. The expense for the deferred
compensation and retirement plans is included in "Trustees'/Directors' fees and
expenses" in the Statements of Operations.
Certain Funds have made daily investments of cash balances in Nations Cash
Reserves, a portfolio of Nations Institutional Reserves, pursuant to an
exemptive order received from the Securities and Exchange Commission. For the
year ended March 31, 1998, the U.S. and global government and corporate bond
portfolios earned $1,924,610 in the aggregate from such investments.
A significant portion of each Fund's Primary A Shares represent investments by
fiduciary accounts over which NationsBank N.A. has either sole or joint
investment discretion.
91
<PAGE> 96
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SHAREHOLDER SERVICING AND
DISTRIBUTION PLANS
The Trust, the Company and Nations Portfolios each have adopted a shareholder
administration plan for Primary B Shares of each Fund and shareholder servicing
plans and distribution plans for the Investor A, Investor B and Investor C
Shares of each Fund. The administration plan permits the Funds to compensate
institutions for shareholder administration services provided to their customers
that own Primary B Shares. The shareholder servicing plans permit the Funds to
compensate or reimburse servicing agents for shareholder services provided by
the servicing agents. The distribution plans, adopted pursuant to Rule 12b-1
under 1940 Act, permit the Funds to compensate or reimburse the distributor (and
for Investor A Shares, the distributor and/or selling agents) for activities or
expenses primarily intended to result in the sale of the classes' shares.
Payments are made at an annual rate, as a percentage of average daily net assets
set from time to time by the Board of Trustees/Directors, and are charged as
expenses of each Fund directly to the applicable class. A substantial portion of
the expenses incurred pursuant to these plans are paid to affiliates of
NationsBank and NBAI.
At March 31, 1998, the rates and plan limits in effect, as a percentage of
average daily assets, were as follows:
<TABLE>
<CAPTION>
PLAN
CURRENT RATE LIMIT
---------------------
<S> <C> <C>
Primary B Administration Plan:
Short-Term Income and Short-Intermediate
Government............................. 0.35% 0.60%
Other Income Funds(5).................... 0.50 0.60
Investor A Shareholder Servicing and
Distribution Plan:
Short-Term Income, Short-Intermediate
Government and Strategic Fixed
Income................................. 0.20 0.25
Other Income Funds(4).................... 0.25 0.25
Investor B Distribution Plan:
Short-Term Income........................ 0.10 0.75
Short-Intermediate Government and
Strategic Fixed Income(a).............. 0.55 0.75
Other Income Funds(4)(b)................. 0.60 0.75
Investor B and C Shareholder Servicing
Plans.................................... 0.25 0.25
Investor C Distribution Plan:
Short-Term Income........................ 0.10 0.75
Short-Intermediate Government and
Strategic Fixed Income(c).............. 0.55 0.75
Other Income Funds(4)(c)................. 0.60 0.75
</TABLE>
- ---------------
(a) Reflects a rate change effective August 1, 1997 from 0.35% for
Short-Intermediate Government and from 0.40% for Strategic Fixed Income.
(b) Reflects a rate change effective August 1, 1997 from 0.40% for Government
Securities and U.S. Government Bond, from 0.50% for Diversified Income and
0.75% for Global Government Income.
(c) Reflects a rate change effective August 1, 1997 from 0.25%.
In addition, a shareholder servicing plan has been adopted for the Investor A
Shares of the Short-Term Income Fund. For the year ended March 31, 1998, no fees
were incurred by the Fund pursuant to the plan.
4. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. government securities and short-term investments, for the year ended March
31, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------------
<S> <C> <C>
Short-Term Income............... $ 146,891,739 $ 207,910,414
Short-Intermediate Government... -- 1,139,122
Strategic Fixed Income.......... 1,577,262,838 1,187,967,310
Diversified Income.............. 100,282,049 39,684,589
Global Government Income........ 35,450,922 47,129,827
</TABLE>
The aggregate cost of purchases and proceeds from sales of long-term U.S.
government securities for the year ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------------
<S> <C> <C>
Short-Term Income............... $ 73,650,976 $ 136,274,908
Short-Intermediate Government... 3,403,878,712 3,656,528,354
Government Securities........... 349,835,741 355,527,448
Strategic Fixed Income.......... 4,054,778,366 5,311,433,844
U.S. Government Bond............ 427,104,732 314,739,407
Diversified Income.............. 549,959,277 530,500,316
Global Government Income........ 11,823,576 12,029,647
</TABLE>
5. SHARES OF BENEFICIAL
INTEREST/CAPITAL STOCK
At March 31, 1998, an unlimited number of shares without par value were
authorized for the Trust, 420,000,000,000 shares of $.001 par value capital
stock were authorized for the Company and 150,000,000,000 shares of $.001 par
value capital stock were authorized for Nations Portfolios. The Trust's
Declaration of Trust and the Company's and Nations Portfolios' Articles of
Incorporation authorize the Boards of Trustees/Directors to classify or
reclassify any authorized, but unissued shares into one or more additional
classes or series of shares. See Schedule of Capital Stock Activity.
6. FOREIGN SECURITIES
Global Government Income Fund may invest in foreign securities. Investing in
securities of foreign com-
92
<PAGE> 97
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
panies and foreign governments involves special risks and considerations not
typically associated with investing in U.S. companies and the U.S. government.
These risks include re-valuation of currencies, less reliable information about
issuers, different securities transaction clearance and settlement practices,
and future adverse political and economic developments. These risks are
heightened for investments in emerging markets countries. Moreover, securities
of many foreign companies and foreign governments and their markets may be less
liquid and their prices more volatile than those of securities of comparable
U.S. companies and the U.S. government.
7. LINE OF CREDIT
The Trust, the Company and Nations Portfolios participate in an uncommitted line
of credit provided by BONY under a line of credit agreement (the "Agreement").
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. Interest on borrowings is
payable at the federal funds rate plus 0.50% on an annualized basis. The
Agreement requires, among other things, that each participating Fund maintain a
ratio of no less than 4 to 1 net assets (not including funds borrowed pursuant
to the Agreement) to aggregate amount of indebtedness pursuant to the Agreement.
At March 31, 1998, there were no loans outstanding under this Agreement. For the
year ended March 31, 1998, borrowings by the Funds under the Agreement were as
follows:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
AMOUNT AVERAGE DEBT
FUND OUTSTANDING SHARES PER SHARE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Income......... $ 3,562 34,141,273 $0.00(a)
Government Securities..... 42,466 12,489,605 0.00(a)
Strategic Fixed Income.... 30,685 153,025,013 0.00(a)
Global Government
Income................... 68,493 4,177,902 0.02
</TABLE>
- ---------------
(a) Amount represents less than $0.01 per share.
The average amount outstanding was calculated based on daily balances in the
period.
8. LENDING OF PORTFOLIO SECURITIES
Under an agreement with BONY, the Funds have the ability to lend their
securities to approved brokers, dealers and other financial institutions. Loans
of portfolio securities are collateralized by cash, in an amount at least equal
to the market value of the securities on loan. The cash collateral received is
invested in Nations Cash Reserves, a portfolio of Nations Institutional
Reserves. A portion of the income generated by the investment of the collateral,
net of any rebates paid by BONY to borrowers, is remitted to BONY as lending
agent, and the remainder is paid to the Fund. Generally, in the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There would be a potential loss to the Fund in the event the
Fund is delayed or prevented from exercising its right to dispose of the
collateral. The Fund bears risk in the event that invested collateral is not
sufficient to meet obligations due on the loans.
At March 31, 1998, the following Funds had securities on loan:
<TABLE>
<CAPTION>
MARKET VALUE OF MARKET VALUE
FUND LOANED SECURITIES OF COLLATERAL
- -------------------------------------------------------------------
<S> <C> <C>
Short-Term Income............... $ 1,937,671 $ 2,008,332
Short-Intermediate Government... 97,493,560 99,431,070
Strategic Fixed Income.......... 26,583,228 27,097,550
U.S. Government Bond............ 50,699,942 51,621,137
Diversified Income.............. 4,652,376 4,782,009
</TABLE>
93
<PAGE> 98
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL LOSS CARRYFORWARD
At March 31, 1998, the following Funds had available for Federal income tax
purposes the following unused capital losses expiring March 31:
<TABLE>
<CAPTION>
FUND 2002 2003 2004 2005
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Income........................... $ 5,541,530 $ 650,652 -- $ 12,596
Short-Intermediate Government............... 5,968,261 -- -- 6,939,350
Government Securities....................... -- 5,435,289 -- 2,302,378
</TABLE>
Under the current tax law, capital losses realized after October 31, may be
deferred and treated as occurring on the first day of the following fiscal year.
For the year ended March 31, 1998, the following Funds elected to defer losses
occurring between November 1, 1997 and March 31, 1998 under these rules:
<TABLE>
<CAPTION>
POST-OCTOBER CAPITAL
--------------------
LONG TERM
FUND LOSS DEFERRAL
- -----------------------------------------------------------------
<S> <C>
Short-Intermediate Government.............. $329,952
Government Securities...................... 211,492
</TABLE>
<TABLE>
<CAPTION>
POST-OCTOBER
CURRENCY LOSS
FUND DEFERRAL
- ---------------------------------------------------------------------
<S> <C>
Global Government Income...................... $786,341
</TABLE>
10. REORGANIZATIONS
ACQUISITION OF PILOT FUNDS
On May 23, 1997, the U.S. Government Bond Fund, a newly established portfolio,
acquired the assets and certain liabilities of the Pilot U.S. Government
Securities Fund pursuant to a plan of reorganization approved by its
shareholders. The acquisition was accomplished by a tax-free exchange of shares
of the U.S. Government Bond Fund in an amount equal to the outstanding shares of
the Pilot U.S. Government Securities Fund. The financial statements of the U.S.
Government Bond Fund reflect the historical financial results of the Pilot U.S.
Government Securities Fund prior to the reorganization. Additionally, the fiscal
year-end of the Pilot U.S. Government Securities Fund was changed to coincide
with that of the Company.
On May 16, 1997 and May 23, 1997, certain Nations Funds, as listed below (each
an "Acquiring Fund"), acquired the assets and certain liabilities of the Pilot
Funds, also listed below (each an "Acquired Fund"), in a tax-free exchange for
shares of the Acquiring Fund, pursuant to a plan of reorganization approved by
the Acquired Fund's shareholders. The number and value of shares issued by the
Acquiring Fund are presented in the Schedule of Capital Stock Activity. Net
assets and unrealized appreciation/depreciation as of the reorganization date
were as follows:
<TABLE>
<CAPTION>
TOTAL NET
TOTAL NET ASSETS OF
TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND
ACQUIRING ACQUIRED ASSETS OF ACQUIRING AFTER UNREALIZED
FUND FUND ACQUIRED FUND FUND ACQUISITION APPRECIATION/(DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Intermediate Pilot Intermediate U.S. $232,196,393 $448,240,118 $ 680,436,511 $(2,072,892)
Government Government Securities Fund
Strategic Fixed Pilot Diversified Bond Fund 97,180,071 976,332,670 1,073,512,741 378,365
Income
</TABLE>
CONVERSION OF COMMON TRUST FUNDS
On August 22, 1997 and November 12, 1997, certain Nations Funds, as listed below
(each an "Acquiring Fund"), acquired the assets of certain common trust funds
managed by NationsBank, also listed below (each an "Acquired Fund"), in a
tax-free exchange for shares of the Acquiring Fund. The number and
94
<PAGE> 99
NATIONS FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value of shares issued by the Acquiring Fund are presented in the Schedule of
Capital Stock Activity.
Net assets and unrealized appreciation/(depreciation) as of the conversion date
were as follows:
<TABLE>
<CAPTION>
TOTAL NET
ASSETS OF
TOTAL NET TOTAL NET ACQUIRING FUND
ACQUIRING ACQUIRED ASSETS OF ASSETS OF AFTER
FUND FUND ACQUIRED FUND ACQUIRING FUND CONVERSION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Income Common Trust Short-Term Income Fund $275,916,054 $ 201,134,137 $ 477,050,191
Government Common Trust Mortgage Backed 45,209,085 100,213,066 145,422,151
Securities Securities Fund
Strategic Fixed Common Trust Strategic Fixed Income 987,102,187 1,095,669,960 2,082,772,147
Income Fund
Strategic Fixed Common Trust Fixed Income Fund for 24,459,089 2,082,772,147 2,107,231,236
Income Personal Trusts
Short-Intermediate Common Trust Short/Intermediate 275,769,517 609,542,239 885,311,756
Government U.S. Government Fund
<CAPTION>
ACQUIRED
FUND
ACQUIRING UNREALIZED
FUND APPRECIATION/(DEPRECIATION)
- ------------------ ---------------------------
<S> <C>
Short-Term Income $ 168,997
Government (31,371)
Securities
Strategic Fixed 4,084,790
Income
Strategic Fixed 145,289
Income
Short-Intermediate 1,292,644
Government
</TABLE>
ACQUISITION OF PEACHTREE FUND
On September 27, 1996, Nations Strategic Fixed Income Fund, (the "Acquiring
Fund"), acquired the assets and certain liabilities of Peachtree Bond Fund, (the
"Acquired Fund"), in a tax-free exchange for shares of the Acquiring Fund,
pursuant to a plan of reorganization approved by the Acquired Fund's
shareholders. The number and value of shares issued by the Acquiring Fund are
presented in the Schedule of Capital Stock Activity. Net assets and unrealized
appreciation as of the reorganization date were as follows:
<TABLE>
<CAPTION>
TOTAL NET
TOTAL NET TOTAL NET ASSETS OF ACQUIRED
ASSETS OF ASSETS OF ACQUIRING FUND
ACQUIRED ACQUIRING FUND AFTER UNREALIZED
ACQUIRING FUND ACQUIRED FUND FUND FUND ACQUISITION APPRECIATION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Strategic Peachtree Bond
Fixed Income Fund $67,043,140 $941,860,947 $1,008,904,087 $597,022
</TABLE>
11. SUBSEQUENT EVENTS
The Company is party to an Agreement and Plan of Reorganization with the Emerald
Funds (which are advised by Barnett Capital Advisors, Inc., an indirect
wholly-owned subsidiary of NationsBank Corporation) pursuant to which the assets
and liabilities (net) of the Emerald Managed Bond Fund of $77,246,297, the
Emerald Short Term Bond Fund of $101,178,053 and the Emerald U.S. Government
Securities Fund of $63,982,648 were acquired in a tax free exchange of shares by
Strategic Fixed Income Fund, Short-Term Income Fund and Government Securities
Fund, respectively, on May 15, 1998.
NationsBank of Texas merged into NationsBank on May 6, 1998. NationsBank began
serving as custodian of the Company's and the Trust's assets and as sub-transfer
agent for the Primary Shares on that date and is providing the same services as
were previously provided by NationsBank of Texas.
95
<PAGE> 100
NATIONS FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS, DIRECTORS AND TRUSTEES OF NATIONS FUNDS
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nations Short-Term Income Fund,
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Strategic Fixed Income Fund, Nations U.S. Government Bond Fund, Nations
Diversified Income Fund and Nations Global Government Income Fund (portfolios of
Nations Fund Trust, Nations Fund, Inc. or Nations Fund Portfolios, Inc.,
hereafter referred to as the "Funds") at March 31, 1998, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1998 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where securities purchased had not been received by the custodian, provide a
reasonable basis for the opinion expressed above. The financial statements of
Nations U.S. Government Bond Fund, formerly Pilot U.S. Government Securities
Fund, for the periods ended May 16, 1997 were audited by other independent
accountants whose report dated June 20, 1997 expressed an unqualified opinion on
those statements.
Price Waterhouse LLP
Boston, Massachusetts
May 28, 1998
96
<PAGE> 101
NATIONS FUNDS
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE PERIOD ENDED MARCH 31, 1998
The amount of long-term capital gains designated by the Trust, the Company or
Nations Portfolios were as follows:
<TABLE>
<CAPTION>
FUND 28% RATE GAIN 20% RATE GAIN TOTAL
---- ------------- ------------- ----------
<S> <C> <C> <C>
Nations Strategic Fixed Income Fund......... $4,204,193 $317,026 $4,521,219
Nations Diversified Income Fund............. 123,324 118,751 242,075
Nations Global Government Income Fund....... 60,904 -- 60,904
Nations U.S. Government Bond Fund........... 681,741 757,362 1,439,103
</TABLE>
97
<PAGE> 102
[BACKGROUND DEPICTING BASKETS]
<PAGE> 103
[NATIONS FUNDS LOGO] BULK RATE
U.S. POSTAGE
P.O. BOX 32602 PAID
Charlotte, NC 28234-4602 N READING, MA
Toll Free 1-800-982-2271 PERMIT NO.
105
AR5 IN96120 3/98
