STATEMENT OF ADDITIONAL INFORMATION
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NATIONS FUND PORTFOLIOS, INC. NATIONS FUND TRUST
Nations Emerging Markets Fund Nations Government Money Market Fund
Nations Tax Exempt Fund
NATIONS FUND, INC. Nations Value Fund
Nations Prime Fund Nations Capital Growth Fund
Nations Treasury Fund Nations Emerging Growth Fund
Nations Equity Income Fund Nations Equity Index Fund
Nations Government Securities Fund Nations Managed Index Fund
Nations International Equity Fund Nations Managed SmallCap Index Fund
Nations International Growth Fund Nations Managed Value Index Fund
Nations International Value Fund Nations Managed SmallCap Value Index Fund
Nations Small Company Growth Fund Nations Marsico Growth & Income Fund
Nations U.S. Government Bond Fund Nations Marsico Focused Equities Fund
Nations Disciplined Equity Fund
Nations Strategic Equity Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
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INVESTOR SHARES, PRIMARY SHARES, DAILY SHARES AND MARSICO SHARES
August 1, 1999
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed forty-eight investment portfolios of Nations Fund Portfolios, Inc.,
Nations Fund, Inc., and Nations Fund Trust (individually, a "Fund" and
collectively, the "Funds"). This SAI is not a prospectus, and should be read
only in conjunction with the current prospectuses for the aforementioned Funds
related to the class or series of shares in which one is interested, dated
August 1, 1999 (each a "Prospectus"). All terms used in this SAI that are
defined in the Prospectuses will have the same meanings assigned in the
Prospectuses. Copies of the Prospectuses may be obtained without charge by
writing Nations Funds c/o Stephens Inc., One Bank of America Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at (800) 321-7854.
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TABLE OF CONTENTS
Page
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC. AND
NATIONS FUND PORTFOLIOS, INC. ........................................... 1
DESCRIPTION OF THE COMPANIES AND THE INVESTMENTS AND RISKS
OF THEIR FUNDS .......................................................... 1
General.......................................................... 1
Investment Limitations .......................................... 4
Permissible Fund Investments..................................... 10
Asset-Backed Securities.......................................... 15
Borrowings....................................................... 19
Commercial Instruments........................................... 19
Combined Transactions............................................ 20
Convertible Securities........................................... 20
Corporate Debt Securities........................................ 21
Custodial Receipts............................................... 22
Currency Swaps................................................... 22
Delayed Delivery Transactions.................................... 22
Dollar Roll Transactions ........................................ 22
Equity Swap Contracts ........................................... 23
Foreign Currency Transactions ................................... 24
Futures, Options and Other Derivative Instruments................ 25
Risk Factors Associated with Futures and Options Transactions.... 31
Guaranteed Investment Contracts.................................. 40
Insured Municipal Securities .................................... 41
Interest Rate Transactions ...................................... 41
Lower Rated Debt Securities...................................... 42
Municipal Securities ............................................ 43
Options on Currencies............................................ 62
Other Investment Companies....................................... 62
Participation Interests and Company Receipts..................... 62
Real Estate Investment Trusts.................................... 63
Repurchase Agreements ........................................... 63
Reverse Repurchase Agreements ................................... 63
Securities Lending............................................... 63
Short Sales...................................................... 64
Special Situations............................................... 64
Stand-by Commitments ............................................ 64
Stripped Securities.............................................. 65
U.S. and Foreign Bank Obligations................................ 66
U.S. Government Obligations...................................... 66
Use of Segregated and Other Special Accounts..................... 67
Variable and Floating Rate Instruments .......................... 67
Warrants......................................................... 68
When-Issued Purchases and Forward Commitments .................. 68
Portfolio Turnover............................................... 68
Investment Risks................................................. 69
MANAGEMENT OF THE COMPANIES.............................................. 69
Nations Funds Retirement Plan.................................... 74
Nations Funds Deferred Compensation Plan......................... 75
Shareholder and Trustee Liability................................ 77
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INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ................................................. 77
Investment Adviser and Sub-Advisers.............................. 77
Co-Administrator and Sub-Administrator........................... 86
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares............................. 97
Fees Paid Pursuant to Shareholder Servicing/
Distribution Plans - Investor A Shares....................... 107
Fees Paid Pursuant to Distribution Plan
Investor B Shares - Money Market Funds, Investor-C Shares -
Non-Money Market Funds....................................... 108
Investor B Shares - Non-Money Market Funds, Investor C Shares
Money Markets Funds.......................................... 110
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares)........................................... 112
Shareholder Servicing Plan-Prime Fund
(Marsico Shares)............................................. 113
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares)........................................... 113
Expenses......................................................... 114
Transfer Agents and Custodians................................... 115
Distributor...................................................... 115
Independent Accountant and Reports............................... 116
Counsel.......................................................... 116
FUND TRANSACTIONS AND BROKERAGE.......................................... 116
General Brokerage Policy......................................... 116
Section 28(e) Standards.......................................... 119
DESCRIPTION OF SHARES.................................................... 120
Description of Shares of the Corporation......................... 120
Dividends and Distributions of NFI............................... 122
Dividends and Distributions of NFP............................... 122
Dividends and Distributions of NFT............................... 122
Net Asset Value Determination.................................... 123
ADDITIONAL INFORMATION CONCERNING TAXES.................................. 125
General.......................................................... 125
Excise Tax ...................................................... 125
Private Letter Ruling............................................ 126
Taxation of Fund Investments..................................... 126
Foreign Taxes ................................................... 127
Capital Gain Distribution........................................ 127
Disposition of Fund Shares....................................... 127
Federal Income Tax Rates......................................... 128
Corporate Shareholders........................................... 128
Foreign Shareholders............................................. 128
Backup Withholding............................................... 129
Special Tax Consideration........................................ 127
Other Matters.................................................... 131
ADDITIONAL INFORMATION ON PERFORMANCE.................................... 131
Yield Calculations............................................... 132
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Total Return Calculations........................................ 141
MISCELLANEOUS ........................................................... 153
Certain Record Holders........................................... 153
SCHEDULE A - Description of Ratings...................................... A-1
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HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC. AND
NATIONS FUND PORTFOLIOS, INC.
Nations Fund Trust ("NFT"), Nations Fund, Inc. ("NFI") and Nations
Fund Portfolios, Inc. ("NFP") (individually a "Company", and collectively, the
"Companies") are open-end registered investment companies in the Nations Funds
family, which consists of the Companies, Nations Institutional Reserves, Nations
LifeGoal Funds, Inc. and Nations Annuity Trust. The Nations Funds family
currently has more than 70 distinct investment portfolios and total assets in
excess of $70 billion.
NFT was organized as a Massachusetts business trust on May 6, 1985. NFI
was organized as a Maryland corporation on December 13, 1983, but had no
operations prior to December 15, 1986. NFP was organized as a Maryland
corporation on January 23, 1995. NFT, NFI and NFP each have fiscal year ends of
March 31st.
DESCRIPTION OF THE COMPANIES AND
THE INVESTMENTS AND RISKS OF THEIR FUNDS
GENERAL.
NFT currently consists of thirty-eight different investment portfolios.
This SAI pertains to: the Primary A Shares of Nations Strategic Equity Fund
("Strategic Equity Fund"); the Primary A, Primary B, Investor A, Investor B,
Investor C and Daily Shares of Nations Government Money Market Fund ("Government
Money Market Fund") and Nations Tax Exempt Fund ("Tax Exempt Fund")
(collectively, also referred to as the "NFT Money Market Funds"); the Primary A,
Primary B, Investor A, Investor B Shares of Nations Managed Index Fund ("Managed
Index Fund"), Nations Managed SmallCap Index Fund ("Managed SmallCap Index
Fund"), Nations Managed Value Index Fund ("Managed Value Index Fund"), Nations
Managed SmallCap Value Index Fund ("Managed SmallCap Value Index Fund"); and the
Primary A, Primary B, Investor A, Investor B and Investor C Shares of Nations
Value Fund ("Value Fund"), Nations Capital Growth Fund ("Capital Growth Fund"),
Nations Emerging Growth Fund ("Emerging Growth Fund"), Nations Equity Index Fund
("Equity Index Fund"), Nations Marsico Growth & Income Fund (the "Nations
Marsico Growth & Income Fund"), Nations Marsico Focused Equities Fund (the
"Nations Marsico Focused Equities Fund"), Nations Disciplined Equity Fund
("Disciplined Equity Fund"), Nations Balanced Assets Fund ("Balanced Assets
Fund"), Nations Short-Intermediate Government Fund ("Short-Intermediate
Government Fund"), Nations Short-Term Income Fund ("Short-Term Income Fund"),
Nations Diversified Income Fund ("Diversified Income Fund"), Nations Strategic
Fixed Income Fund ("Strategic Fixed Income Fund"), Nations Municipal Income Fund
("Municipal Income Fund"), Nations Short-Term Municipal Income Fund ("Short-Term
Municipal Income Fund"), Nations Intermediate Municipal Bond Fund ("Intermediate
Municipal Bond Fund"), Nations Florida Intermediate Municipal Bond Fund
("Florida Intermediate Municipal Bond Fund"), Nations Georgia Intermediate
Municipal Bond Fund ("Georgia Intermediate Municipal Bond Fund"), Nations
Maryland Intermediate Municipal Bond Fund ("Maryland Intermediate Municipal Bond
Fund"), Nations North Carolina Intermediate Municipal Bond Fund ("North Carolina
Intermediate Municipal Bond Fund"), Nations South Carolina Intermediate
Municipal Bond Fund ("South Carolina Intermediate Municipal Bond Fund"), Nations
Tennessee Intermediate Municipal Bond Fund ("Tennessee Intermediate Municipal
Bond Fund"), Nations Texas Intermediate Municipal Bond Fund ("Texas Intermediate
Municipal Bond Fund"), Nations Virginia Intermediate Municipal Bond Fund
("Virginia Intermediate Municipal Bond Fund"), Nations Florida Municipal Bond
Fund ("Florida Municipal Bond Fund"), Nations Georgia Municipal Bond Fund
("Georgia Municipal Bond Fund"), Nations Maryland Municipal Bond Fund ("Maryland
Municipal Bond Fund"), Nations North Carolina Municipal Bond Fund ("North
Carolina Municipal Bond Fund"), Nations South Carolina Municipal Bond Fund
("South Carolina Municipal Bond Fund"), Nations Tennessee Municipal Bond Fund
("Tennessee Municipal Bond Fund"), Nations Texas Municipal Bond Fund ("Texas
Municipal Bond Fund"), and Nations Virginia Municipal Bond Fund ("Virginia
Municipal Bond Fund"). The Florida Intermediate Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
North Carolina Intermediate Municipal Bond Fund, South Carolina Intermediate
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund, Texas
Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond Fund
are sometimes collectively referred to herein as the "State Intermediate
Municipal Bond Funds." The Florida Municipal Bond Fund, Georgia Municipal Bond
Fund, Maryland Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina
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Municipal Bond Fund, Tennessee Municipal Bond Fund, Texas Municipal Bond Fund
and Virginia Municipal Bond Fund are sometimes collectively referred to herein
as the "State Municipal Bond Funds." All of the Funds of NFT are diversified,
with the exception of the Nations Marsico Focused Equities Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds.
Each share of NFT is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of NFT's
Board of Trustees. NFT's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of NFT will vote in the aggregate and not by fund, and shareholders of
each fund will vote in the aggregate and not by class except as otherwise
expressly required by law or when the Board of Trustees determines that the
matter to be voted on affects only the interests of shareholders of a particular
fund or class. See the discussion on Investment Limitations and Description of
Shares for examples of when the Investment Company Act of 1940 (the "1940 Act")
requires voting by fund.
As of August 1, 1999, Bank of America, N.A. ("Bank of America") and its
affiliates possessed or shared power to dispose or vote with respect to more
than 25% of the outstanding shares of NFT and therefore could be considered to
be a controlling person of NFT for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which Bank of America and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the discussion on Certain Record Holders.
NFT does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
NFT's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of the shareholders entitled to vote at least
10% of the outstanding shares of NFT entitled to be voted at such meeting.
NFI currently consists of nine different investment portfolios. This
SAI pertains to the Primary A, Primary B, Investor A, Investor B, Investor C ,
Daily Shares and Marsico Shares of Nations Prime Fund (the "Prime Fund") and the
Primary A, Primary B, Investor A, Investor B, Investor C and Daily Shares of
Nations Treasury Fund (the "Treasury Fund") (collectively referred to as the
"NFI Money Market Funds"), and the Primary A, Primary B, Investor A, Investor B
and Investor C Shares of Nations Equity Income Fund (the "Equity Income Fund"),
Nations Government Securities Fund (the "Government Securities Fund"), Nations
Small Company Growth Fund (the "Small Company Growth Fund"), Nations U.S.
Government Bond Fund (the "U.S. Government Bond Fund"), Nations International
Equity Fund (the "International Equity Fund"), Nations International Growth Fund
(the "International Growth Fund") and Nations International Value Fund (the
"International Value Fund"). All of the Funds of NFI are diversified.
As of the date of this SAI, the authorized capital stock of NFI
consists of 460,000,000,000 shares of common stock, par value of $.001 per
share, which are divided into series or funds each of which consists of separate
classes of shares. Shares of each fund and class have equal rights with respect
to voting, except that the holders of shares of a particular fund or class will
have the exclusive right to vote on matters affecting only the rights of the
holders of such fund or class. In the event of dissolution or liquidation,
holders of each class will receive pro rata, subject to the rights of creditors,
(a) the proceeds of the sale of that portion of the assets allocated to that
class held in the respective fund of NFI, less (b) the liabilities of NFI
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of NFI do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all funds voting
together for election of Directors may elect all of the members of the Board of
Directors of NFI. Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFI. There are no preemptive rights
applicable to any of NFI's shares. NFI's shares, when issued, will be fully paid
and non-assessable.
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As of August 1, 1999, Bank of America and its affiliates possessed or
shared power to dispose of or vote with respect to more than 25% of the
outstanding shares of NFI and therefore could be considered to be a controlling
person of NFI for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which Bank of America and
its affiliates possessed or shared power to dispose or vote as of a certain
date, see the discussion on Certain Record Holders. It is anticipated that NFI
will not hold annual shareholder meetings on a regular basis unless required by
the 1940 Act or Maryland law.
NFP currently consists of one investment portfolio. This SAI pertains
to the Primary A, Primary B, Investor A, Investor B and Investor C Shares of
Nations Emerging Markets Fund (the "Emerging Markets Fund"), (a "Fund" and also,
the "NFP Fund").
As of the date of this SAI, the authorized capital stock of NFP
consists of 150,000,000,000 shares of common stock, par value of $.001 per
share.
Shares of the fund and each class have equal rights with respect to
voting, except that the holders of shares of a particular class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such class. In the event of dissolution or liquidation, holders of each class
will receive pro rata, subject to the rights of creditors, (a) the proceeds of
the sale of that portion of the assets allocated to that class of the NFP Fund,
less (b) the liabilities of NFP attributable to the fund or class or allocated
among the funds or classes based on the respective liquidation value of each
class.
Shareholders of NFP do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of the fund voting
together for election of directors may elect all of the members of the Board of
Directors of NFP. Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFP. There are no preemptive rights
applicable to any of NFP's shares. NFP's shares, when issued, will be fully paid
and non-assessable.
As of August 1, 1999, Bank of America and its affiliates possessed or
shared power to dispose of or vote with respect to more than 25% of the
outstanding shares of NFP and, therefore, could be considered to be a
controlling person of NFP for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which Bank of
America and its affiliates possessed or shared power to dispose or vote as of a
certain date, see the discussion on Certain Record Holders. It is anticipated
that NFP will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this SAI combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this SAI
concerning another investment company. NFT, NFI and NFP have entered into an
indemnification agreement that creates a right of indemnification from the
investment company responsible for any such misstatement, inaccuracy or
incomplete disclosure that may appear in this SAI.
The NFI Money Market Funds and the NFT Money Market Funds are
collectively referred to herein as the "Money Market Funds". All other Funds of
NFP, NFI and NFT are referred to as "Non-Money Market Funds". The Primary A and
Primary B Shares are collectively referred to herein as "Primary Shares" and the
Investor A, Investor B, Investor C, Marsico and Daily Shares are referred to as
"Investor Shares."
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Funds. On or about September 1, 1999, NBAI will change its name to Banc of
America Advisors, Inc. ("BAAI"). Accordingly, the remainder of this SAI refers
to the name of the investment adviser as BAAI. Gartmore Global Partners
("Gartmore") is the investment sub-adviser to Nations Emerging Markets Fund and
Nations International Growth Fund. Boatmen's Capital Management, Inc.
("Boatmen's") is the investment sub-adviser to the U.S. Government Bond Fund.
Brandes Investment Partners, L.P. ("Brandes") is the investment sub-adviser to
the International Value Fund. Marsico Capital Management, LLC ("Marsico
Capital") is investment sub-adviser to the Nations Marsico Focused Equities Fund
and Nations Marsico Growth & Income Fund. Gartmore, INVESCO Global Asset
Management (N.A.), Inc. ("INVESCO") and Putnam Investment Management, Inc.
("Putnam") are the co-investment sub-advisers to Nations International Equity
Fund. TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment
sub-adviser to
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all other Funds. As used herein the term "Adviser" shall mean BAAI, TradeStreet,
Gartmore, INVESCO, Putnam, Boatmen's, Brandes and/or Marsico Capital as the
context may require.
This SAI is intended to furnish prospective investors with additional
information concerning the Companies and the Funds. Some of the information
required to be in this SAI is also included in the Funds' current Prospectuses,
and, in order to avoid repetition, reference will be made to sections of the
Prospectuses. Additionally, the Prospectuses and this SAI omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectuses and
this SAI, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations. No investment in the Funds' Shares should be made
without first reading the related Prospectuses.
INVESTMENT LIMITATIONS
Information concerning each Fund's investment objective is set forth in
each of the Prospectuses. There can be no assurance that the Funds will achieve
their objectives. The features of the Funds' principal investment strategies and
the principal risks associated with those investment strategies also are
discussed in the Prospectuses. The most significant investment restrictions
applicable to the Funds' investment programs are set forth below:
The following investment limitations are matters of fundamental policy and may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding shares. In addition,, each Fund is seeking or has obtained
permission from the SEC to borrow money from or lend money to other funds of the
companies, and to other investment companies that permit such transactions, and
for which BAAI serves as investment adviser.
Each Fund (except the International Value Fund) may not:
1. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
activities in the same industry, provided that this limitation does not
apply to investments in U.S. Government Obligations. In addition, this
limitation does not apply to investments by "money market funds" as
that term is used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt
instruments (whether such instruments are part of a public offering or
privately placed), may enter into repurchase agreements and may lend
portfolio securities in accordance with its investment policies.
3. Except for the Nations Marsico Focused Equities Fund, purchase
securities of any one issuer (other than U.S. Government Obligations)
if, immediately after such purchase, more than 5% of the value of such
Fund's total assets would be invested in the securities of such issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations and with respect to 75% of
such Fund's assets, such Fund will not hold more than 10% of the voting
securities of any issuer.
The Nations Marsico Focused Equities Fund may not:
1. Purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 25% of the
value of a Fund's total assets would be invested in the securities of
one issuer, and with respect to 50% of such Fund's total assets, more
than 5% of its assets would be invested in the securities of one
issuer.
The International Growth Fund may not:
1. Borrow money except as a temporary measure and then only in amounts
not exceeding 5% of the value of the Fund's total assets or from banks
or in connection with reverse repurchase agreements provided that
immediately after such borrowing, all borrowings of the Fund do not
exceed one-third of the Fund's total assets and no purchases of
portfolio instruments will be made while the Fund has borrowings
outstanding in an amount exceeding 5% of its total assets.
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Each of the Small Company Growth Fund and the U.S. Government Bond Fund may not:
1. Borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements and mortgage rolls; provided that the respective Fund will
maintain asset coverage of 300% for all borrowings.
The International Value Fund may not:
1. Invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry
(with certain exceptions).
2. Purchase securities of any one issuer (with certain exceptions,
including U.S. Government securities) if more than 5% of the Fund's
total assets measured at the time of purchase will be invested in the
securities of any one issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to the 5%
limitation. The Fund may not purchase more than 10% of the outstanding
voting securities of any issuer subject, however, to the foregoing 25%
exception.
3. Borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such
borrowing. Whenever borrowings exceed 5% of the Fund's total assets,
the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is
made, a subsequent change in that percentage that is the result of a change in
value of a Fund's portfolio securities does not mean that the limitation has
been violated.
Additionally, as a matter of fundamental policy which may not be
changed without a majority vote of a Fund's shareholders (as that term is
defined under the heading "Investment Advisory, Administration, Custody,
Transfer Agency, Shareholder Servicing and Distribution Agreements -- "The
Company and Its Common Stock" in this SAI), each Fund (except with respect to
certain Funds whose restrictions are enumerated separately) will not:
1. Borrow money or issue senior securities as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") except that (a) a Fund
may borrow money from banks for temporary purposes in amounts up to
one-third of the value of such Fund's total assets at the time of
borrowing, provided that borrowings in excess of 5% of the value of
such Fund's total assets will be repaid prior to the purchase of
additional portfolio securities by such Fund, (b) a Fund may enter into
commitments to purchase securities in accordance with the Fund's
investment program, including delayed delivery and when-issued
securities, which commitments may be considered the issuance of senior
securities, and (c) a Fund may issue multiple classes of shares in
accordance with SEC regulations or exemptions under the 1940 Act. The
purchase or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities. Each Fund may enter into reverse repurchase agreements or
dollar roll transactions. The purchase or sale of futures contracts and
related options shall not be considered to involve the borrowing of
money or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of
initial or maintenance margin connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be
deemed an underwriting. This restriction shall not limit a Fund's
ability to invest in securities issued by other registered investment
companies.
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4. Invest in real estate or real estate limited partnership interests. (A
Fund may, however, purchase and sell securities secured by real estate
or interests therein or issued by issuers which invest in real estate
or interests therein.) This restriction does not apply to real estate
limited partnerships listed on a national stock exchange (E.G., the New
York Stock Exchange).
5. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly
traded securities of companies engaging in whole or in part in such
activities, may enter into futures contracts and related options, may
engage in transactions on a when-issued or forward commitment basis,
and may enter into forward currency contracts in accordance with its
investment policies.
In addition, as a matter of fundamental policy, the Small Company
Growth Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalists or
certificates of deposit for any such securities) if, immediately after
such purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund
or the Company; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing limitations. For
purposes of this limitation, (a) a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security
and (b) a guarantee of a security shall not be deemed to be a security
issued by the guarantor when the value of securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10%
of the value of the Fund's total assets. Each Fund will maintain asset
coverage of 300% or maintain a segregated account with its custodian
bank in which it will maintain cash, U.S. Government Securities or
other liquid high grade debt obligations equal in value to its
borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry or (iii) with respect to the Small
Company Growth Fund, instruments issued by domestic branches of U.S.
Banks. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase
securities which are secured by interest in real estate.
In addition, as a matter of fundamental policy, the International Value
Fund may not:
1. In general, purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interest in real estate.
2. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. In general, act as an underwriter of securities within the meaning of
the Securities Act of 1933, as amended, except to the extent that the
purchase of obligations directly from the issuer thereof in accordance
with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
4. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of the total
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assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing
and then in amounts not in excess of one-third of the value of the
Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with the
Fund's investment practices described in this SAI or in the
Prospectuses are not deemed to be pledged for purposes of this
limitation.
5. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities.
6. Purchase securities of companies for the purpose of exercising control.
7. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if, immediately after
such purchase, (a) with respect to the Fund, more than 5% of the value
of the Fund's total assets would be invested in the securities of such
issuer, or (b) more than 10% of the issuer's outstanding voting
securities would be owned by the Fund; except that up to 25% of the
value of the Fund's total assets may be invested without regard to the
foregoing limitations. For purposes of this limitation, with respect to
the Fund, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of
the Fund's total assets.
8. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
9. Write or sell put options, call options, straddles, spreads or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts, options on futures contracts,
financial instruments, currencies, forward currency exchange contracts
and swaps, floors and caps.
10. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation
shall not apply to the Fund's transactions in futures contracts,
currencies and related options, and (b) the Fund may obtain short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities.
11. In general, purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Fund
may, to the extent appropriate to its investment objective, purchase
publicly traded securities of companies engaging in whole or in part in
such activities and may enter into futures contracts and related
options; and the Fund may enter into foreign currency contracts and
related options to the extent permitted by its investment objective and
polices.
The investment objective and policies of each Fund, unless otherwise
specified, are non-fundamental and may be changed without shareholder approval.
Shareholders of the International Growth Fund, Small Company Growth Fund and
U.S. Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
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In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. No Fund will purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of
each issuer together own beneficially more than five percent of such
securities.
2. No Fund will purchase securities of unseasoned issuers, including their
predecessors, that have been in operation for less than three years, if
by reason thereof the value of such Fund's investment in such classes
of securities would exceed 5% of such Fund's total assets. For purposes
of this limitation, issuers include predecessors, sponsors, controlling
persons, general partners, guarantors and originators of underlying
assets which have less than three years of continuous operation or
relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Fund's
transactions in futures contracts and related options, and (c) a Fund
may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market,
in excess of 5% of the value of such Fund's assets, and no more than 2%
of the value of the Fund's net assets may be invested in warrants that
are not listed on the New York or American Stock Exchange (for purposes
of this undertaking, warrants acquired by a Fund in units or attached
to securities will be deemed to have no value).
5. No Money Market Fund may purchase securities of any one issuer (other
than obligations issued or guaranteed by the U.S. government, its
agencies, authorities or instrumentalities and repurchase agreements
fully collateralized by such obligations) if, immediately after such
purchase, more than 5% of the value of the Fund's assets would be
invested in the securities of such issuer. Notwithstanding the
foregoing, up to 25% of each Fund's total assets may be invested for a
period of three business days in the first tier securities of a single
issuer without regard to such 5% limitation.
6. No Fund will purchase securities of companies for the purpose of
exercising control.
7. No Money Market Fund will invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall
not include securities which may be resold under Rule 144A and Section
4(2) of the Securities Act of 1933 that the Board of Directors, or its
delegate, determines to be liquid, based upon the trading markets for
the specific security.
8. No Non-Money Market Fund will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements,
time deposits and GICs with maturities in excess of seven days,
illiquid restricted securities, and other securities which are not
readily marketable. For purposes of this restriction, illiquid
securities shall not include securities which may be resold under Rule
144A and Section 4(2) of the Securities Act of 1933 that the Board of
Directors, or its delegate, determines to be liquid, based upon the
trading markets for the specific security.
9. No Fund will mortgage, pledge or hypothecate any assets except to
secure permitted borrowings and then only in an amount up to one-third
of the value of the Fund's total assets at the time of borrowing. For
purposes of this limitation, collateral arrangements with respect to
the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and
variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.
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10. No Fund will invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
acquisition of assets and except to the extent otherwise permitted by
the 1940 Act.
11. No Fund will purchase oil, gas or mineral leases or other interests (a
Fund may, however, purchase and sell the securities of companies
engaged in the exploration, development, production, refining,
transporting and marketing of oil, gas or minerals).
As a matter of non-fundamental policy, the Small Company Growth Fund
and Government Bond Fund may not:
1. Lend its securities if collateral values are not continuously
maintained at no less than 100% by market to market daily.
In addition, as a matter of non-fundamental policy, the Government Bond Fund may
not:
1. Purchase equity securities of issuers that are not readily marketable
if the value of a Fund's aggregate investment in such securities will
exceed 5% of its total assets.
2. Purchase securities of issuers restricted as to disposition if the
value of its aggregate investment in such classes of securities will
exceed 10% of its total assets.
In addition, as a matter of non-fundamental policy, The Tax Exempt Fund may not
purchase any securities other than obligations the interest on which is exempt
from Federal income tax and stand-by commitments with respect to such
obligations.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
Pursuant to a fundamental investment restriction, the Companies do not
have authority to purchase any securities which would cause more than 25% of the
value of any Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and further provided that with
respect to the Money Market Funds only, there is no limitation with respect to
investments in obligations by banks. The position of the staff of the SEC is
that the exclusion with respect to banks may only be applied to domestic banks.
For this purpose, the staff also takes the position that United States branches
of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Companies currently
intend to consider only obligations of "domestic banks" to be within the
exclusion with respect to banks. For this purpose, "domestic banks" will be
construed by the Companies to include: (a) United States branches of foreign
banks, to the extent they are subject to the same regulation as United States
banks; and (b) foreign branches of domestic banks with respect to which the
domestic bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments for any reason.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
PERMISSIBLE FUND INVESTMENTS
In addition to the principal investment strategies for each Fund, which
are outlined in the Funds' prospectuses, each Fund also may invest in other
types of securities in percentages of less than 10% of its total assets (unless
otherwise indicated, E.G., most Funds may invest in money market instruments
without limit during temporary
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defensive periods). These types of securities are listed below for each
portfolio and then are described in more detail after this sub-section.
THE EQUITY FUNDS
Value Fund: In addition to the types of securities described in its
Prospectus, the Fund may invest in: U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government ("U.S. Treasury
Obligations"), other obligations issued or guaranteed as to payment of principal
and interest by the U.S. Government, its agencies and instrumentalities
(together with U.S. Treasury Obligations, "U.S. Government Obligations");
investment grade debt securities of domestic companies; various money market
instruments and repurchase agreements.
Equity Income Fund: See General Section below.
Emerging Growth Fund: See General Section below.
Small Company Growth Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in debt securities, unless the
Fund assumes a temporary defensive position. Debt securities, if any, purchased
by the Fund will be rated "AA" or above by S&P or "Aa" or above by Moody's or,
if unrated, determined by the Adviser to be of comparable quality. For temporary
defensive purposes, the Fund may invest up to 100% of its assets in debt
securities, including short-term and intermediate-term obligations of
corporations, the U.S. and foreign governments and international organizations
such as the World Bank, and money market instruments. The Fund may invest in
common stocks (including convertible into common stocks) of foreign issuers and
rights to purchase common stock, options and futures contracts on securities,
securities indexes and foreign currencies, securities lending, forward foreign
exchange contracts and repurchase agreements.
Disciplined Equity Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: a broad range of equity and
debt instruments, including preferred stocks, securities (debt and preferred
stock) convertible into common stock, warrants and rights to purchase common
stocks, options, U.S. government and corporate debt securities and various money
market instruments. The Fund's investments in debt securities, including
convertible securities, will be limited to securities rated investment grade
(E.G., securities rated in one of the top four investment categories by an NRSRO
or, if not rated, are of equivalent quality as determined by the Adviser). For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
Capital Growth Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: preferred stocks, securities (debt
and preferred stock) convertible into common stock, warrants and rights to
purchase common stocks, other types of securities having common stock
characteristics and various money market instruments, including repurchase
agreements. The Fund may invest in foreign securities, including common stocks
(including convertible into common stocks) of foreign issuers and rights to
purchase common stock, options and futures contracts on securities, securities
indexes and foreign currencies, securities lending, forward foreign exchange
contracts.
Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund: In addition to the types of securities described in their
Prospectuses, these Funds may invest in: preferred stock, warrants, convertible
securities and debt securities; zero coupon, pay-in-kind and step coupon
securities, and may invest without limit in indexed/structured securities. The
Funds also may invest its assets in high-yield/high-risk securities, such as
lower grade debt securities, high-grade commercial paper, certificates of
deposit, and repurchase agreements, and may invest in short-term debt securities
as a means of receiving a return on idle cash.
The Funds may hold cash or cash equivalents and invest without limit in
U.S. Government Obligations and short-term debt securities or money market
instruments when the Adviser: (i) believes that the market conditions are not
favorable for profitable investing, (ii) is unable to locate favorable
investment opportunities, or (iii) determines that a temporary defensive
position is advisable or necessary to meet anticipated redemption request. In
other words,
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the Funds do not always stay fully invested in stocks and bonds. The Funds also
may use options, futures, forward currency contracts and other types of
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. The Funds also may purchase securities on a when-issued, delayed
delivery or forward commitment basis.
General: Notwithstanding that each Equity Fund may invest in each type
of security listed above in percentages of less than 10% of that Fund's total
assets, each Equity Fund (except the Nations Marsico Focused Equities Fund and
the Nations Marsico Growth & Income Fund) may invest up to 20% of its assets in
foreign securities. While each Equity Fund reserves the right to so invest,
investing in foreign securities is not considered a principal investment
strategy of the Equity Funds.
In addition, each Equity Fund discussed above also may invest in
certain specified derivative securities including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls to enhance return; and U.S. and foreign exchange-traded
financial futures approved by the Commodity Futures Trading Commission ("CFTC")
and options thereon for market exposure risk management. Each Equity Fund may
lend its portfolio securities to qualified institutional investors and may
invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each Equity Fund also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies and repurchase agreements. The Nations Marsico Focused Equities
Fund and Nations Marsico Growth & Income Fund may invest in forward foreign
exchange contracts.
THE INTERNATIONAL FUNDS
International Equity Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: real estate investment
trust securities and, for temporary defensive purposes, substantially all of its
assets in U.S. financial markets or U.S. dollar-denominated instruments. The
Fund also may invest in convertible securities, preferred stocks, bonds, notes
and other fixed-income securities, including Eurodollar and foreign government
securities.
International Growth Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: options and futures
contracts on securities, securities lending, forward foreign exchange contracts
and repurchase agreements. The Fund also may invest in American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European Depositary
Receipts ("EDRs") and American Depositary Shares ("ADSs"). For temporary
defensive purposes, substantially all of its assets in U.S. financial markets or
U.S. dollar-denominated instruments.
International Value Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: short-term debt
instruments; purchase and write covered call options on specific portfolio
securities and may purchase and write put and call options on foreign stock
indices listed on foreign and domestic exchanges options and futures contracts
on securities, securities lending, forward foreign exchange contracts and
repurchase agreements. The Fund also may invest in ADRs, GDRs, EDRs and ADSs and
invest in foreign currency exchange contracts to convert foreign currencies to
and from the U.S. dollar, and to hedge against changes in foreign currency
exchange rates.
Emerging Markets Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: debt instruments; foreign investment
funds or trusts, real estate investment trust securities, ADRs, GDRs, EDRs and
ADSs. For temporary defensive purposes, substantially all of its assets in U.S.
financial markets or U.S. dollar-denominated instruments.
General: Each Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
CFTC and options thereon for market exposure risk management. Each Fund may lend
its portfolio securities to qualified institutional investors and
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may invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each International Fund also may invest in real estate
investment trust securities. In addition, each International Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies and repurchase agreements. Each Fund also may
invest in forward foreign exchange contracts.
THE INDEX FUNDS
Managed Index Fund, Managed SmallCap Index Fund, Managed Value Index
Fund and Managed SmallCap Value Index Fund: In addition to the types of
securities described in their Prospectuses, the Funds may invest in:
high-quality short-term debt securities and money market instruments to meet
redemption requests. If the Adviser believes that market conditions warrant a
temporary defensive posture, the Funds may invest without limitation in
high-quality short-term debt securities and money market instruments, domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. Government Obligations and repurchase agreements. The Funds
also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S.
exchange-traded financial futures approved by the CFTC and options thereon for
market exposure risk management. The Funds may lend its Fund securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. In addition, the
Funds may invest in securities issued by other investment companies, consistent
with such Funds' investment objective and policies.
In addition, when consistent with such Funds' respective investment
objective, the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
Fund securities that it holds, which will allow the Funds to sell first those
specific shares with the highest tax basis in order to reduce the amount of
recognized capital gains as compared with a sale of identical Fund securities,
if any, with a lower tax basis. A Fund will sell first those shares with the
highest tax basis only when it is in the best interest of the Fund to do so, and
reserves the right to sell other shares when appropriate. In addition, the Funds
may, at times, sell Fund securities in order to realize capital losses. Such
capital losses would be used to offset realized capital gains thereby reducing
capital gain distributions. Additionally, the Adviser will, consistent with the
Fund construction process discussed above, employ a low Fund turnover strategy
designed to defer the realization of capital gains.
The Index Funds incur transaction (brokerage) costs in connection with
the purchase and sale of Fund securities. For some funds, these costs can have a
material negative impact on performance. With respect to the Funds, the Adviser
will attempt to minimize these transaction costs by utilizing program trades and
computerized exchanges called "crossing networks" which allow institutions to
execute trades at the midpoint of the bid/ask spread and at a reduced commission
rate.
BALANCED FUND
Balanced Assets Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: foreign securities, certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes; exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. The Fund may lend its Fund
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. The
Fund may engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies. The
Fund also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
investments backed by, the securities and other assets owned by such trusts and
partnerships.
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FIXED-INCOME FUNDS
Short-Term Income Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: foreign securities,
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments, real estate investment trust securities,
municipal securities rated by one nationally recognized statistical rating
organization ("NRSRO"), or if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated, high quality money market
instruments, repurchase agreements and cash.
Short-Intermediate Government Fund: In addition to the types of
securities described in its Prospectus, the Fund may invest in: corporate
convertible and non-convertible debt obligations, including bonds, notes and
debentures rated investment grade at the time of purchase by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations ("CMOs"), real
estate investment trust securities or mortgage-backed bonds; other asset-backed
securities and municipal securities rated by one of the NRSROs or if not so
rated, determined by the Adviser to be of comparable quality. The Fund also may
invest in "high quality" money market instruments, repurchase agreements and
cash. Such obligations may include those issued by foreign banks and foreign
branches of U.S. banks.
Government Securities Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-related securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities and municipal securities rated by one of the NRSROs
or if not so rated, determined by the Adviser to be of comparable quality. The
Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks.
Strategic Fixed Income Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: foreign securities,
corporate convertible and non-convertible debt obligations, including bonds,
notes and debentures rated investment grade at the time of purchase by one of
the NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality to instruments so rated; dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments;
mortgage-related securities of governmental issuers or of private issuers,
including mortgage pass-through certificates, CMOs, and real estate investment
trust securities. The Fund also may invest in "high quality" money market
instruments, repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks.
Diversified Income Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: foreign securities,
asset-backed securities and municipal securities rated by one of the NRSROs, or
if not so rated, determined by the Adviser to be of comparable quality. The Fund
also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks.
U.S. Government Bond Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: CMOs issued or guaranteed
by a U.S. Government agency or instrumentality, ADRs, EDRs, cash equivalents,
futures contracts, interest rate swaps and options.
General: Each of the Fixed Income Funds may invest in certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes, exchange-traded options, over-the-counter options executed
with primary dealers, including long term calls and puts and covered calls, and
U.S. and foreign exchange-traded financial futures and options thereon approved
by the CFTC for market exposure risk management. Each of the Funds also may lend
their portfolio securities to qualified institutional investors and may invest
in repurchase agreements, restricted, private placement and other illiquid
securities. Each of the Funds may engage in reverse repurchase agreements and in
dollar roll transactions. Additionally, each Fund may purchase securities issued
by other investment companies, consistent with the Funds' investment objectives
and policies. The Funds also may invest in instruments issued by trusts or
certain partnerships including pass-through certificates representing
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participations in, or debt instruments backed by, the securities and other
assets owned by such trusts and partnerships.
NATIONAL MUNICIPAL BOND FUNDS
Short-Term Municipal Income Fund, Intermediate Municipal Income Fund
and Municipal Income Fund: In addition to the types of securities described in
their Prospectuses, the Funds may invest in certain specified derivative
securities, including interest rate swaps, caps and floors for hedging purposes;
exchange-traded options, over-the-counter options executed with primary dealers,
including long term calls and puts and covered calls; and U.S. and foreign
exchange-traded financial futures and options thereon approved by the CFTC for
market exposure risk management. Each of the Funds also may lend their portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Funds' investment objectives and policies. The
Funds also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
STATE MUNICIPAL BOND FUNDS AND STATE INTERMEDIATE MUNICIPAL BOND FUNDS
Florida Intermediate Municipal Bond Fund, Georgia Intermediate
Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund, North Carolina
Intermediate Municipal Bond Fund, South Carolina Intermediate Municipal Bond
Fund, Tennessee Intermediate Municipal Bond Fund, Texas Intermediate Municipal
Bond Fund, Virginia Intermediate Municipal Bond Fund, Florida Municipal Bond
Fund, Georgia Municipal Bond Fund, Maryland Municipal Bond Fund, North Carolina
Municipal Bond Fund, South Carolina Municipal Bond Fund, Tennessee Municipal
Bond Fund, Texas Municipal Bond Fund and Virginia Municipal Bond Fund: In
addition to the types of securities described in their Prospectuses, the Funds
may invest in: certain specified derivative securities, including interest rate
swaps, caps and floors for hedging purposes; exchange-traded options;
over-the-counter options executed with primary dealers, including long term
calls and puts and covered calls; and U.S. and foreign exchange-traded financial
futures and options thereon approved by the CFTC for market exposure risk
management. Each of the Funds also may lend their portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Additionally, each
Fund may purchase securities issued by other investment companies, consistent
with the Funds' investment objectives and policies. The Funds also may invest in
instruments issued by trusts or certain partnerships including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
MONEY MARKET FUNDS
Prime Fund: In addition to the types of securities described in the
Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements. The
Fund may also invest in securities issued by other investment companies that
invest in securities consistent with the Fund's investment objective and
policies.
Treasury Fund: In addition to the types of securities described in the
Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements. The
Fund may also invest in securities issued by other investment companies that
invest in securities consistent with the Fund's investment objective and
policies.
Tax-Exempt Fund: In addition to the types of securities described in
the Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements. The
Fund may also invest in securities issued by other investment companies that
invest in securities consistent with the Fund's investment objective and
policies.
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Government Money Market Fund: In addition to the types of securities
described in the Prospectus, the Fund may also invest in securities issued by
other investment companies that invest in securities consistent with the Fund's
investment objective and policies.
Additional information on the particular types of securities in which
certain Funds may invest in is set forth below.
ASSET-BACKED SECURITIES
IN GENERAL. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of
the prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Government National Mortgage
Association ("Ginnie Mae" or "GNMA"), Federal National Mortgage Association
("Fannie Mae" or "FNMA") or Federal Home Loan Mortgage Corporation ("Freddie
Mac" or "FHLMC"). Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each
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Certificate is affected by the prepayment of mortgages included in the mortgage
pool underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives
some of the interest and most of the principal from the mortgage assets, while
the other class receives most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial investment
in these securities. The market value of any class which consists primarily or
entirely of principal payments generally is unusually volatile in response to
changes in interest rates.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings, or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments. Estimated average life
will be determined by the Adviser and used for the purpose of determining the
average weighted maturity and duration of the Funds.
ADDITIONAL INFORMATION ON MORTGAGE-BACKED SECURITIES.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers
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or poolers, whether or not such securities are subject to guarantees, may entail
greater risk than securities directly or indirectly guaranteed by the U.S.
Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the FHLMC. FHLMC is a
corporate instrumentality of the U.S. Government and was created by Congress in
1970 for the purpose of increasing the availability of mortgage credit for
residential housing. Its stock is owned by the twelve Federal Home Loan Banks.
FHLMC issues Participation Certificates ("PC's"), which represent interests in
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal.
FNMA is a Government sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved sellers/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by approved institutions and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset
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the mortgage's interest rate periodically with changes in open market interest
rates. To the extent that the Fund is actually invested in VRM's, the Fund's
interest income will vary with changes in the applicable interest rate on pools
of VRM's. GPM and GEM pools maintain constant interest rates, with varying
levels of principal repayment over the life of the mortgage. These different
interest and principal payment procedures should not impact the Fund's net asset
value since the prices at which these securities are valued will reflect the
payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
RETURNS ON MORTGAGE-BACKED SECURITIES
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being
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financed, in most states the security interest in a motor vehicle must be noted
on the certificate of title to perfect such security interest against competing
claims of other parties. Due to the larger number of vehicles involved, however,
the certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
While the market for asset-backed securities is becoming increasingly
liquid, the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
BORROWINGS
NFT, NFI and NFP participate in an uncommitted line of credit provided
by The Bank of New York 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 .50% on an annualized basis. The
Agreement requires, among other things, that each participating Fund maintain a
ratio of no less than 4 to 1 net assets (not including funds borrowed pursuant
to the Agreement) to the aggregate amount of indebtedness pursuant to the
Agreement. Specific borrowings by a Fund under the Agreement over the last
fiscal year, if any, can by found in the Funds' Annual Reports for the year
ended March 31, 1999.
COMMERCIAL INSTRUMENTS
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. The Prime Fund will limit purchases
of commercial instruments to instruments which: (a) if rated by at least two
NRSROs are rated in the highest rating category for short-term debt obligations
given by such organizations, or if only rated by one such organization, are
rated in the highest rating category for short-term debt obligations given by
such organization; or (b) if not rated, are (i) comparable in priority and
security to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
NFI's Board of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated
in a manner consistent with such Fund's investment policies and objectives. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Prime Fund are met. Variable-rate
instruments acquired by a Fund will be rated at a level consistent with such
Fund's investment objective and policies of high quality as determined by a
major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. See also the discussion of variable- and
floating-rate instruments in this SAI.
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Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
Certain Funds also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Fund acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured and most impose restrictive covenants which must be met by the
borrower and which are generally more stringent than the covenants available in
publicly traded debt securities. However, interests in some loans may not be
secured, and the Fund will be exposed to a risk of loss if the borrower
defaults. Loan participations also may be purchased by the Fund when the
borrowing company is already in default. In purchasing a loan participation, the
Fund may have less protection under the federal securities laws than it has in
purchasing traditional types of securities. The Fund's ability to assert its
rights against the borrower will also depend on the particular terms of the loan
agreement among the parties.
COMBINED TRANSACTIONS
Certain Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions.
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. All convertible securities purchased by the Fund will be
rated in the top two categories by an NRSRO or, if unrated, determined by the
Adviser to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments, as well as, an
opportunity for capital appreciation by virtue of their conversion or exchange
features.
The convertible securities in which a Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
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underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion
exchange features. Convertible securities generally are subordinated to other
similar debt securities but not to non-convertible securities of the same
issuer. Convertible bonds, as corporate debt obligations, are senior in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-convertible
securities. Convertible securities may be issued as fixed income obligations
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
CORPORATE DEBT SECURITIES
Certain Funds may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each Fund may also
invest in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be
rated investment grade by at least one NRSRO (E.G., BBB or above by Standard &
Poor's Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Funds will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Funds if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Directors of the Company.
If the rating of any corporate debt security held by a Fund falls below such
ratings or if the Adviser determines that an unrated corporate debt security is
no longer of comparable quality, then such security shall be disposed of in an
orderly manner as quickly as possible. A description of these ratings is
attached as Schedule A to this Statement of Additional Information.
CUSTODIAL RECEIPTS
Certain Funds may also acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
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CURRENCY SWAPS
Certain Funds also may enter into currency swaps for hedging purposes
and to seek to increase total return. In as much as swaps are entered into for
good faith hedging purposes or are offset by a segregated account as described
below, the Fund and the Adviser believe that swaps do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. The net amount of the
excess, if any, of the Fund's obligations over its entitlement with respect to
each currency swap will be accrued on a daily basis and an amount of cash or
liquid high grade debt securities (i.e., securities rated in one of the top
three ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to
be of comparable credit quality) having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian. The Fund will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
other party thereto is considered to be investment grade by the Adviser.
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Fund relies on the other party
to complete the transaction. If the transaction is not completed, the Fund may
miss a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
DOLLAR ROLL TRANSACTIONS
Certain Funds may enter into "dollar roll" transactions, which consist
of the sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the security that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
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EQUITY SWAP CONTRACTS
Certain Funds may from time to time enter into equity swap contracts.
The counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to pay a Fund the amount, if any, by which the notional amount of the
Equity Swap Contract would have increased in value had it been invested in the
stocks comprising the S&P 500 Index in proportion to the composition of the
Index, plus the dividends that would have been received on those stocks. A Fund
will agree to pay to the counterparty a floating rate of interest (typically the
London Inter Bank Offered Rate) on the notional amount of the Equity Swap
Contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
a Fund on any Equity Swap Contract should be the gain or loss on the notional
amount plus dividends on the stocks comprising the S&P 500 Index less the
interest paid by the Fund on the notional amount. A Fund will only enter into
Equity Swap Contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under the Equity Swap Contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Certain Funds may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Fund is obligated to pay the increase (net
of interest) or receive the decrease (plus interest) on the contract to reduce
the amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will
not enter into any Equity Swap Contract or Reverse Equity Swap Contract unless,
at the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed any limitation imposed
by the SEC Staff.
The Adviser does not believe that a Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
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FOREIGN CURRENCY TRANSACTIONS
Certain Funds may invest in foreign currency transactions. Foreign
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. A Fund may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A Fund may also
purchase and sell foreign currency futures contracts and related options (see
"Purchase and Sale of Currency Futures Contracts and Related Options"). A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
will direct its custodian to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will segregate cash, U.S. Government securities or
other high-quality debt securities having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
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The Funds are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the portfolio back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity basis (purchasing power parity is a method for determining the
relative purchasing power of different currencies by comparing the amount of
each currency required to purchase a typical bundle of goods and services to
domestic markets) and an estimation of short-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement
between two parties for the future delivery of fixed income securities or equity
securities or for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the CFTC and must be executed through a
brokerage firm, known as a futures commission merchant, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange. Presently,
futures contracts are based on such debt securities as long-term U.S. Treasury
Bonds, Treasury Notes, GNMA modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills, bank certificates of deposit, and on indices of
municipal, corporate and government bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As
noted in their respective Prospectuses, certain Funds may enter into
transactions in futures contracts for the purpose of hedging a relevant portion
of their portfolios. A Fund may enter into transactions in futures contracts
that are based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
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securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gains on the futures
contracts by entering into offsetting transactions on the contract market on
which the initial purchase was effected. In a substantial majority of
transactions involving futures contracts on fixed income securities, a Fund will
purchase the securities upon termination of the long futures positions, but
under unusual market conditions, a long futures position may be terminated
without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
STOCK INDEX FUTURES CONTRACTS. Certain Funds may sell stock index
futures contracts in order to offset a decrease in market value of its
securities that might otherwise result from a market decline. A Fund may do so
either to hedge the value of its portfolio as a whole, or to protect against
declines, occurring prior to sales of securities, in the value of securities to
be sold. Conversely, a Fund may purchase stock index futures contracts in order
to protect against anticipated increases in the cost of securities to be
acquired.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or a "short"
position in the underlying futures contract (i.e., a sale of such futures
contract) in the case of an option to sell (a "put" option), at a fixed price
(the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
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OPTIONS ON FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED
INDICES. Certain Funds may purchase put options on futures contracts in which
such Funds are permitted to invest for the purpose of hedging a relevant portion
of their portfolios against an anticipated decline in the values of portfolio
securities resulting from increases in interest rates, and may purchase call
options on such futures contracts as a hedge against an interest rate decline
when they are not fully invested. A Fund would write options on these futures
contracts primarily for the purpose of terminating existing positions.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS, OPTIONS ON STOCK INDICES AND
OPTIONS ON EQUITY SECURITIES. Certain Funds may purchase put options on stock
index futures contracts, stock indices or equity securities for the purpose of
hedging the relevant portion of their portfolio securities against an
anticipated market-wide decline or against declines in the values of individual
portfolio securities, and they may purchase call options on such futures
contracts as a hedge against a market advance when they are not fully invested.
A Fund would write options on such futures contracts primarily for the purpose
of terminating existing positions. In general, options on stock indices will be
employed in lieu of options on stock index futures contracts only where they
present an opportunity to hedge at lower cost. With respect to options on equity
securities, a Fund may, under certain circumstances, purchase a combination of
call options on such securities and U.S. Treasury bills. The Adviser believes
that such a combination may more closely parallel movements in the value of the
security underlying the call option than would the option itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
OPTIONS AND FUTURES STRATEGIES. The Adviser may seek to increase the
current return of certain Funds by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and losses incurred
as a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of trade
options as set forth in CFTC Rule 32.4, a Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
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WRITING COVERED OPTIONS ON SECURITIES. Certain Funds may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund give the holder the right
to buy the underlying securities from a Fund at a stated exercise price; put
options give the holder the right to sell the underlying security to the Fund at
a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such
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difference between the closing price of the index and the exercise price of the
option expressed in dollars multiplied by a specified multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike options on specific securities, all settlements of options
on stock indices are in cash and gain or loss depends on general movements in
the stocks included in the index rather than price movements in particular
stocks. A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific amount multiplied
by the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Fund
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Fund may purchase and
sell interest rate futures contracts on foreign government securities including,
but not limited to, debt securities of the governments and central banks of
France, Germany, Denmark and Japan for the purpose of hedging fixed income and
interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Fund's short position in the futures contracts will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of a
Fund's investments that are being hedged. While a Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES
CONTRACTS. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
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<PAGE>
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on
currency futures. This means that a Fund will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. A Fund will, so long as it is
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by a Fund in cash, Treasury
bills, or other high grade short-term obligations in a segregated account with
its custodian. If at the close of business on any day the market value of the
call purchased by a Fund falls below 100% of the market value of the call
written by the Fund, a Fund will so segregate an amount of cash, Treasury bills
or other high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
LIMITATIONS ON PURCHASE OF OPTIONS. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is
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<PAGE>
written out-of-the-money. A Fund will treat all or a part of the formula price
as illiquid for purposes of any limitation on illiquid securities imposed by the
SEC staff.
RISK FACTORS ASSOCIATED WITH FUTURES AND OPTIONS TRANSACTIONS
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of a Fund diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
RISK OF IMPERFECT CORRELATION. A Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
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<PAGE>
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in
the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by a Fund, which could require
the Fund to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures or option positions also could have an adverse
impact on a Fund's ability effectively to hedge its securities, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures
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<PAGE>
positions and premiums paid for options on futures contracts would exceed 5% of
the market value of the Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Funds' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Funds may also further
limit their ability to engage in such transactions in response to the policies
and concerns of various Federal and state regulatory agencies. Such policies may
be changed by vote of the Board of Directors/Trustees.
ADDITIONAL INFORMATION ON FUTURES AND OPTIONS
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
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Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; GNMA modified pass-through mortgage-backed securities; three-month United
States Treasury Bills; and ninety-day commercial paper. The Funds may trade in
any futures contract for which there exists a public market, including, without
limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
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For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
</TABLE>
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE FUND HAD ENTERED INTO AN ANTICIPATORY PURCHASE HEDGE, OR
MARKET VALUE INCREASED AND THE FUND HAD HEDGED ITS STOCK PORTFOLIO, THE RESULTS
OF THE FUND'S TRANSACTIONS IN STOCK INDEX FUTURES WOULD BE AS SET FORTH BELOW.
36
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
</TABLE>
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the
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<PAGE>
underlying security or index fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as marking to the
market. For example, when a Fund has purchased a futures contract and the price
of the contract has risen in response to a rise in the underlying instruments,
that position will have increased in value and the Fund will be entitled to
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where a Fund has purchased a futures contract and the price
of the futures contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable, the Fund would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, the Adviser may elect to close the position by taking
an opposite position, subject to the availability of a secondary market, which
will operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Adviser. It also is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance, and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the future and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
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Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). Although permitted by their
fundamental investment policies, the Funds do not currently intend to write
future options, and will not do so in the future absent any necessary regulatory
approvals.
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ACCOUNTING TREATMENT.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
GUARANTEED INVESTMENT CONTRACTS
Guaranteed investment contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance companies. Pursuant to such contracts, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, at which point the GIC may
be considered to be an illiquid investment.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GlCs to those having a term
of 397 days or less. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining under
the next readjustment of the guaranteed interest rate.
INSURED MUNICIPAL SECURITIES
Certain of the Municipal Securities held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which certain Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g. an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
A Fund will usually enter into swaps on a net basis, I.E., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
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With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
LOWER RATED DEBT SECURITIES
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as many buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
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Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
MUNICIPAL SECURITIES
GENERALLY. The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable- or floating- rate
instruments issued by industrial development authorities and other governmental
entities. While there may not be an active secondary market with respect to a
particular instrument purchased by a Fund, a Fund may demand payment of the
principal and accrued interest on the instrument or may resell it to a third
party as specified in the instruments. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of the instrument
if the issuer defaulted on its payment obligation or during periods the Fund is
not entitled to exercise its demand rights, and the Fund could, for these or
other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable.
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Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets
in lease obligations that contain "non-appropriation" clauses where (1) the
nature of the leased equipment or property is such that its ownership or use is
essential to a governmental function of the municipality, (2) the lease payments
will commence amortization of principal at an early date resulting in an average
life of seven years or less for the lease obligation, (3) appropriate covenants
will be obtained from the municipal obligor prohibiting the substitution or
purchase of similar equipment if lease payments are not appropriated, (4) the
lease obligor has maintained good market acceptability in the past, (5) the
investment is of a size that will be attractive to institutional investors, and
(6) the underlying leased equipment has elements of probability and/or use that
enhance its marketability in the event foreclosure on the underlying equipment
were ever required. The Funds have not imposed any percentage limitations with
respect to their investment in lease obligations not subject to the
"non-appropriation" risk. To the extent municipal leases are illiquid, they will
be subject to each Fund's limitation on investments in illiquid securities.
Recovery of an investment in any such loan that is illiquid and payable on
demand may depend on the ability of the municipal borrower to meet an obligation
for full repayment of principal and payment of accrued interest within the
demand period, normally seven days or less (unless a Fund determines that a
particular loan issue, unlike most such loans, has a readily available market).
As it deems appropriate, the Adviser will establish procedures to monitor the
credit standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Fund will consider: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of non-appropriation"); and (5)
the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Fund's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein, which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income taxes.
In addition, certain of the Funds may acquire "stand-by commitments"
from banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. The Funds
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
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Although the Funds do not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of NRSROs represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that these ratings are
general and are not absolute standards of quality, and Municipal Securities with
the same maturity, interest rate, and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of Municipal Securities may cease to be rated, or its rating may be reduced
below the minimum rating required for purchase by that Fund. The Adviser will
consider such an event in determining whether a Fund should continue to hold the
obligation.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax or state income
tax are rendered by counsel to the issuer or bond counsel at the time of
issuance. Neither the Funds nor the Adviser will review the proceedings relating
to the issuance of Municipal Securities or the bases for opinions relating to
the validity of such issuance.
The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.
Although the Municipal Income Fund and the State Municipal Bond Funds
invest primarily in Municipal Securities with long-term maturities, the
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond Funds
invest primarily in Municipal Securities with intermediate-term maturities, they
may also purchase short-term General Obligation Notes, Tax Anticipation Notes,
Bond Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial
Paper, Construction Loan Notes, and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. The State
Intermediate Municipal Bond Funds may also invest in long-term tax-exempt
instruments.
Certain types of Municipal Securities (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities, and certain
local facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
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From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Moreover, with respect to Municipal Securities
issued by Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee,
Texas, or Virginia issuers, NFT cannot predict which legislation, if any, may be
proposed in the state legislatures or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially and adversely
affect the availability of Municipal Securities generally, or Florida, Georgia,
Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia
Municipal Securities specifically, for investment by one of these Funds and the
liquidity and value of such portfolios. In such an event, a Fund impacted would
re-evaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
The following information relating to the State Intermediate Municipal
Bond Funds and the State Municipal Bond Funds supplements information relevant
to each of those Funds in the related Prospectuses.
FLORIDA. Florida is the fourth most populous state with an estimated
1998 population of 15,000,000. By the year 2005, population will likely exceed
16 million. Population growth has historically been driven by retirement
migration with local economies weighted heavily in tourism and agriculture. Over
the past twenty years, retirement, agriculture and tourism have been
complemented by high technology jobs, service sector jobs and international
trade. In the meantime, the three traditional industries have taken on global
character. Trade and tourism have become international and this has fueled
foreign retirement migration.
The health of the national economy plays an important role in Florida's
fiscal soundness and economic development. Today, as this country enters its
ninth year of economic expansion, population growth in Florida, since 1990, has
averaged in excess of 250,000 per year.
The emergence of Florida as one of the most populous states in the
United States has placed significant pressure on state and local government to
provide infrastructure and municipal and urban services. During the 1980's
growth was so rapid that a significant backlog of need emerged which today, is
still being filled. Across the state, construction of new highway systems,
airport expansions, local school and university systems, hospitals and jails are
being put in place. Much of this growth is being funded by bonded revenues
secured by the expanding real property tax base. As of 1998, real property
values exceeded $770 billion. Residential property values accounted for over
$481 billion in value. In addition to the rapid population growth and resulting
increases in improved residential properties, commercial and industrial
valuations have also grown consistently. Today these values account for 15
percent of Florida property values. There is now over $117 billion in improved
real property value in commercial and industrial properties in Florida.
One reason commercial and industrial values have increased is the
strategic nature of the industries that have located and grown in the State. The
Florida industrial base is concentrated in high technology industries such as
electronics, medical equipment, laser optics, computer simulation and space
travel. As a result, while defense contract spending has declined nationally by
over 25 percent, in real terms, from 1985 to 1998, Florida's value of defense
contracts has increased 11 percent to nearly $6 billion, through 1996.
With increasing demands for services and comparatively low taxes,
Florida has experienced a rapid growth in the volume of bond debt. Because of
rapid population growth however, per capita state debt remains well below the
national average. In 1997, the outstanding average state debt per capita, among
all states, was $1,706, compared with $1,093 per capita in Florida.
The Growth Management Act of 1985 and the concurrency rules promulgated
has affected Florida's economic growth and development in some regions of the
State and could continue to impact the economy in the future. Concurrency means
that the services and infrastructure caused by new development must be in place
on or before such new development is operational. In addition, the location of
new development will be more carefully scrutinized with the respect to
environmental sensitivity and natural resource limitations. Growth management
legislation will affect all areas of the State with varying degrees of impact
depending on the specific local conditions such as, existing infrastructure
capacity, local environmental constraints, and limitations on natural resources
such as potable water and habitat preservation. Having now experienced more than
ten years subject to growth management rules, it appears that the Growth
Management Act of 1985 has, on balance, been beneficial. Growth management has
helped improve quality of life, ease infrastructure shortfalls and focused the
State agenda on preserving quality of life through growth management regulation
and other funded environmental land preservation programs.
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Within Florida, regional economies perform differently according to
their urban or rural qualities and level of economic diversification. The
spectrum of regional economies spans dense urban centers such as Miami and Tampa
to rural agricultural regions of citrus, cattle ranching and sugar cane
production.
Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach, and the
Florida Keys. This area is highly urban and economically diverse. Tourism,
retirement, high technology computer manufacturing, medical industries,
international trade, winter vegetable crops and sugar cane production are the
prominent features of this regional economy. The area accounts for just under
one third of the state's population. Hurricane Andrew struck South Dade County
in fall, 1992. Some 80,000 homes were destroyed along with local businesses and
Homestead Air Force Base. Since the hurricane, approximately 80 to 90 percent of
the homes have been restored. The restoration and rebuilding process is now
essentially complete. Over the long term, the effects of the hurricane may speed
the suburbanization of South Florida. However, in the interim, extensive
reinvestment and redevelopment is still needed. Other factors helping to
diminish agriculture locally include environmental preservations in sugarcane
lands, and the effect of foreign competition due to NAFTA on local winter fruit
and vegetable growers. In 1998, Florida led the nation in housing starts. The
demand for new single and multifamily homes should remain robust. Across the
State, new construction and renovations to existing structures is fueling the
construction industry. Redevelopment of the Orlando Naval Training Center and
the construction of Florida Gulf Coast University in Ft. Myers are worthy
examples of new infrastructure meeting the demands of increasing population.
In Broward and Palm Beach Counties, in particular, growth management's
concurrency requirements have played a significant role in limiting economic
expansion as compared with other regions of the State because of the lack of
infrastructure capacity. Community consensus based long range planning efforts
recently have been undertaken in northern Palm Beach County. These efforts are a
recognition of the pause in growth that has occurred and over time will help the
area accommodate new development. Recent property sales from the MacArthur
Foundation land holdings in northern Palm Beach County will also prompt new
development there.
Southwest Florida has emerged as a strong growth market. Traditionally
very retirement oriented, the region's economy has begun to diversify through
increased employment opportunities and migration southward of citrus production.
Increased employment opportunity has occurred due to the overall size of the
market and improvements in infrastructure capacity. The improvement in
transportation access also has helped tourism and as a result indirectly buoyed
population growth rates by providing exposure and increased awareness of the
region as a retirement destination among visitors. The State of Florida has
opened Florida Gulf Coast University in Lee County, near the Fort Myers airport.
This is the State's 10th university in the public university higher education
system. Florida Gulf Coast University will accommodate 10,000 students within a
decade and provide opportunities for synergy between industry and education.
Central Florida is a premier world class resort/vacation destination.
The presence of Disney World, studio theme parks and other tourist oriented
recreational parks drives the central Florida economy. While the total size of
the market has grown rapidly, the economy is dependent on tourism and population
growth. Locally, the tourism industry has been more stable and seen better
growth over the past three decades than either the manufacturing or services
sectors. Two additional local industry concentrations, the laser/optical
research node and motion picture industries are helping to diversify the local
economy. Universal Studios has begun to expand its motion picture and theme park
facilities. Disney World has opened its fourth theme park, "Animal Kingdom,"
covering 500 acres. Disney's Celebration community of residential and commercial
activity is the fastest absorbing residential community in Central Florida.
Strong growth in tourism and large land areas available for expansion suggests
this region will lead the state in population growth in the near term.
International tourism has fueled the growth of an international retirement and
second home market throughout Florida. Today, in the tourist areas of the
market, one fifth of new homes built are sold to foreign retirees or vacation
homeowners. Places of origin include England, Germany, South America, and Puerto
Rico. International retirement markets are also growing in southwest and
Southeast Florida. There were over 38 million visitors to the Orlando market in
1998.
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North Florida is rural in many areas. Jacksonville is the major city in
North Florida. The logging and paper industries, defense and retirement dominate
the local economy. The insurance industry also has a strong presence in
Jacksonville. Growth in North Florida peaked in the mid 1980's, coinciding with
the military defense buildup, prior to the full implementation of growth
management legislation. As urbanization and living costs increase in the south
and central parts of the State, population growth from national retirement
migration sources are increasing locally. Some large local land holders are
shifting focus away from forestry and agriculture to residential development of
land resources.
The Florida panhandle is quite rural with reliance on tourism, defense
and state government for employment opportunities. This area of the State has
the lowest per capita incomes and the smallest volume of population growth. With
the uncertainty of state budget funding in recent years and continuing defense
cutbacks, strong growth in this region of the State is not expected. Coastal
counties, however, remain attractive to continued economic development and
retirement migration because of the pristine beaches along the Gulf of Mexico.
In general, pursuant to the Florida Constitution and certain statutory
provisions, there are two basic types of obligations that may be issued in the
State of Florida: general obligation bonds and revenue bonds.
General obligation bonds are also known as full faith and credit bonds
because their repayment is based on the general credit and taxing power of the
borrowing government. The ad valorem tax is the most common source of revenue
pledged for the repayment of general obligation bonds. Being tax-supported,
general obligation bonds are typically used to finance the capital portion of
tax supported general purpose governmental projects, with public buildings,
roads, criminal justice facilities, and schools being the most common. Only
units of local government with taxing power can levy and collect ad valorem
taxes. The State of Florida has no ad valorem taxing power. General obligation
bonds payable from ad valorem taxes and maturing more than twelve months (other
than certain refunding bonds) after issuance may be issued to finance capital
projects authorized by law and only if the issuance of such bonds is approved by
the qualified electors.
Revenue bonds are obligations of a unit of government payable solely
from the revenues of a particular enterprise, such as a water and sewer system,
or from the revenues derived from a particular facility or user, or from non-ad
valorem revenues, such as the sales tax, or from other special funds authorized
to be pledged as additional security. Revenue bonds may also be payable from
non-specific revenues budgeted each year by the issuer. Unlike general
obligation bonds, revenue bonds do not constitute a debt of the issuing unit or
a pledge of its faith and credit, and they are not backed by the issuer's taxing
power.
A test was developed by the Florida Supreme Court for analyzing the
constitutional ability of an issuer to issue revenue bonds where a significant
portion of the proceeds would be used for private or non-governmental benefit.
Generally, these types of securities are referred to as industrial revenue bonds
or private activity bonds. Unless a particular use for the proceeds of a private
activity bond has been constitutionally or legislatively sanctioned (such as
multifamily and single family housing revenue bonds) or tested in the courts, a
determination must be made that the project to be financed with the proceeds of
the private activity bond will serve a paramount public purpose. The paramount
public purpose doctrine is designed to protect public funds from being exploited
in assisting or promoting private ventures when the public would be, at the
most, only incidentally benefited. Generally, an issuer may pledge something
less than all of its available non-ad valorem revenues without voter approval,
subject to the parameters established by the Florida Supreme Court.
The Florida courts have validated debt obligations commonly referred to
as certificates of participation or "COPS." In a typical COPS transaction, the
issuer leases either real or personal property from a special purpose
corporation. The special purpose corporation assigns its rights to the lease
payments to a corporate trustee who in turn issues certificates evidencing an
undivided proportionate interest of the owners of such certificates to receive
the lease payments. The lease payments made by the issuer may be derived from
both ad valorem and non-ad valorem revenues of the issuer. Although ad valorem
taxes can be used to make the lease payments, the Florida Supreme Court has held
that a referendum is not required because the obligation to make lease payments
is an annual obligation subject to renewal each year. If the issuing body elects
not to renew its lease for the next succeeding year and therefore fails to
appropriate the necessary moneys to make lease payments, the holders of the COPS
would be limited to the remedies available under the lease. At least one Florida
court has upheld the right of a governmental unit to not exercise the annual
renewal option of its lease.
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When a mortgage, with a right of foreclosure, on real or personal
property (owned by a unit of government) is given to secure a bond, the Florida
courts have held that a pledge of such mortgage requires voter approval. In
effect, ad valorem taxes are indirectly pledged because, as the Florida Supreme
Court reasoned, the legislative body affected by such foreclosure might feel
"morally compelled" to levy taxes to prevent the loss of assets through
foreclosure. As a result, the majority of revenue bonds issued in the State of
Florida are not additionally secured by a mortgage on the governmental property
being financed. This prohibition is applicable even if the issuer has no taxing
power.
In Florida, the Division of Bond Finance has authority over the
issuance of State bonds pledging the full faith and credit of the State and the
issuance of revenue bonds payable solely from funds derived from sources other
than State tax revenues or rents or fees paid from State tax revenues.
Pursuant to the Florida Constitution, moneys sufficient to pay debt
service on State bonds must be appropriated as the same become due. Furthermore,
to the extent necessary, all State tax revenues, other than trust funds, must be
available for such appropriation purposes.
At the November 1994 general election, voters in the State approved an
amendment to the Florida Constitution limiting the amount of taxes, fees,
licenses and charges imposed by the State and collected during any fiscal year
to the amount of revenues allowed for the prior fiscal year, plus an adjustment
for growth. Growth is defined as the amount equal to the average annual rate of
growth in Florida personal income over the most recent twenty quarters times the
State revenues allowed for the prior fiscal year. The revenues allowed for any
fiscal year can be increased by a two-thirds vote of the State Legislature. The
limit is effective starting with fiscal year 1995-1996. Any excess revenues
generated will be deposited in the budget stabilization fund until it is fully
funded and then refunded to taxpayers. Included among the categories of revenues
which are exempt from the proposed revenue limitation, however, are revenues
pledged to state bonds and charges for services imposed by local, regional or
school district governing bodies.
The total outstanding principal of State bonds pledging the full faith
and credit of the State may not exceed fifty percent of the total tax revenues
of the State for the two preceding fiscal years, excluding any tax revenues held
in trust.
State bonds pledging the full faith and credit of the State, except
certain refunding bonds, generally may be issued only to finance or refinance
the cost of State fixed capital outlay projects subject to approval by a vote of
the electors. However, State bonds pledging the full faith and credit of the
State may be issued without a referendum to finance the construction of air and
water pollution control and abatement and solid waste disposal facilities to be
operated by a political subdivision of the State or by an agency of the State.
All forms of taxation other than ad valorem taxes are preempted to the
State, except as provided by general law. The State is prohibited from
collecting ad valorem taxes, which are taxes that are levied on real estate or
tangible personal property.
Revenue bonds may be issued by the State of Florida or its agencies
without voter approval only to finance or refinance the cost of state capital
projects payable solely from funds derived from sources other than state tax
revenues or rents or fees paid from state tax revenues.
Bonds issued pursuant to the State Bond Act must be validated in
accordance with Florida Statutes. Once an issuer decides to finance a project
with bonds issued pursuant to the State Bond Act, a bond validation proceeding
is held in circuit court to determine whether the proposed bond issuance
complies with Florida law. The court makes findings on the questions of whether
the issuing body had the power to incur bonded debt and whether it exercised
that power in accordance with the law. The court may not weigh the fiscal
feasibility of the proposed bonds in the validation determination. The circuit
court judgment is final on all matters, other than constitutional issues, raised
at the validation hearing after time for appeal to the Supreme Court of Florida
has elapsed. Refunding bonds and bonds issued to finance or refinance capital
outlay projects for the system of public education are not required to be
validated.
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The legislature has the power to confer on political subdivisions the
power to issue bonds, notes and other forms of indebtedness, except as otherwise
restricted by State and federal constitutional provisions, and such power is
conferred on municipal corporations, cities, counties and a variety of other
specially created districts and authorities. The bond validation process
described above is also available to such units of local government. In most
cases, bond validations are not statutorily mandated and many general obligation
and revenue bond issues have not been validated.
Generally, the Florida Constitution and Florida Statutes require that
the budget of the State and that of the units of local government in the State
be kept in balance from currently available revenues during each fiscal year. If
revenues collected during a fiscal year are less than anticipated, expenditures
must be reduced in order to comply with the balanced budget requirement.
Florida Statutes provide for a statewide maximum bond interest rate
which is flexible with the bond market and from which are exempted bonds rated
in one of the three highest ratings by nationally recognized rating services.
Nevertheless, upon request of a governmental unit, the State Board of
Administration may authorize a rate of interest in excess of the maximum rate,
provided relevant financial data and information relating to the sale of the
bonds is submitted to the State Board.
The Florida Sunshine Law, among other things, precludes public
officials from meeting with respect to the issuance of bonds other than at duly
noticed public meetings of the governmental entity. These provisions apply to
all meetings of any board or commission of any State agency or authority, or of
any county, municipal corporation, or political subdivision. No resolution,
rule, or formal action is considered binding except as taken at such duly
noticed public meetings.
Georgia. The state government of Georgia has one of the lowest debt
levels, per capita, of all states in the United States, which is reflective of
the very conservative fiscal approach taken by elected state officials, even
though the state has enjoyed a strong economy over the past few years.
Typically, general obligation bonds of the state are issued pursuant to the
powers granted under Article VII, Section IV of the Constitution of the State of
Georgia (the "Georgia Constitution") which provides that the bonds are the
direct and general obligations of the state. The key language is provided under
Article V11 Section IV, Paragraph VI of the Georgia Constitution which provides
as follows:
"The full faith, credit and taxing power of the state are hereby
pledged to the payment of all public debt incurred under this article
and all such debt and the interest on the debt shall be exempt from
taxation (emphasis added). Such debt may be validated by judicial
proceedings in the manner provided by law. Such validation shall be
incontestable and conclusive."
The Georgia Constitution further mandates that the General Assembly
"shall raise by taxation and appropriate each fiscal year ... such amounts as
are necessary to pay debt service requirements in such fiscal year on all
general obligation debt." The Georgia Constitution further provides for the
establishment of a special trust fund which is designated the "State of Georgia
General Obligation Debt Sinking Fund" which is used for the payment of annual
debt service requirements on all general obligation debt.
There are debt limitations provided under Article VII, Section IV,
Paragraph 11(b)-(e) of the Georgia Constitution which essentially provides that
the cumulative annual debt service for both general obligation debt and
guaranteed revenue debt shall not exceed 10% of the total revenue receipts, less
refunds paid to the state treasury in the fiscal year immediately preceding the
proposed issuance of any new debt. The Georgia Constitution prohibits state
departments and agencies from circumventing the debt limitation provisions by
not allowing such agencies to execute contracts which may be deemed to
constitute a security for bonds or other public obligations.
(See Article VII, Section IV, Paragraph IV of the Georgia Constitution.)
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The State of Georgia may incur: "Public debt to supply a temporary
deficit in the state treasury in any fiscal year created by a delay in
collecting the taxes of that year. Such debt shall not exceed, in the aggregate,
5% of the total revenue receipts, less refunds, of the state treasury in the
fiscal year immediately preceding the year in which such debt is incurred." (See
Georgia Constitution, Article VII, Section IV, Paragraph I(b).) Since this
provision of the Constitution was enacted, there has been no temporary debt
incurred by the state.
Virtually all debt obligations represented by bonds issued by the State
of Georgia, counties or municipalities or other public subdivisions, and public
authorities require validation by a judicial proceeding prior to the issuance of
such obligation. The judicial validation makes these obligations incontestable
and conclusive, as provided under the Georgia Constitution.
The State of Georgia operates on a fiscal year beginning on July 1 and
ending on June 30. Each year the State Economist, the Governor and the State
Revenue Commissioner jointly prepare a revenue forecast upon which is based the
state budget which is considered, amended, and approved by the Georgia General
Assembly. On June 30, 1998 the state had a revenue shortfall reserve fund of
$351,545,470. Total net revenue collections for the fiscal year ended on June
30, 1998 were $11,090,776,896, which represented a 5.2% increase over fiscal
year 1997 collections of $10,543,106,460. Additionally, Georgia received
$555,000,072 in revenue from the Georgia Lottery Corporation in fiscal year
1998; all lottery revenues are earmarked for educational expenditures.
In recent years, the State of Georgia has enjoyed unprecedented growth
with a balanced economy that is not reliant upon one particular industry.
Georgia leads the world in carpet manufacturing in the northwest sector of the
state and has a significant textile and apparel industry. General Motors and
Ford both have major automobile assembly plants in the metropolitan Atlanta
area, which has virtually full employment. The real estate and construction
industry is booming, particularly in Atlanta with recent announcement of several
major new projects. The Georgia Department of Industry, Trade and Tourism has
been very active and very successful in recent years in attracting a wide
diversity of new manufacturing companies which have constructed major facilities
in the State and also new distribution centers, which have taken advantage of
the transportation infrastructure highlighted by Atlanta's Hartsfield
International Airport, which is now the busiest airport in the world.
As reported by the Attorney General's Office (in a May 12, 1999 letter
to the State Auditor) in accordance with and limited by the ABA Statement of
Policy Regarding Lawyers' Responses to Auditors' Request for Information
(December 1975), certain claims have been asserted against the State or its
departments or agencies:
ABBOTT LABORATORIES V. GEORGIA DEPARTMENT OF ADMINISTRATIVE SERVICES,
ET AL., Fulton Superior Court Civil Action No. 2999CV04360. The plaintiff is
seeking damages of approximately $8.5 million against the Department of
Administrative Services ("DOAS"), the Department of Human Resources, and the
Director of Purchasing of DOAS under breach of contract and promissory estoppel
theories. The case arises out of DOAS' issuance of a notice of award to Abbott
Laboratories, in connection with the federally-funded WIC Infant Formula Rebate
Program. The Director of State Purchasing subsequently ordered cancellation of
the notice of award and ordered rebidding because of conflicting information
that had created a contradiction in the initial bidding specifications.
Discovery is ongoing in this matter. At present, the State intends to file a
motion for summary judgment at the close of discovery.
AGE INTERNATIONAL, INC. V. STATE (two cases), Fulton Superior Court
Civil Action No. E-3793 and Fulton Superior Court Civil Action No. E-25073. Two
suits for refund have been filed in state court against the State of Georgia by
out-of-state producers of alcoholic beverages. The first suit for refund seeks
$96 million in refunds of alcohol taxes, plus interest, imposed under Georgia's
post-BACCHUS (468 U.S. 263) statute, O.C.G.A. ss.3-4-60, I.e., as amended in
1985. These claims constitute 99% of all such taxes paid during the 3 years
preceding these claims. In addition, the claimants have filed a second suit for
refund for an additional $23 million, plus interest, for later time periods.
These two cases encompass all known or anticipated claims for refunds of such
type within the apparently applicable statute of limitations for the years in
question, I.E., 1989 through January, 1993. The trial court has granted the
State's motion for summary judgment, and 12 of the 23 claimants have appealed to
the Georgia Supreme Court. The total principal amount of the claims for refund
by the 12 Plaintiffs who did appeal now appears to be approximately $42 million.
The total principal dollar amount of the claims for refund by the 11 Plaintiffs
who did not appeal, which claims appear to be conclusively resolved in favor of
the State by virtue of the trial court's judgment, now appears to be
approximately $54 million.
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DEKALB COUNTY, ET AL. V. STATE, ET AL., Fulton Superior Court Civil
Action No. E-67520 (filed March 13, 1998). This suit, against the State of
Georgia, the Department of Revenue, the Governor (in his official capacity), and
the Commissioner of the Department of Revenue (in his personal and official
capacities), alleges improper collection and distribution by the State and its
agencies of the Homestead Option Sales and Use Tax, a local option sales tax in
effect in DeKalb County since July, 1997. DeKalb's complaint, as amended, seeks
an accounting, mandamus, injunctive relief, declaratory judgment, unjust
enrichment, bailment, inverse condemnation, and a determination that O.C.G.A.
section 48-8-67 (a law enacted during the pendency of the lawsuit) is
unconstitutional. The complaint, as amended, seeks damages of $27.7 million.
Subsequently, DeKalb County has re-estimated its alleged damages variously as
$19, $15, and $12 million. DeKalb County's action was dismissed by the trial
court, and this dismissal was affirmed in part and reversed in part by the
Georgia Supreme Court in an order dated February 22, 1999. The Supreme Court's
decision remands to the trial court the accounting claim on the question of
whether the Department of Revenue made reasonable efforts to identify county tax
proceeds that have been determined by the Department to be unidentifiable to any
county. The defendants may seek reconsideration of this issue before the case is
remitted to the trial court.
ELLIS-DON CONSTRUCTION CLAIM. A contract claim has been made in the
amount of $6,600,000 against the Board of Regents of the University System of
Georgia in connection with construction at the University of Georgia
Biocontainment Research Center, Project C-85 administered through the Georgia
State Financing and Investment Commission Construction Division ("GSFIC"). The
claimant, Ellis-Don Construction, bases its claim upon the encountering of
extensive subsurface rock, delays allegedly caused by the Board of Regents (as
owner) and redesign overhead costs and time extensions. The total contract cost
is approximately $18,270,000. GSFIC, as project manager, has received the claim
and is hiring a consultant to evaluate the claim fully. GSFIC intends to defend
the claim vigorously on behalf of the Board of Regents. The Board of Regents
believes the claim to be grossly overstated and anticipates resolving any
legitimate portions of the claim for a substantially lesser sum than that
claimed.
GENERAL MOTORS ACCEPTANCE CORP. V. JACKSON, Fulton Superior Court Civil
Action No. 1999CV06252. This is the first suit in Georgia by a financial
institution for refund of sales taxes based upon alleged bad debts on
installment sales contracts purchased from motor vehicle dealers. The suit seeks
a refund of approximately $300,000. The total amount of all similar pending
administrative claims for refund (for the years 1991 - 1998) is approximately
$24,000,000. This case is in the discovery phase.
GEORGIA JACKSON, ET AL. V. GEORGIA LOTTERY CORPORATION, Fulton Superior
Court Civil Action No. E-50303, filed August 26, 1996. Plaintiffs sought a court
order declaring that two games sponsored by the Georgia Lottery Corporation,
"Quick Cash" and "Cash Three," are unconstitutional and enjoining the lottery
from further offering of these games. Plaintiffs also sought the return of all
monies played on these games during a specified period, approximately
$1,703,462,781. On an interlocutory appeal, the Georgia Court of Appeals ruled
that the Lottery Corporation does not have sovereign immunity but ruled for the
Corporation on the merits. The Plaintiffs petitioned for a writ of certiorari to
the Supreme Court of Georgia, and the Supreme Court denied the petition.
The remittitur of the Court of Appeals has been returned to the trial court.
JAMES ANDREW COLEMAN V. UNITED STATES OF AMERICA, ET AL., Federal
District Court for the District of Columbia Case No. 1:98cv02559. This civil
action was filed against the United States, the "Executive Branch federal
defendant," William Jefferson Clinton, the State of Georgia, the State of
Mississippi, and the State of South Carolina. Currently, the State of Georgia
has not been legally served. The suit alleges that the United States
government's failure to enforce the purported terms of surrender ending the
Civil War has resulted in the inclusion in the Georgia state flag of a
Confederate battle flag, allegedly in violation of those terms of surrender. The
suit claims that said failure of enforcement violates various federal
constitutional and statutory provisions. The suit prays for relief in the form
of $40 billion in compensatory damages and $40 billion on punitive damages
against each named defendant. If the State of Georgia ever becomes a proper
party to the suit through legal service of process, the State intends to defend
vigorously. The State believes it has good and valid defenses, including but not
limited to Eleventh Amendment immunity.
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RW ALLEN/BEERS CLAIM. A contract claim has been made in the amount of
$9,850,000 against the Board of Regents of the University System of Georgia in
connection with construction at the Children's Medical Center, Augusta, Georgia,
Project H-26, administered through Program Manager McDevitt-Street-Bovis. The
claimant, Construction Manager RW Allen/Beers bases the claim upon delays
allegedly caused by the Board of Regents (as owner) and redesign overhead costs
and time extensions. A subcontractor has filed suit for $5,000,000 on its claim
against the Construction Manager, which amount is a part of the Construction
Manager's contract claim against the Board of Regents. The total contract cost
is approximately $44,000,000. The Program Manager has received the claim and
will make its recommendations to Regents through the contract-based dispute
resolution (arbitration) process. The Board of Regents intends to defend the
claim vigorously through the dispute resolution process. The Board of Regents
believes that the claim is grossly overstated and anticipates resolving any
legitimate portions of the claim for a substantially lesser sum than that
claimed.
The above-referenced information is based on available public documents
and oral representations made by and information received from officials at the
state Attorney General's Office, Georgia Department of Revenue, and participants
in the pending cases.
MARYLAND. The public indebtedness of the State of Maryland and its
instrumentalities is divided into four basic categories. The State issues
general obligation bonds, to the payment of which the State ad valorem property
tax is exclusively pledged, for capital improvements and for various
State-sponsored projects. The Maryland Department of Transportation issues
limited, special obligation bonds for transportation purposes payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. The Maryland Stadium Authority issues limited special obligation
bonds and votes for purposes of financing stadiums and conference centers
payable primarily from fixed rate financing of facility bonds using a
combination of variable rate refunding obligations and forward interest rate
exchange agreements. Certain authorities issue obligations payable solely from
specific non-tax, enterprise fund revenues, and for which the State has no
liability and has given no moral obligation assurance. The State and certain of
its agencies also have entered into a variety of lease purchase agreements to
finance the acquisition of capital assets. These lease agreements specify that
payments thereunder are subject to annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the
principal of and interest on its general obligation bonds when due. Neither the
Maryland Constitution nor the public general laws of Maryland impose any general
debt limit. Although the State has the authority to make short-term borrowings
in anticipation of taxes and other receipts up to a maximum of $100 million, the
State in the past has not issued short-term tax anticipation notes or made any
other similar short-term borrowings for cash flow purposes. The State has not
issued bond anticipation notes except in connection with a State program to
ameliorate the impact of the failure of certain State-chartered savings and loan
associations in 1985; all such notes were redeemed without the issuance of debt.
The State Constitution prohibits the contracting of State debt unless
authorized by a law providing for the collection of an annual tax or taxes
sufficient to pay the interest when due and to discharge the principal within 15
years of the date of debt issuance. The Constitution also provides that the
taxes levied for this purpose may not be repealed or applied to any other
purpose until the debt is fully discharged. As a matter of practice, general
obligation bonds, other than small denomination bonds and refunding bonds, are
issued to mature in serial installments designed to provide payment of interest
only during the first two years and an approximately level annual amortization
of principal and interest over the remaining years.
The State has financed and expects to continue to finance the
construction and acquisition of various facilities and equipment through
conditional purchase, sale-leaseback, and similar transactions. All of the lease
payments under these arrangements are subject to annual appropriation by the
General Assembly. In the event that appropriations are not made, the State may
not be held contractually liable for the payments. These transactions are
subject to approval by the Board of Public Works.
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1999 Budget--On April 7, 1998, the General Assembly approved the budget
for fiscal year 1997. The Budget includes, among other things: (i) sufficient
funds to meet all specific statutory funding requirements; (ii) sufficient funds
to meet the actuarial recommended contributions for the seven retirement
systems, determined on a basis consistent with prior years' practice; (iii)
sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at $.21 per $100 of assessed valuation; (iv) $3.3 billion in
aid to local governments (reflecting a $169.1 million increase over fiscal year
1998); and (v) $75.5 million in general fund deficiency appropriations which
include $25 million for computer programming modifications to address the "Year
2000" problem.
The Budget incorporates the first full year of the five-year phase-in
of the 10% reduction in personal income taxes, accelerated by legislation
enacted by the 1998 General Assembly, estimated to result in a reduction of
revenues of approximately $300 million in fiscal year 1999. Legislation was also
enacted making the State's existing earned income tax credit refundable, with an
estimated reduction in fiscal 1999 revenues of $17.5 million. The reduction in
fiscal 1999 revenues resulting from the reductions in income taxes enacted by
the 1998 General Assembly will be mitigated by a transfer of $185.2 million to
the General Fund from the Revenue Stabilization Account of the State Reserve
Fund. The Budget includes $50 million for the funding to Baltimore City Public
Schools related to the consent decree and $61.5 million to provide funding for a
statewide public education proposal targeted primarily to at-risk students. The
Budget also includes $76 million ($29 million in general funds and $47 million
in federal funds) to provide medical coverage to low income children and
pregnant women currently without coverage.
The State's fiscal year 1999 capital budget is to be funded with $430
million general obligation bonds (net of $13 million of prior year
authorizations to be deauthorized), $156.7 million general funds appropriated in
the operating budget, $1,244.5 million in special and federal funds (of which
$572 million is appropriated to the Department of Transportation) and $46.5
million in revenue bonds. In the fiscal year 1999 general obligation bond
program, $21.8 million is reserved as an allotment for legislative initiatives,
private hospitals and independent colleges and universities.
Based on the 1999 Budget, it is estimated that the general fund surplus
on a budgetary basis at June 30, 1999, will be approximately $249.5 million. It
is also estimated that the balance in the Revenue Stabilization Account of the
State Reserve Fund at June 30, 1999, will be $635.8 million.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the Maryland Intermediate
Municipal Bond Fund and Maryland Municipal Bond Fund. The sources of the
information are the official statements of issuers located in Maryland, other
publicly available documents, and oral statements from various state agencies.
The Adviser has not independently verified any of the information contained in
the official statements, other publicly available documents, or oral statements
from various state agencies.
NORTH CAROLINA. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total receipts during the fiscal period plus any surplus remaining in the
State Treasury at the beginning of the period. The State operates on a fiscal
year ending June 30th.
The State of North Carolina is the tenth most populous state. Its
economy is a combination of manufacturing, agriculture, services and tourism.
The State's seasonally adjusted unemployment rate in April 1999 was 2.6%. In
recent years, the State has moved from an agricultural economy to a service and
goods producing economy. The State leads the nation in the production of
textiles, tobacco products, furniture and fiberoptic cable and is among the
largest producers of pharmaceuticals, electronics and telecommunications
equipment. The principal agricultural products are poultry, pork and tobacco.
Charlotte is now the second largest financial center in the nation, based on the
assets of banks headquartered there.
The ending fund balance for the State's General Fund at June 30, 1998
was $1,662.0 million. The budget adopted by the North Carolina General Assembly
for the fiscal year ending June 30, 2000 projects an ending General Fund balance
of approximately $992 million. However, no funds were appropriated nor any bonds
or bond referenda authorized by the North Carolina General Assembly to fund
approximately $7 billion in identified repairs and renovations to facilities at
the University of North Carolina's 16 campuses and at the State's community
colleges.
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The following are cases pending in which the State faces the risk of
either a loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of State Treasurer, however, any such loss of revenue or expenditure
would not materially adversely affect the State's ability to meet its financial
obligations.
Leandro, et al. v. State of North Carolina and State Board of
Education. On May 25, 1994, students and boards of education in five counties
filed suit requesting a declaration that the public education system of North
Carolina violates the State constitution by failing to provide adequate or
substantially equal education opportunities, and by denying due process of law.
The defendants' motion to dismiss was denied. However, the North Carolina
Supreme Court upheld the present funding system and remanded the case for trial
on the claim for relief based on the conclusion that the constitution guarantees
every child the opportunity to obtain a sound basic education. Five other
counties intervened and now allege claims for relief on behalf of their
students' rights to a sound basic education on the basis of the high proportion
of at-risk students in their counties' systems.
Francisco case. On August 10, 1994, a class action lawsuit was filed
against the Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and has
failed to supervise local school systems in administering programs for them. The
complaint asks the Court to order the defendants to fund a comprehensive program
to ensure equal educational opportunities for limited English proficient
children.
Bailey-Emory-Patton. cases. State and local government retirees filed a
class action suit in 1990 challenging repeal of the income tax exemptions of
State and local government retirement benefits, additional lawsuits were filed
reserving refund claims for later years and Federal retirees filed a class
action suit in 1995 seeking monetary relief for taxes paid on federal government
retirement benefits. In 1998, the North Carolina Supreme Court ruled that it was
unconstitutional for the State of North Carolina to collect taxes on the
pensions of retired Federal, State and local government employees. The required
refunds were estimated to be $1.1 billion. However, a settlement has been
reached and a Consent Order approved in which the State will pay a total of $799
million with $400 million paid in 1998 and the balance by July 1999. The balance
is reserved in the State's budget for the year ending June 30, 1999.
Smith-Shaver cases. These cases are class action intangibles tax refund
lawsuits relating to prior litigation in which the United States Supreme Court
in 1996 ruled unconstitutional the intangibles tax previously collected by the
State on shares of stock. Refunds have been made with interest to those
taxpayers who complied with the applicable State tax refund statutes. The North
Carolina Supreme Court held in 1998 that the taxpayers who paid the intangibles
tax but did not comply with the State tax refund statute were nonetheless
entitled to intangibles tax refunds which are estimated at approximately $360
million for 1991 through 1994. Additional class action lawsuits claim
approximately $105 million for intangibles taxes paid for 1990. A Settlement
Agreement was tentatively approved on July 8, 1999 providing for the payment of
$440 million by the State. The North Carolina General Assembly has appropriated
$200 million to be paid from reserves on October 1, 1999 with the balanced due
on July 10, 2000, although no appropriation has been adopted. A Fairness Hearing
is scheduled for September 24, 1999 where confirmation of the Settlement
Agreement will be considered.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula for
payment of disability retirement benefits and claiming impairment of contract
rights, breach of fiduciary duty, violation of other federal constitutional
rights and violation of state constitutional and statutory rights. The North
Carolina Court of Appeals and Supreme Court dismissed the fiduciary claims and
certain of the constitutional claims. The primary claim for unconstitutional
impairment of contract was tried in Superior Court in 1995, and the court issued
an order in favor of the plaintiffs. In 1997, the North Carolina Supreme Court
upheld the trial court's ruling. A determination of the actual amount of
liability and the payment process is being made by the parties. The plaintiffs
have submitted documentation to the court asserting that the cost and damages
and higher prospective benefit payments to the plaintiffs and class members
would amount to $407 million. Calculations and payments so far indicate that
retroactive benefits will be significantly less than estimated. Payments have
been made of approximately $73 million and the State estimates remaining
liability will not exceed $42 million. All retroactive and future benefit
payments are payable from the funds of the State's retirement systems.
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N.C. School Boards Association case. In December 1998, plaintiffs,
including the school boards of six North Carolina counties, filed suit
requesting a declaration that certain payments to State administrative agencies
must be distributed to the public schools on the theory that such amounts are
fines which under the North Carolina Constitution must be paid to schools. The
plaintiffs allege that they are due approximately $84 million. The State
believes that sound legal arguments support the State's position that these
amounts may be retained by State administrative agencies.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the North Carolina Intermediate
Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the
information are the official statements of the Department of State Treasurer of
North Carolina, other publicly available documents and oral statements from
various State agencies. The Adviser has not independently verified any of the
information contained in the official statements, other publicly available
documents, or oral statements from various State agencies.
SOUTH CAROLINA. The South Carolina Constitution mandates a balanced
budget. If a deficit appears likely, the State Budget and Control Board may
reduce appropriations during the current fiscal year as necessary to prevent the
deficit. If it is determined that a fiscal year has ended with an operating
deficit, the State Constitution requires that monies appropriated from the
Capital Reserve Fund must be reduced to the extent necessary and applied to the
year end operating deficit before withdrawing monies from the General Reserve
Fund for such purpose.
The State Constitution limits annual increases in State appropriations
to the average growth rate of the economy of the State and annual increases in
the number of State employees to the average growth of the population of the
State; provided, however, that these two limitations are subject to suspension
for any one fiscal year by a special vote in each House of the General Assembly.
The State Constitution requires a General Reserve fund that equals
three percent of General Fund Revenue for the latest completed fiscal year.
Funds may be withdrawn from the General Reserve Fund only for the purpose of
covering operating deficits. The State Constitution also requires a Capital
Reserve Fund equal to two percent of General Fund Revenue for the latest
completed fiscal year.
The State Constitution requires that the General Assembly provide that,
if revenue forecasts before March 1 project that revenues for the current fiscal
year will be less than expenditures authorized by appropriation for the current
fiscal year, the current fiscal year's appropriation to the Capital Reserve Fund
shall first be reduced to the extent necessary before any reduction is made in
operating appropriations.
After March 1, monies from the Capital Reserve Fund may be appropriated
by a special vote of the General Assembly to finance previously authorized
capital improvement bond projects, to retire principal or interest on bonds
previously issued, and to pay for capital improvements or other nonrecurring
purposes. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item that has been reduced due to
application of the monies to a year-end deficit must go back to the General
Fund.
The State operates on a fiscal year beginning July 1 and ending June
30. For the fiscal year ended June 30, 1998, the State had a budgetary surplus
of $254.9 million, and the Capital Reserve Fund and General Reserve Fund were
fully funded at the combined 5% level. The South Carolina General Assembly
passed the Fiscal Year 1998-99 Appropriations Act that enacted a balanced budget
where most of the new revenue was allocated to property tax relief, health and
human services and education.
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Positive economic growth in South Carolina has been driven, in part, by
gains in tourism, business services and international trade. In 1998, the State
enjoyed the greatest economic gains of any state in the Southeast region. The
State's gross product rose by 6.2%, and unemployment fell to a near record low
of 3.5% as the State added 70,000 new jobs-nearly as many as it did in the
previous two years combined.
Over the last two years, the State's unemployment rate has been below
the national rate with 1998 being almost a full percentage point below the
national average. In terms of personal income, South Carolina, in 1998, was the
nation's third fastest growing state.
A lawsuit, Glen E. Kennedy, et al vs. the South Carolina Retirement
System and South Carolina Budget and Control Board, has been filed against the
South Carolina Retirement Systems (Systems) by a group of retired participants
in the Systems which challenges the Systems' treatment of annual leave
calculation of participants' retirement payments. The Circuit Court determined
that the State has been providing retirement benefits to its members in
accordance with the law. The Circuit Court decision was appealed to the State
Supreme Court and on May 26, 1999 oral arguments were heard by the Supreme
Court. The State believes its position is meritorious, but it unable to predict
when the Supreme Court will rule or what the outcome will be. The Systems'
liability in the event of an unfavorable outcome is estimated to be
approximately $340 million for current retirees, and $800 million for current
active members of the South Carolina Retirement System and the Police Officers'
Retirement System.
In November 1998, a class action lawsuit was filed against the State
which challenges the taxation by the State of federal retiree's income. The
State estimates that its ultimate liability may exceed $170 million plus
interest in the event of an unfavorable outcome. This estimate does not include
the impact on future year's revenues. While the State is uncertain as to the
ultimate outcome of this case, it is vigorously defending its position.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the South Carolina Intermediate
Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the
information are the official statements of issuers located in South Carolina,
other publicly available documents, or oral statements from various State
agencies. The adviser has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
TENNESSEE. The Constitution of the State of Tennessee forbids the
expenditure of the proceeds of any debt obligation for a purpose other than the
purpose for which it was authorized by statute. The Constitution also forbids
the authorization of any debt obligation, except as shall be repaid within the
fiscal year of issuance, for current operation of any state service or program.
Under Tennessee law, the term of the State's bonds cannot exceed the life of the
projects being financed. Furthermore, the amount of debt obligations of the
State of Tennessee cannot exceed the amount authorized by the Tennessee General
Assembly. The procedure for funding State of Tennessee debt is provided by
Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State
of Tennessee is the entity authorized to issue general obligation indebtedness
of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code
Annotated, the Funding Board of the State of Tennessee has a lien on the taxes,
fees and revenues from certain designated revenue sources for the full amount
required to service the State's general obligation indebtedness. Certain other
agencies and authorities in Tennessee issue obligations, payable solely from
specific non-tax enterprise fund revenues and which are not debts or liabilities
of the State of Tennessee nor is the full faith and credit pledged to the
payment thereof.
Under current state statutes, the State of Tennessee's general
obligation bonded debt issuance's are subject to an annual legal debt service
limitation based on a pledged portion of certain current year revenues. As of
June 30, 1998, the State of Tennessee's annual legal debt service limit of $414
million was well above the debt service required of $118 million, with a legal
debt service margin of $296 million. Debt per capita equaled $167, and the ratio
of net general long-term bonded debt to assessed property valuation was 1.52
percent.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1997-98. During fiscal year 1998, Tennessee continued several programs that were
designed to position the State to remain competitive in attracting new jobs
while addressing several problem areas for the State. The State continued its
Basic Education Program which is designed to achieve salary equalization in
teachers' salaries and to provide funding for enrollment growth. The State also
extended coverage under Tenn Care to all Tennessee children who do not otherwise
have access to health insurance, enhanced all services to children under the
newly established Department of Children's Services and continued enhancement of
employment opportunities through development of adult basic education and
coordination of job retaining and job placement efforts. The State of Tennessee
created the Center for Effective Government and pursued other initiatives
designed to create a more effective and efficient State government.
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The economic outlook for Tennessee remains favorable. The State's
economic diversity has improved substantially over the last several years.
Investments announced in new and expanding business exceeded one billion dollars
in every year since 1983 and exceeded two billion in the last six years. This
growth created 19,543 new jobs in Tennessee for the year ended June 1998. As of
June 1998, the State's unemployment rate was 5.4% slightly higher than the
national average of 5.4%. Based on current projections, the State's overall
growth is expected to exceed the national average into the next century
according to the Comprehensive Annual Financial Report for the State of
Tennessee for the year ended June 1998.
Despite the economic growth, the State has predicted a $365 million
budget shortfall for the fiscal year 1999. The Administration considered a
number of tax proposals, including a State income tax, that would have raised
revenues for the State. Ultimately, the Tennessee Legislature passed the Tax
Revision and Reform Act of 1999 (the "Tax Act") which repealed the existing
franchise and excise tax and replaced it with a new excise and franchise tax.
While the Tax Act does raise revenues for the State, it is likely that even more
sweeping tax reform legislation will be needed to raise additional revenues to
continue the services currently provided by the State or a substantial reduction
in services will need to be implemented.
TEXAS. Except as specifically authorized, the Texas Constitution
generally prohibits the creation of debt by or on behalf of the State, with only
limited exceptions. In addition, the Constitution prohibits the Legislature from
lending the credit of the State to any person, including municipalities, or
pledging the credit of the State in any manner for the payment of the
liabilities of any individual, association of individuals, corporation or
municipality. The limitations of the Constitution do not prohibit the issuance
of revenue bonds, since the Texas courts (like the courts of most states) have
held that certain obligations do not create a "debt" within the meaning of the
Constitution. The State and various State agencies have issued revenue bonds
payable from the revenues produced by various facilities or from lease payments
appropriated by the Legislature. Furthermore, obligations which are payable from
funds expected to be available during the current budget period, do not
constitute "debt" within the meaning of the constitutional prohibition.
Texas Revised Civil Statutes Article 717k-7(8) prohibits the
Legislature from authorizing additional state debt payable from general
revenues, including authorized but unissued bonds and lease purchase contracts
in excess of $250,000 or for a term of greater than five years, if the resulting
annual debt service exceeds five percent of an amount equal to the average
amount of general revenue for the three immediately preceding years, excluding
revenues constitutionally dedicated for purposes other than payment of debt
service. Self-supporting general obligation bonds, although backed by the full
faith and credit of the State, are reasonably expected to be paid from other
revenue sources and are not expected to create a general revenue draw. On
November 4, 1997, Texas voters approved a constitutional amendment pursuant to
Proposition 11 in order to add the provisions of Article 717k-7(8) to the
Constitution, which provisions are now set forth in Article III, Section 49-j of
the Texas Constitution. The State has long been identified with the oil and gas
industry, but the Texas economy has diversified in recent years, particularly
with the growth of the computer and electronics industries. Oil and gas related
industries currently account for only 11% of the State's economy.
Service-producing sectors (which include transportation and public utilities;
finance and insurance and real estate; trade; services; and government) are the
major sources of job growth in Texas, although the rate of growth of
goods-producing jobs has been about the same as that of service-producing jobs
since 1994. Texas' location and transportation and accessibility have made it a
distribution center for the southwestern United States as well as a growing
international market for export trade. With leadership provided by a strong
high-technology sector and the growth of exports, manufacturing job growth is
expected to remain a significant part of Texas' economic future. The State
Comptroller of Public Accounts has predicted that the overall Texas economy will
slightly outpace national economic growth in the long term.
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The State generally can be divided into six geo-economic regions. The
east region is a largely non-metropolitan region, in which the economy is
dependent on agricultural activities and the production and processing of coal,
petroleum and wood. The Dallas-Ft. Worth metroplex region is mostly
metropolitan, with diversified manufacturing, financial and commercial sectors.
The panhandle, Permian basin and Concho Valley regions are relatively populated
areas of the State, with an economy drawing heavily from petroleum production
and agriculture. The border region stretching from El Paso to Brownsville is
characterized by its economic ties to Mexico, tourism and agriculture. The Gulf
Coast region is the most populous region in the State and has an economy
centered on energy services, petro-chemical industries and commercial activities
resulting from agriculture and seaport trade. The economy of the central
corridor is based upon the public and private service sector, recreation/tourism
and high-technology manufacturing. Because the economic base is different from
region to region, economic developments, such as the strength of the U.S.
economy, shifting export markets or changes in oil prices or defense spending,
can be expected to affect the economy of each region differently.
In 1997, total nonfarm employment growth was 4.2%. By September 1998,
state nonfarm employment growth had moderated somewhat, in keeping with national
job growth patterns, but still expanded at 3.0%. Most new jobs created in the
past year have been in the service sector with most of the growth in the health,
business and miscellaneous services sectors. Employment during the period
between September 1997 through September 1998 also increased in the wholesale
and retail trade, government, transportation, communications, public utilities,
manufacturing and construction industries. The mix of job growth in Texas
provides a strong base for sustainable growth because the new jobs are largely
in industries with bright prospects for continued growth, such as
knowledge-based manufacturing and services. Per capita personal income has since
increased to approximately 93.5% of U.S. per capita income as of 1997.
The State's general revenue fund provides an indication of the State's
financial condition. Effective as of the beginning of fiscal 1994, numerous
state funds were merged into the general revenue fund providing for a one-time
gain of approximately $1.2 billion for the fund. In the fiscal year 1997, the
general revenue fund accounted for most of the state's net revenue. Due to the
state's expansion in Medicaid spending and other Health and Human Services
programs requiring federal matching revenues, federal receipts were the state's
number one source of income in fiscal 1998. Sales tax, which had been the main
source of revenue for the previous 12 years prior to fiscal 1993, was second.
Licenses, fees, fines and penalties are now the third largest source of revenue
to the state, with motor fuels taxes and motor vehicle sales/rental taxes
following as fourth largest and fifth largest, respectively. The remainder of
the state's revenues are derived primarily from interest and investment income,
lottery proceeds, cigarette and tobacco, franchise, oil and gas severance and
other taxes. The state has no personal or corporate income tax, although the
state does impose a corporate franchise tax based on the amount of a
corporation's capital and "earned surplus," which includes corporate net income
and officers' and directors' compensation. For each of the fiscal years ended
August 31, 1994, 1995, 1996, 1997, and 1998, the general revenue fund contained
a cash surplus of approximately $2.239 billion, $2.110 billion, $2.271 billion,
$2.685 billion and $3.330 billion, respectively.
VIRGINIA. Debt may be issued by or on behalf of the Commonwealth of
Virginia in accordance with the provisions of Article X, Section 9 of the
Virginia Constitution. Virginia counties, cities and towns may issue debt
pursuant to the provisions of Article VII, Section 10 of the Virginia
Constitution and the Public Finance Act of 1991 (Virginia Code Sections
15.2-2600 through 15.2-2663). In addition, certain types of debt, including
private activity bonds may be issued by various special purpose authorities,
including industrial development authorities created pursuant to the Industrial
Development and Revenue Bond Act (Virginia Code Sections 15.2-4900 through
15.2-4920).
Sections 9(a), (b) and (c) of Article X of the Virginia Constitution
provide for the issuance of debt to which the Commonwealth's full faith and
credit is pledged. Section 9(d) provides for the issuance of debt not secured by
the full faith and credit of the Commonwealth, but which may be supported by and
paid from Commonwealth tax collections. The Commonwealth and its localities may
also enter into leases and contracts that are not "debt" for constitutional
purposes, but are classified as long-term indebtedness on the issuer's financial
statements.
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General obligation debt of the Commonwealth is authorized for various
purposes, including to meet emergencies, to redeem previous debt obligations,
and to pay the costs of certain capital projects. The Virginia Constitution
imposes certain restrictions on the amount of general obligation debt that may
be issued by the Commonwealth and, in some cases, such debt is subject to
approval in a state-wide election.
The restrictions applicable to general obligation debt of the
Commonwealth, including limitations on the outstanding amount that may be issued
by the Commonwealth do not apply to obligations issued by the Commonwealth or
any of its institutions, agencies or authorities if the full faith and credit of
the Commonwealth is not pledged to the payment of such obligations. Various
types of revenue bonds have been issued under Section 9(d) of Article X for
which the Commonwealth's full faith and credit is not pledged. These bonds may
be paid in whole or in part from revenues received as appropriations by the
General Assembly from general tax revenues or solely from revenues derived from
revenue-producing undertakings. The Commonwealth has also incurred numerous
obligations with respect to the leasing or installment purchase of buildings,
equipment and personal property. These agreements are for various terms and
typically contain a nonappropriation clause so that the continuation of any such
lease or installment purchase agreement is subject to funding by the General
Assembly.
The Virginia Intermediate Municipal Bond Fund and Virginia Municipal
Bond Fund also invest in debt obligations issued by local governments. Local
government in the Commonwealth is comprised of approximately 95 counties, 41
incorporated cities, and 190 incorporated towns. The Commonwealth is unique in
that cities and counties are independent and their land areas do not overlap.
Cities and counties each levy and collect their own taxes and provide their own
services. Towns, which are units of local government and which continue to be
part of the counties in which they are located, levy and collect taxes for town
purposes but their residents are also subject to county taxes. Generally, the
largest expenditure by local governments in the Commonwealth is for public
education. Each county and city in the Commonwealth, with few exceptions,
constitutes a separate school district. Counties, cities and towns typically
also provide such services such as water and sewer services, police and fire
protection, and recreational facilities.
Local governments are authorized to issue general obligation debt and
debt secured by revenues of a revenue-producing undertaking under Article VII,
Section 10 of the Virginia Constitution. Generally, debt issued by a county
pledging the full faith and credit of the county is subject to voter approval
but is not limited as to outstanding amount. Debt pledging the full faith and
credit of a town or city is generally subject to a limit on the outstanding
amount of such debt equal to 10% of the assessed valuation of the real estate
subject to taxation in the city or town. Revenue bonds payable from revenues
derived from a revenue-producing undertaking and certain lease or installment
sale obligations that are subject to appropriation each year by the governing
body of the locality are not subject to such limit and are not subject to voter
approval in counties.
The primary sources of money available to localities to pay debt
service on general obligation bonds are real and personal property taxes, sales
tax and business license taxes. Virginia Code Section 15.2-2659, known as the
"state aid intercept provision" provides a mechanism for applying appropriations
to be made from the Commonwealth to any locality to any overdue debt service on
general obligation bonds issued by such locality.
Numerous obligations are also issued by industrial development
authorities, redevelopment and housing authorities, water and sewer authorities
and other issuers created and empowered to issue bonds by Virginia statute.
These issuers typically issue bonds payable from the revenues derived from a
particular undertaking and not secured by a pledge of the faith and credit of
the Commonwealth or any county, city or town. Typically these issuers do not
have taxing power.
The General Fund of the Commonwealth derives its revenues primarily
from individual and fiduciary income tax, corporation income tax, state sales
and use tax, public service corporations tax and taxes on premiums of insurance
companies. General Fund tax revenues grew at a rate of 11% from fiscal year 1997
to fiscal year 1998. Individual tax revenue grew by 14.3%. Certain other tax
revenues experienced more modest growth and in one instance a decline. Public
service corporation revenues declined by 19.4%, while corporate income tax
revenue grew at a rate of 4.3% and sales and use tax revenue at a rate of 5.1%.
Overall revenue grew by 8% mainly in individual income tax revenues, but non-tax
revenues declined by 3%. Overall expenditures grew at a rate of 6%, compared to
5.5% in fiscal year 1997. Education expenditures grew by $168.6 million, or 5.5
percent, while administration of justice expenditures grew by $137.6 million, or
10.3 percent. The large increase in revenues in fiscal year 1998 resulted in a
General Fund balance of $1,444.2 million, an increase of 54.1% over fiscal year
1997.
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Historically, balances in the General Fund have decreased in some
years, for example in 1995, as a result of an increase in transfers from the
General Fund, and have increased at varying rates in other years, such as fiscal
years 1996 and 1997.
In 1997, the Commonwealth ranked 12th in population among the 50
states. The Commonwealth's 1997 population was approximately 6,737,500.
According to the U.S. Department of Commerce, Bureau of Economic Analysis and
University of Virginia, Weldon Cooper Center for Public Service, the 1996 per
capita income for the Commonwealth was $25,255. According to the U.S. Department
of Labor, Bureau of Labor Statistics, the unemployment rate of 4% in 1997
compared to 4.9% nationally. Assessed value of locally taxed property exceeded
$405 billion in 1997 according to the Virginia Department of Taxation.
Effective November 23, 1998, the Commonwealth joined leading United
States tobacco product manufacturers, 46 other states, the District of Columbia
and five territories in the National Tobacco Settlement. The Settlement will be
final on the earlier of (i) June 30, 2000 or (ii) when 80% of the settling
states approve the Settlement. The Settlement provides, among other things, that
tobacco companies will pay a total of $206 billion to the participating states
by the year 2025. The Commonwealth's share of the total amount paid to states
would be approximately $4 billion. During the 1999 General Assembly Session,
legislation was adopted to create the Tobacco Indemnification and Community
Revitalization Commission and Fund. 50% of the annual amount received by the
Commonwealth from the Settlement will be deposited into such Fund. Such
Commission will determine the appropriate recipients of money in the Fund and
distribute moneys in the Fund to (i) provide payments to tobacco farmers as
compensation for the elimination or decline in tobacco quota and (ii) promote
economic growth and development in tobacco dependent communities. Tobacco is
Virginia's top cash crop and it generated $191 million in revenues in 1997. In a
separate Trust Agreement between the four leading tobacco firms and 14
tobacco-growing states, a $5.15 billion National Tobacco Community Trust Fund
has been established to help farms cope with the anticipated decline in sales
resulting from the Settlement. Although the Trust Agreement is not final, the
four tobacco companies are expected to make payments into the Trust Fund over a
12-year period beginning in 2002.
The General Assembly approves a biannual budget for the Commonwealth.
The 1998-2000 Budget Bill presented about $2,242.1 million in operating
increases from the general fund above fiscal year 1998 appropriation levels. Of
this amount, $211.4 million was for deposit to the Revenue Stabilization Fund.
The remainder provided for increases in K-12 education ($874.2 million), higher
education ($345.5 million), public safety, economic development, health and
human resources, and natural resources. The 1998-2000 Budget Bill also provided
$350 million in funding for tax reductions, including $260 million for the first
installment of a proposal to eliminate the personal property tax on personal use
vehicles valued up to $20,000 and a proposal to eliminate the sales tax on
non-prescription drugs. In addition to increases to operating funds, the
1998-2000 Budget Bill provided $532.8 million in pay-as-you-go funding for
capital projects.
On January 26, 1998, the Governor submitted amendments to the
introduced 1998-2000 Budget Bill to fund his commitments to provide additional
teachers in K-12 class rooms ($35.1 million) and to eliminate the personal
property tax on personal use vehicles valued up to $20,000 ($233.2 million). The
Governor's amendments also made minor adjustments, many of them based on updated
information available after the 1998-2000 Budget Bill was introduced. Revenue
adjustments included a revised estimate of general fund revenue, a revised
accounting for interest earnings, and elimination of a Lottery Special Reserve
Fund.
The 1998-2000 Budget Bill enacted by the 1998 General Assembly in its
60-day Session, which began January 14, 1998, including $447 million for
personal property tax relief and $80.8 million for local school construction and
repair.
The Governor signed the 1998-2000 Budget Bill into law on April 14,
1998. The 1998-2000 Budget Bill became the 1998-2000 Appropriation Act (Chapter
464, 1998 Virginia Acts of Assembly). This Act was amended by action of a
Special Session of the 1998 General Assembly, which convened on April 23, 1998.
Amendments to the 1998-2000 Appropriation Act enacted during the 1998 Special
Session of the General Assembly, fully fund the $110 million program for public
school construction and effect personal property tax relief totaling $434.8
million. These amendments were signed into law by the Governor on May 20, 1998
(Chapter 1, Special Session I, 1998 Virginia Acts of Assembly). The 1998-2000
Appropriation Act, as amended, went into effect on July 1, 1998.
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The 1999 Budget Bill contained a total of $864.6 million in new general
fund spending, including a payment of $79.1 million for the Revenue
Stabilization Fund, $732 million in new spending for operating expenses, and
$52.9 million for capital outlay. The 1999 Budget Bill provided for continued
tax relief for Virginians, with the continuation of the phased-in car tax
relief, a first step toward reducing the sales tax on food for home consumption,
and a military pay exclusion from state income tax of up to $15,000 of basic
pay. Other major new spending items proposed by the Governor included $364
million in aid to localities (funding for localities with police department,
dedication of lottery profits to K-12 education, and pay increases for local
sherrifs' deputies), funding to roll back tuition at state-supported colleges
and universities by 20 percent, funding for the Water Quality Improvement Fund
and other environment initiatives, and funding for improvements to the state's
mental health system.
The 1999 General Assembly Session ended on February 27, 1999. The 1999
Budget Bill, as amended by the General Assembly, was submitted to the Governor
for approval. The Governor signed the amended bill and returned it to the
General Assembly with thirteen item vetoes for action at its one-day reconvened
session held April 7, 1999. The General Assembly upheld all but three of the
Governor's item vetoes. The 1999 Budget Bill became law on April 7, 1999, as
Chapter 935 of the 1999 Virginia Acts of Assembly.
The sources of the information described above include the statutes and
constitutional provisions referenced, to which reference is made for more
detailed information, and official statements of the Commonwealth and other
publicly available documents. Nations Funds have not independently verified any
of the information contained in these official statements or documents.
OPTIONS ON CURRENCIES
Certain Funds may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, certain Funds may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
so that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Company as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that a Fund bears in connection with its own operations. The
Adviser has agreed to remit to the respective investing Fund fees payable to it
under its respective Investment Advisory Agreement with an affiliated money
market Fund to the extent such fees are based upon the investing Fund's assets
invested in shares of the affiliated money market fund.
PARTICIPATION INTERESTS AND COMPANY RECEIPTS
The Government Bond Fund also may purchase from domestic financial
institutions and trusts created by such institutions participation interests and
trust receipts in high quality debt securities. A participation interest or
receipt gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest or receipt bears to the total principal
amount of the security. As to certain instruments for which the Fund will be
able to demand payment, the Fund intends to exercise its right to do so only
upon a default under the terms of the security, as needed to provide liquidity
or to maintain or improve the quality of its investment portfolio. It is
possible that a participation interest or trust receipt may be deemed to be an
extension of credit by the Fund to the issuing financial institution rather than
to the obligor of the underlying security and may not be directly entitled to
the protection of any collateral security provided by the obligor. In such
event, the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
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Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the SEC). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by the Board of Directors. For certain
participation interests or trust receipts the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest or trust receipt in the securities involved, plus accrued
interest.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both equity and mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended.
REPURCHASE AGREEMENTS
The repurchase price under any repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by a Company's custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by such Company under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
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SECURITIES LENDING
To increase return on portfolio securities, certain Funds may lend
their portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 33% of the
value of its total assets which may include cash collateral received for
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. Pursuant to the securities loan agreement a Fund is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Fund of securities identical to the
transferred securities upon termination of the loan.
SHORT SALES
Certain Funds may from time to time enter into short sales
transactions. A Fund will not make short sales of securities nor maintain a
short position unless at all times when a short position is open, such Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by a Fund for the purpose of deferring recognition of gain or loss for
federal income tax purposes.
SPECIAL SITUATIONS
Certain Funds may invest in "special situations." A special situation
arises when, in the opinion of the Adviser, the securities of a particular
company will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
STAND-BY COMMITMENTS
Certain Funds may acquire "stand-by commitments" with respect to
Municipal Securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Fund, at a Fund's option, specified Municipal
Securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying Municipal Securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
The amount payable to a Tax-Free Bond Fund upon its exercise of a
stand-by commitment will normally be (i) the Fund's acquisition cost of the
Municipal Securities (excluding any accrued interest which a Tax-Free Bond Fund
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Tax-Free Bond
Fund owned the securities, plus (ii) all interest accrued on the securities
since the last interest payment date during that period. Under normal market
conditions, in determining net asset value a Tax-Free Bond Fund values the
underlying Municipal Securities on an amortized cost basis. Accordingly, the
amount payable by a dealer upon exercise of a stand-by commitment will normally
be substantially the same as the portfolio value of the underlying Municipal
Securities.
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A Fund's right to exercise stand-by commitments will be unconditional
and unqualified. A stand-by commitment will not be transferable by a Fund,
although the Fund could sell the underlying Municipal Securities to a third
party at any time. Until a Fund exercises its stand-by commitment, it owns the
securities in its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
that Fund. The Tax-Free Bond Funds will not acquire a stand-by commitment unless
immediately after the acquisition not more than 5% of the Funds' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.
Each Fund intends to enter into stand-by commitments only with banks
and broker/dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Fund will be valued at zero
in determining net asset value. A Fund's reliance upon the credit of these
dealers, banks, and broker/dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Fund in connection with a "stand-by commitment" will not be
qualitatively different from the risk of loss faced by a person that is holding
securities pending settlement after having agreed to sell the securities in the
ordinary course of business.
STRIPPED SECURITIES
Certain Funds may purchase stripped securities issued or guaranteed by
the U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
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U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 20% of total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
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U.S. Government obligations include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations.
Such a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Fund will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a Fund must deposit initial margin
and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Certain Funds may purchase variable-rate and floating rate obligations.
If such instrument is not rated, the Adviser will consider the earning power,
cash flows, and other liquidity ratios of the issuers and guarantors of such
obligations and, if the obligation is subject to a demand feature, will monitor
their financial status to meet payment on demand. In determining average
weighted portfolio maturity, a variable-rate demand instrument issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof will
be deemed to have a maturity equal to the period remaining until the obligations
next interest rate adjustment. Other variable-rate obligations will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the time a Fund can recover payment of principal as specified
in the instrument. Variable-rate demand notes held by a Money Market Fund may
have maturities of more than 397 days, provided (i) the Fund is entitled to
payment principal on not more than 30 days' notice, or at specified intervals
not exceeding 397 days (upon not more than 30 days' notice), and (ii) the rate
of interest on such note is adjusted automatically at periodic intervals which
may extend up to 397 days.
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The variable- and-floating rate demand instruments that the Funds may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Funds. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.
WARRANTS
Certain Funds are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
A Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
A Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of a
Fund starting on the date the Fund agrees to purchase the securities. The Fund
does not earn dividends on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
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PORTFOLIO TURNOVER
Generally, the Equity Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. For the Funds' portfolio turnover rates, see the
"Financial Highlights" in the Prospectus.
INVESTMENT RISKS
In addition to the risks identified in certain of the securities
descriptions above, there also are general investment risks associated with an
investment in any of the Funds.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risks. The value of the stocks that the Fund holds, like
the broader stock market, may decline over short or even extended periods. The
U.S. stock market tends to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. As of the date of this
Prospectus, the stock market, as measured by the S&P 500 Index and other
commonly used indexes, was trading at or close to record levels. There can be no
guarantee that these levels will continue.
The Nations Marsico Focused Equities Fund, as a non-diversified fund,
may invest in fewer issuers than diversified funds such as the Nations Marsico
Growth & Income Fund. Therefore, appreciation or depreciation of an investment
in a single issuer could have a greater impact on the Fund's net asset value.
The Fund reserves the right to become a diversified fund by limiting the
investments in which more than 5% of its total assets are invested.
The value of a Fund's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due. In addition,
obligations with the lowest investment grade rating (E.G., "BBB" by Standard &
Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service, Inc.
("Moody's")) have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Certain of the Funds' investments constitute derivative securities,
which are securities whose value is derived, at least in part, from an
underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with such Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Fund Securities."
Certain of the Funds may invest in securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
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MANAGEMENT OF THE COMPANIES
The business and affairs of the Companies are managed under the
direction of their respective Boards of Directors/Trustees. This SAI contains
the names of and general background information concerning each Trustee/Director
of the Companies.
The Companies and the Adviser have adopted codes of ethics which
contain policies on personal securities transactions by "access persons,"
including portfolio managers and investment analysts. These policies
substantially comply in all material respects with the recommendations set forth
in the May 9, 1994 Report of the Advisory Group on Personal Investing of the
Investment Company Institute.
The Directors/Trustees and executive officers of each Company and their
principal occupations during the last five years are set forth below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Those directors who are "interested persons" of a Company (as
defined in the 1940 Act) are indicated by an asterisk(*).
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANIES DIRECTORSHIPS
Edmund L. Benson, III, 62 Director Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance),
1510 Willow Lawn Drive Insurance Managers, Inc. (insurance);
Suite 216 Trustee, Nations Reserves, Master
Richmond, VA 23230 Investment Trust, Nations Annuity Trust
and Nations Fund Trust; Director,
Nations Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.
James Ermer, 56 Director Retired Executive Vice President,
11511 Compass Point Drive Corporate Development and Planning -
Ft. Meyers, FL 33908 Land America (title insurance); Senior
Vice President, Finance - CSX
Corporation (transportation and natural
resources); Director National Mine
Service (mining supplies), Lawyers Title
Corporation (title insurance), Nations
Fund, Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.;
Trustee - Nations Reserves, Nations Fund
Trust, Nations Annuity Trust and Nations
Master Investment Trust.
William H. Grigg, 66 Director Chairman Emeritus since July 1997,
Duke Power Co. Chairman and Chief Executive Officer
16092A Reap Road from April 1994 to July 1997 - Duke
Albermarle, NC 28001 Power Co.; Director - The Shaw Group,
Inc.; Director and Vice Chairman, Aegis
Insurance Services, Ltd. (a mutual
insurance company in Bermuda);
Director-Hatteras Income Securities,
Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government
Income Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc.,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal
Funds, Inc.; Trustee - Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
Trust.
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<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANIES DIRECTORSHIPS
Thomas F. Keller, 67 Director R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and
P.O. Box 90120 Former Dean - Fuqua School of
Duke University Business, Duke University; Director
Durham, NC 27708 - LADD Furniture, Inc. (furniture),
Wendy's International, Inc.
(restaurant operating and
franchising), American Business
Products, Inc. (printing services),
Dimon, Inc. (tobacco), Biogen, Inc.
(pharmaceutical biotechnology),
Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee - The Mentor Funds, Mentor
Institutional Trust, Cash Reserve
Trust, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust.
Carl E. Mundy, Jr., 64 Director President and CEO - USO from May
USO World Headquarters 1996 to present; Commandant - United
Washington Navy Yard States Marine Corps from July 1991
Building 198 to July 1995; Director -
901 M Street, S.E. Shering-Plough (pharmaceuticals and
Washington, D.C. 20374-5096 health care products); General
Dynamics Corporation (defense
systems), Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee - Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust.
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<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANIES DIRECTORSHIPS
Dr. Cornelius J. Pings, 70* Director/Trustee President - Association of American
480 S. Orange Grove Blvd. Universities from February 1993 to
Pasadena, CA 91105 June 1998; Director - Farmers Group,
Inc. (insurance company), Nations Fund,
Inc., Nations LifeGoal Funds, Inc. and
Nations Fund Portfolios, Inc.; Trustee -
Master Investment Trust, Series I from
1995 to 1999, Master Investment Trust,
Series II from 1995 to 1997, Nations
Reserves, Nations Fund Trust, Nations
Annuity Trust and Nations Master
Investment Trust.; Director/Trustee and
Chairman - Pacific Horizon Funds, Inc.
and Master Investment Trust, Series I,
from inception to May 1999; Director -
Time Horizon Funds and Pacific
Innovations Trust.
James B. Sommers*, 60 Director President - NationsBank Trust from
237 Cherokee Road January 1992 to September 1996;
Charlotte, NC 28207 Executive Vice President -
NationsBank Corporation from January
1992 to May 1997; Chairman - Central
Piedmont Community College Foundation;
Board of Commissioners, Charlotte/
Mecklenberg Hospital Authority; Director
- Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal
Funds, Inc.; Trustee - Central Piedmont
Community College; Mint Museum of Art,
Nations Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations Master
Investment Trust.
A. Max Walker*, 77 President, Director and Independent Financial Consultant;
4580 Windsor Gate Court Chairman of the Board Director and Chairman of the Board -
Atlanta, GA 30342 Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government Income
Term Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc.; President,
Director and Chairman of the Board -
Nations Fund, Inc., Nations LifeGoal
Funds, Inc. and Nations Fund Portfolios,
Inc.; President, Trustee and Chairman of
the Board - Nations Reserves, Nations
Fund Trust, Nations Annuity Trust and
Nations Master Investment Trust.
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<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANIES DIRECTORSHIPS
Charles B. Walker, 60 Director Director-Ethyl Corporation (chemical
Albermarle Corporation manufacturing); Vice Chairman and
Vice Chairman and CFO Chief Financial Officer - Albemarle
330 South Fourth Street Corporation (chemical
Richmond, VA 23219 manufacturing); Director - Nations
Fund, Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.; Trustee - Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
Trust.
Thomas S. Word, Jr.*, 61 Director Partner - McGuire, Woods, Battle &
McGuire, Woods, Battle & Boothe LLP Boothe LLP (law firm); Director -
One James Center Vaughan-Bassett Furniture Companies,
8th Floor Inc. (furniture), Nations Fund,
Richmond, VA 23219 Inc., Nations Fund Portfolios, Inc.
and Nations LifeGoal Funds, Inc.;
Trustee - Nations Reserves, Nations Fund
Trust, Nations Annuity Trust and Nations
Master Investment Trust.
Richard H. Blank, Jr., 42 Secretary and Treasurer Senior Vice President since 1998,
Stephens Inc. Vice President from 1994 to 1998 and
111 Center Street Manager from 1990 to 1994 - Mutual
Little Rock, AR 72201 Fund Services, Stephens Inc.;
Secretary since September 1993 and
Treasurer since November 1998 Nations
Fund, Inc., Nations Fund Portfolios,
Inc., Nations LifeGoal Funds, Inc.,
Nations Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations Master
Investment Trust.
Michael W. Nolte, 38 Assistant Secretary Assistant Secretary - Nations Fund
Stephens Inc. Trust, Nations Fund, Inc., Nations
Reserves, Nations Fund Portfolios, Inc.,
Nations LifeGoal Funds, Inc., Nations
Annuity Trust and Nations Master
Investment Trust.
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<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANIES DIRECTORSHIPS
James E. Banks, 43 Assistant Secretary Assistant Secretary - Nations Fund
Stephens Inc. Trust, Nations Fund, Inc., Nations
Reserves, Nations Fund Portfolios, Inc.,
Nations LifeGoal Funds, Inc., Nations
Annuity Trust and Nations Master
Investment Trust.
</TABLE>
Each Director/Trustee is a board member of NFI, NFT, NFP, Nations
Annuity Trust, Nations Institutional Reserves, Nations Master Investment Trust
and Nations LifeGoal Funds, Inc., each a registered investment company that is
part of the Nations Funds family. Richard H. Blank, Jr., Michael W. Nolte, and
James E. Banks. Jr. also are officers of NFI, NFT, NFP, Nations Annuity Trust,
Nations Institutional Reserves, Nations Master Investment Trust and Nations
LifeGoal Funds, Inc.
Each Director/Trustee receives (i) an annual retainer of $1,000 ($3,000
for the Chairman of the Board) plus $500 for each Fund of each Company, plus
(ii) a fee of $1,000 for attendance at each "in-person" meeting of the Board of
Directors/Trustees (or committee thereof) and $500 for each telephone meeting
attended. All Directors/Trustees receive reimbursements for expenses related to
their attendance at meetings of the Board of Directors/Trustees. Officers
receive no direct remuneration in such capacity from the Companies. No person
who is an officer, director, trustee, or employee of Bank of America or its
affiliates serves as an Officer, Director, Trustee or employee of the company.
As of the date of this SAI, the directors and officers of each Company as a
group owned less than 1% of the outstanding shares of each of the Funds.
Each Company has adopted a Code of Ethics which, among other things,
prohibits each access person of the Company from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of a Company, (ii) any
employee of a Company (or any company in a control relationship with a Company)
who, in the course of his/her regular duties, obtains information about, or
makes recommendations with respect to, the purchase or sale of securities by a
Company, and (iii) any natural person in a control relationship with a Company
who obtains information concerning recommendations made to a Company regarding
the purchase or sale of securities. Portfolio managers and other persons who
assist in the investment process are subject to additional restrictions,
including a requirement that they disgorge to a Company any profits realized on
short-term trading (i.e., the purchase/sale or sale/purchase of securities
within any 60-day period). The above restrictions do not apply to purchases or
sales of certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that a Company's access persons, other
than its "disinterested" directors or trustees, submit reports to a Company's
designated compliance person regarding transactions involving securities which
are eligible for purchase by a Fund.
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each Director/Trustee may be
entitled to certain benefits upon retirement from the Board of
Directors/Trustees. Pursuant to the Retirement Plan, the normal retirement date
is the date on which the eligible director/trustee has attained age 65 and has
completed at least five years of continuous service with one or more of the
open-end investment companies advised by the Adviser. If a director/trustee
retires before reaching age 65, no benefits are payable. Each eligible
director/trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate
director's/trustee's fees payable by the Funds during the calendar year in which
the director's/trustee's retirement occurs multiplied by the number of years of
service (not in excess of ten years of service) completed with respect to any of
the Funds. Such benefit is payable to each eligible director/trustee in
quarterly installments for a period of no more than five years. If an eligible
director/trustee's dies after attaining age 65, the director's/trustees
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the
director/trustee if he had not died. The Retirement Plan is unfunded. The
benefits owed to each director/trustee are unsecured and subject to the general
creditors of the Funds.
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<PAGE>
NATIONS FUNDS DEFERRED COMPENSATION PLAN
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors/Trustees (the "Deferred Compensation Plan"), each
director/trustee may elect, on an annual basis, to defer all or any portion of
the annual board fees (including the annual retainer and all attendance fees)
payable to the director/trustee for that calendar year. An application was
submitted to and approved by the SEC to permit deferring directors/trustees to
elect to tie the rate of return on fees deferred pursuant to the Deferred
Compensation Plan to one or more of certain investment portfolios of certain
Funds. Distributions from the deferring directors'/trustees deferral accounts
will be paid in cash, in generally equal quarterly installments over a period of
five years beginning on the date the deferring director's/trustees' retirement
benefits commence under the Retirement Plan. The Board of Directors/Trustees, in
its sole discretion, may accelerate or extend such payments after a
director's/trustee's termination of service. If a deferring director/trustee
dies prior to the commencement of the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a lump sum as soon as practicable after the
director's/trustee's death. If a deferring director/trustee dies after the
commencement of such distribution, but prior to the complete distribution of his
deferral account, the balance of the amounts credited to his deferral account
will be distributed to his designated beneficiary over the remaining period
during which such amounts were distributable to the director/trustee. Amounts
payable under the Deferred Compensation Plan are not funded or secured in any
way and deferring directors/trustees have the status of unsecured creditors of
the Funds from which they are deferring compensation.
Director Compensation Through July 1, 1999
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON FROM AS PART OF FUND BENEFITS UPON FROM REGISTRANT
POSITION (1) REGISTRANT (2) EXPENSES RETIREMENT PLAN & FUND COMPLEX(3)(4)
------------ -------------- -------- --------------- --------------------
Edmund L. Benson, III $46,000 $ 8,889 $35,000 $77,377
Trustee/Director
James Ermer 44,000 8,889 35,000 65,375
Trustee/Director
William H. Grigg 47,000 8,889 35,000 90,375
Trustee/Director
Thomas F. Keller 50,000 8,889 35,000 94,875
Trustee/Director
A. Max Walker 56,000 8,889 35,000 110,875
Chairman of the Board
Charles B. Walker 47,000 8,889 35,000 71,375
Trustee/Director
Thomas S. Word 50,000 8,889 35,000 77,375
Trustee/Director
James P. Sommers 47,500 8,889 35,000 73,375
Trustee/Director
Carl E. Mundy, Jr. 48,500 8,889 35,000 74,377
Trustee/Director
Dr. Cornelius Pings 0 0 0 0
Trustee/Director
</TABLE>
74
<PAGE>
(1) All directors/trustees receive reimbursements for expenses related
to their attendance at meetings of the Board of Directors/Trustees. Officers of
the Companies receive no direct remuneration in such capacity from the
Companies.
(2) For the twelve-month period ending March 31, 1999, each
Director/Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Companies, plus (ii) a fee
of $1,000 for attendance at each "in-person" meeting of the Board of Trustees
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from ten
investment companies that are deemed to be part of the Nations Funds "fund
complex," as that term is defined under Rule 14a-101 of the Securities Exchange
Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker, Sommers, Mundy and
Word receive compensation from six investment companies deemed to be part of the
Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors/Trustees: Edmund L.
Benson, III $35,188; William H. Grigg $66,375; Thomas F. Keller $70,375; and
Thomas S. Word $70,375.
DIRECTOR COMPENSATION AFTER JULY 1, 1999
The Board of Directors of the Company along with the Boards of
Directors/Trustees of the other open-end registered investment companies in the
Nations Funds family approved a new compensation structure for the Board
members, effective July 1, 1999. The new structure compensates the Board members
for their services to the Nations Funds family on a flat rate basis, and not on
a per registered investment company or per fund basis. The Nations Funds family
currently consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Reserves, Nations Annuity Trust, Nations LifeGoal
Funds, Inc. and Nations Master Investment Trust.
Under the new structure, each Board member would receive a base
retainer fee in the amount of $65,000 per year, in addition to $5,000 for each
in-person meeting attended; in addition to $1,000 for each telephonic meeting
attended. Each Board member would be compensated only for a maximum of six
in-person meetings per calendar year. In addition, the Chairman of the Boards,
currently A. Max Walker, would receive an additional fee of 20% of the base
retainer fee; the Chairman of the Audit Committees would receive an additional
fee of 10% of the base retainer fee. The members of the Nominating Committees
will receive additional compensation at the rate of $1,000 per meeting attended.
75
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
NFT is a Massachusetts business trust. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, NFT's
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of NFT, and that every note,
bond, contract, order, or other undertaking made by NFT shall contain a
provision to the effect that the shareholders are not personally liable
thereunder. The Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
being or having been a shareholder and not because of his acts or omissions or
some other reason. The Declaration of Trust also provides that NFT shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of NFT and shall satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which NFT itself would be unable to meet its
obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of NFT shall be personally liable for or on account of any contract, debt,
tort, claim, damage, judgment, or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of NFT; nor shall any Trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or NFT shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of NFT unless any
such person would not be entitled to indemnification had he or she been a
Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS
INVESTMENT ADVISER AND SUB-ADVISERS
BANK OF AMERICA AND ITS INVESTMENT ADVISER AFFILIATES
Bank of America Advisors, Inc. ("BAAI") serves as investment adviser to
all of the Funds of the Companies, pursuant to Investment Advisory Agreements
dated January 1, 1996, and amended thereafter. Brandes serves as investment
sub-adviser to the International Value Fund, pursuant to an Investment
Sub-Advisory Agreement dated as of April 8, 1998. Gartmore serves as investment
sub-adviser to the Emerging Markets Fund and International Growth Fund, pursuant
to Investment Sub-Advisory Agreements dated January 1, 1996, and amended
thereafter. Gartmore, INVESCO and Putnam serve as co-investment sub-advisers to
the International Equity Fund, pursuant to Investment Sub-Advisory Agreements
dated as of April 15, 1999. Boatmen's serves as investment sub-adviser to the
Government Bond Fund, pursuant to an Investment Sub-Advisory Agreement dated
July 31, 1997. Marsico Capital serves as investment sub-adviser to the Nations
Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund, pursuant
to an Investment Sub-Advisory Agreement, dated December 31, 1997. TradeStreet
serves as investment sub-adviser to all other Funds of the NFI and NFT, pursuant
to Investment Sub-Advisory Agreements, dated January 1, 1996, and amended
thereafter.
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<PAGE>
BAAI also serves as the investment adviser to the portfolios of Nations
Institutional Reserves, Nations Annuity Trust, Nations LifeGoal Funds, Inc.,
each a registered investment company that is part of the Nations Funds Family.
In addition, BAAI serves as the investment advisor to Hatteras Income
Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc. and Nations Balanced Target Maturity
Fund, Inc., each a closed-end diversified management investment company traded
on the New York Stock Exchange. TradeStreet also serves as the sub-investment
adviser to Nations Institutional Reserves, Nations Annuity Trust, Hatteras
Income Securities, Inc., Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc. and Nations Balanced Target
Maturity Fund, Inc.
BAAI and TradeStreet are each wholly owned subsidiaries of Bank of
America, which in turn is a wholly owned banking subsidiary of Bank of America
Corporation, a bank holding company organized as a Delaware corporation.
Gartmore is a joint venture structured as a Delaware general partnership between
NB Partner Corp., a wholly owned subsidiary of Bank of America and Gartmore U.S.
Limited, an indirect wholly owned subsidiary of Gartmore Investment Management
plc ("Gartmore plc"), a publicly listed U.K. company. National Westminster Bank
plc and affiliated parties (collectively, "NatWest) own 100% of the equity of
Gartmore plc. Gartmore is a registered investment adviser in the United States
and a member of the Investment Management Regulatory Organization Limited, a
U.K. regulatory authority. The respective principal offices of BAAI, TradeStreet
and Gartmore are located at One Bank of America Plaza, Charlotte, N.C. 28255.
Boatmen's is an indirect wholly owned subsidiary of Bank of America
Corporation. Boatmen's principal office is located at 100 North Broadway, St.
Louis, Missouri 63178.
Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, CO
80202. Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico
Capital. Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18
years of experience as a securities analyst/portfolio manager. Bank of America
owns 50% of Marsico Capital.
Since 1874, Bank of America and its predecessors have been managing
money for foundations, universities, corporations, institutions and individuals.
Today, Bank of America affiliates collectively manage in excess of $100 billion,
including the more than $40 billion in mutual fund assets. It is a company
dedicated to a goal of providing responsible investment management and superior
service. Bank of America is recognized for its sound investment approaches,
which place it among the nation's foremost financial institutions. Bank of
America and its affiliates organization makes available a wide range of
financial services to its over 6 million customers through over 1700 banking and
investment centers.
Sub-Advisers Unaffiliated with BAAI
Brandes Investment Partners, Inc. owns a controlling interest in
Brandes Investment Partners, L.P. and serves as its General Partner. Charles
Brandes is the controlling shareholder of Brandes Investment Partners, Inc. The
principal offices of Brandes are located at 12750 High Bluff Drive, San Diego,
CA 92130.
INVESCO Global Asset Management (N.A.), Inc., with principal offices
located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309, was founded in
1997 as a division of INVESCO Global a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company also located in London, England
that, through its subsidiaries, engages in international investment management.
The "management team" responsible for the day-to-day investment decisions for
INVESCO's managed portion of the assets of the International Equity Fund are:
John D. Rogers, CFA; W. Linsay Davidson; Michele T. Garren, CFA; Erik B.
Granade, CFA; Kent A. Stark; and Ingrid Baker, CFA.
Putnam Investment Management, Inc., with principal offices located at
One Post Office Square, Boston, Massachusetts 02109, is a wholly owned
subsidiary of Putnam Investments, Inc., an investment management firm founded in
1937 which, except for shares held by employees is owned by Marsh & McLennan
Companies, a publicly traded professional services firm that engages, through
its subsidiaries in the business of insurance brokerage, investment management
and consulting. The "management team" responsible for the day-to-day investment
decisions for Putnam's managed portion of the assets of the International Equity
Fund are: Omid Kamshad, CFA; Mark D. Pollard, Justin M. Scott and Paul C. Warren
77
<PAGE>
Investment Advisory and Sub-Advisory Agreements
Pursuant to the terms of the Investment Advisory Agreements and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with BAAI,
TradeStreet, Gartmore, Boatman's, Brandes and Marsico Capital, subject at all
times to the control of the respective Companies' Boards of Directors/Trustees
and conformance with the stated policies of each Company, BAAI, TradeStreet,
Gartmore, Boatman's, Brandes and Marsico Capital each selects and manages the
investments of the Funds. Each such advisory entity obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Funds.
The Advisory Agreements for BAAI, TradeStreet, Gartmore, Boatmen's
Brandes and Marsico Capital each provide that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of BAAI or Trade Street, respectively, or any of
their respective officers, directors, employees or agents, BAAI or TradeStreet
shall not be subject to liability to the Company or to any shareholder of the
Company for any act or omission in the course of, or connected with, rendering
services under thereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
An Investment Advisory Agreement with BAAI shall become effective with
respect to a Fund if and when approved by the Boards of a Company, and if so
approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Company's Board of Directors/Trustees or (ii) the vote of "a majority of
the outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Company's
Directors/Trustees who are not parties to such Agreement or "interested persons"
(as defined in the 1940 Act) of a party to such Agreement (other than as
Directors of the Company), by votes cast in person at a meeting specifically
called for such purpose. The respective Investment Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable with
respect to a Fund at any time without penalty by a Company (by vote of the Board
of Directors/Trustees or by vote of a majority of the outstanding voting
securities of the Fund) or by BAAI on 60 days' written notice.
A Sub-Advisory Agreement with TradeStreet shall become effective with
respect to each Fund as of its execution date and, unless sooner terminated,
shall continue in full force and effect for one year, and may be continued with
respect to each Fund thereafter, provided that the continuation of the Agreement
is specifically approved at least annually by (a) (i) the Company's Board of
Directors (ii) the vote of "a majority of the outstanding voting securities" of
a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative
vote of a majority of the Company's Directors who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Directors of the Company), by votes cast in person
at a meeting specifically called for such purpose. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
with respect to a Fund at any time without penalty by the Company (by vote of
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund), or by BAAI, or by TradeStreet on 60 days' written
notice.
The Sub-Advisory Agreement with Gartmore was initially approved by
NFP's Board of Directors on January 26, 1995 and by the initial shareholder on
June 30, 1995. The Sub-Advisory Agreement will continue in effect for an initial
term of two years from its effective date and continues in effect from year to
year thereafter only if such continuance is specifically approved at least
annually by the Company's Board of Directors and the affirmative vote of a
majority of the directors who are not parties to the Sub-Advisory Agreement or
"interested persons" of any such party by votes cast in person at a meeting
called for such purpose. The respective Funds, BAAI or Gartmore may terminate
the Sub-Advisory Agreement, on 60 days' written notice without penalty. The
Advisory Agreement terminates automatically in the event of its "assignment," as
defined in the 1940 Act. The Sub-Advisory Agreement with Gartmore provides that
Gartmore shall not be liable to the Company or to its shareholders for any act
or omission by Gartmore or for any loss sustained by the Company or by its
shareholders except in the case of Gartmore's willful misfeasance, bad faith,
gross negligence or reckless disregard of duty on the part of Gartmore, as the
case may be.
The Sub-Advisory Agreement with Boatmen's became effective on July 31,
1997 and it shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by
(a)(i) the Company's Board of Directors or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of the Company's Directors
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. Each
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable with respect to a Fund at any time without penalty by the
Company (by vote of the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund) or by the Adviser on 60 days' written
notice. The Sub-Advisory Agreement provides that the Adviser shall not be liable
to the Company or to its shareholders for any act or omission by Boatmen's or
for any loss sustained by the Company or by its shareholders except in the case
of such Adviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of such Adviser, as the case may be.
The Sub-Advisory Agreement with Brandes was initially approved by NFI's
Board of Directors on February 4, 1998. The Sub-Advisory Agreement will continue
in effect for an initial term of two years from its effective date and continues
in effect from year to year thereafter only if such continuance is specifically
approved at least annually by the Company's Board of Directors and the
affirmative vote of a majority of the directors who are not parties to the
Sub-Advisory Agreement or "interested persons" of any such party by votes cast
in person at a meeting called for such purpose. The Fund, BAAI or Brandes may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Brandes provides that Brandes shall not be liable to the Company or to its
shareholders for any act or omission by Brandes or for any loss sustained by the
Company or by its shareholders except in the case of Brandes' willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of Brandes, as the case may be.
78
<PAGE>
The Investment Sub-Advisory Agreement with Marsico Capital was
initially approved by NFT's Board of Trustees on December 7, 1997 and is
effective for a two year period and shall thereafter continue from year to year,
provided that such continuation of the Agreement is specifically approved at
least annually by (a)(i) NFT's Board of Trustees or (ii) the vote of "a majority
of the outstanding voting securities" of a Fund (as defined in Section 2(a)(42)
of the 1940 Act), and (b) the affirmative vote of a majority of NFT's Trustees
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of NFT), by votes
cast in person at a meeting specifically called for such purpose. The Investment
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by NFT (by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) or by BAAI on 60 days' written
notice. The Sub-Advisory Agreement shall become effective for a two-year term
with respect to each Fund as of its execution date and, unless sooner
terminated, shall continue in full force and effect for one year, and may be
continued with respect to each Fund thereafter, provided that the continuation
of the Agreement is specifically approved at least annually by (a)(i) NFT's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act), and
(b) the affirmative vote of a majority of NFT's Trustees who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Trustees of NFT), by votes cast in person at a
meeting specifically called for such purpose.
The Funds, in any advertisement or sales literature, may advertise the
names, experience and/or qualifications of the portfolio manager(s) of any Fund,
or if a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
The Adviser may waive a portion of its fees; however, any such waiver
may be discontinued at any time. As discussed under the caption "Expenses,"
BAAI, TradeStreet and Gartmore will be required to reduce their fees from the
Funds, in direct proportion to the fees payable by the Funds to BAAI,
TradeStreet, Gartmore, Brandes, Boatmen's, Marsico Capital and the
Administrator, if the expenses of the Funds exceed the applicable expense
limitation of any state in which the Funds' shares are registered or qualified
for sale.
79
<PAGE>
Subject to reduction in accordance with the expense limitation
provisions which may be imposed by states in which the Funds' shares are
qualified for sale, BAAI received fees from the Funds for its services as
outlined in the following chart, which states the net advisory fees paid to
BAAI, the advisory fees waived and expense reimbursements where applicable for
the fiscal year ended March 31, 1999.
ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C> <C>
Net Amount Paid Amount Waived Reimbursed by Adviser
Prime Fund $12,225,631 $1,340,369 $0.00
Treasury Fund 4,286,160 1,248,840 0.00
Equity Income Fund 5,845,269 42,731 0.00
Government Securities Fund 837,334 180,666 0.00
International Equity Fund 7,491,086 0.00 0.00
International Growth Fund 2,317,553 170,447 0.00
International Value Fund 1,048,847 116,153 0.00
Small Company Growth Fund 2,742,154 1,024,846 0.00
U.S. Government Bond Fund 598,363 479,333 (25,696.00)
Government Money Market Fund 613,516 1,017,484 0.00
Tax Exempt Fund 4,507,216 6,378,784 0.00
Value Fund 17,721,908 0.00 0.00
Capital Growth Fund 6,256,638 0.00 0.00
Disciplined Equity Fund 3,580,240 0.00 0.00
Equity Index Fund 1,077,496 2,753,504 0.00
Emerging Growth Fund 2,082,133 0.00 0.00
Managed Index Fund 1,665,990 1,375,010 0.00
Managed SmallCap Index Fund 397,736 632,548 (5,284.00)
Managed Value Index Fund 0.00 166,154 (110,154.00)
Managed SmallCap Value Index Fund 0.00 148,556 (123,556.00)
Nations Marsico Growth & Income Fund 687,321 0.00 0.00
Nations Marsico Focused Equities Fund 1,951,845 0.00 0.00
Balanced Assets Fund 1,206,155 0.00 0.00
Short-Intermediate Gov't Fund 2,761,572 1,380,428 0.00
Short-Term Income Fund 1,290,670 1,290,330 0.00
Diversified Income Fund 1,914,951 383,049 0.00
Strategic Fixed Income Fund 9,334,703 1,867,297 0.00
Municipal Income Fund 2,651,245 1,131,755 0.00
Short-Term Municipal Income Fund 179,149 445,481 (33,630.00)
Intermediate Municipal Bond Fund 3,120,856 1,454,144 0.00
Florida Intermediate Municipal Bond Fund 750,898 419,102 0.00
Georgia Intermediate Municipal Bond Fund 446,861 333,011 (1,872.00)
Maryland Intermediate Municipal Bond Fund 512,685 397,315 0.00
North Carolina Intermediate Municipal Bond 626,613 379,387 0.00
Fund
South Carolina Intermediate Municipal Bond 900,188 451,812 0.00
Fund
Tennessee Intermediate Municipal Bond Fund 124,633 172,760 (37,393.00)
Texas Intermediate Municipal Bond Fund 1,350,723 620,277 0.00
Virginia Intermediate Municipal Bond Fund 849,701 485,299 0.00
Florida Municipal Bond Fund 552,208 340,792 0.00
Georgia Municipal Bond Fund 50,789 131,586 (54,375.00)
Maryland Municipal Bond Fund 76,086 135,665 (31,751.00)
North Carolina Municipal Bond Fund 113,404 143,226 (30,630.00)
South Carolina Municipal Bond Fund 59,273 129,724 (49,997.00)
Tennessee Municipal Bond Fund 9,144 100,514 (44,658.00)
Texas Municipal Bond Fund 32,331 105,269 (34,600.00)
Virginia Municipal Bond Fund 74,830 133,428 (44,258.00)
Emerging Markets Fund 324,702 66,505 (16,207.00)
Strategic Equity Fund 701,840 0.00 0.00
</TABLE>
BAAI received fees from the Funds for its services as outlined in the
following chart, which states the net advisory fees paid to BAAI, the advisory
fees waived and expense reimbursements where applicable for the fiscal year
ended March 31, 1998.
80
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Amount Paid Amount Waived Reimbursed by Adviser
Prime Fund $9,639,804 $1,588,170 $0.00
Treasury Fund 5,843,938 843,672 0.00
Equity Income Fund 4,731,858 0.00 0.00
Government Securities Fund 606,485 160,648 0.00
International Equity Fund 9,260,334 0.00 0.00
International Growth Fund 4,491,759 145,205 0.00
International Value Fund 326,210 0.00 3,902.00
Small Company Growth Fund 959,096 419,890 0.00
U.S. Government Bond Fund 483,931 385,271 0.00
Government Money Market Fund 468,312 954,231 0.00
Tax Exempt Fund 3,482,525 5,239,935 0.00
Value Fund 15,618,802 49,168 0.00
Capital Growth Fund 5,717,424 0.00 0.00
Disciplined Equity Fund 1,236,280 0.00 0.00
Equity Index Fund 1,302,110 2,088,839 0.00
Emerging Growth Fund 2,836,719 0.00 0.00
Managed Index Fund 360,994 449,019 0.00
Managed SmallCap Index Fund 0.00 419,108 0.00
Managed Value Index Fund 670 11,025 0.00
Managed SmallCap Value Index Fund 193 5,901 0.00
Nations Marsico Growth & Income Fund 0.00 10,919 0.00
Nations Marsico Focused Equities Fund 27,032 0.00 0.00
Balanced Assets Fund 1,493,286 0.00 0.00
Short-Intermediate Gov't Fund 2,708,669 1,354,334 0.00
Short-Term Income Fund 1,006,049 1,006,049 0.00
Diversified Income Fund 1,440,010 288,002 0.00
Strategic Fixed Income Fund 7,389,298 1,760,101 0.00
Municipal Income Fund 1,495,049 865,120 0.00
Short-Term Municipal Income Fund 143,891 357,577 0.00
Intermediate Municipal Bond Fund 1,814,264 1,420,175 0.00
Florida Intermediate Municipal Bond Fund 414,266 371,186 0.00
Georgia Intermediate Municipal Bond Fund 305,490 267,367 0.00
Maryland Intermediate Municipal Bond Fund 216,531 251,773 0.00
North Carolina Intermediate Municipal Bond 350,910 325,600 0.00
Fund
South Carolina Intermediate Municipal Bond 532,494 471,252 0.00
Fund
Tennessee Intermediate Municipal Bond Fund 67,179 121,971 0.00
Texas Intermediate Municipal Bond Fund 688,008 601,927 0.00
Virginia Intermediate Municipal Bond Fund 631,227 484,093 0.00
Florida Municipal Bond Fund 144,492 123,106 0.00
Georgia Municipal Bond Fund 33,480 66,122 0.00
Maryland Municipal Bond Fund 25,999 82,546 0.00
North Carolina Municipal Bond Fund 83,208 94,452 0.00
South Carolina Municipal Bond Fund 42,805 72,257 0.00
Tennessee Municipal Bond Fund 1,873 57,822 0.00
Texas Municipal Bond Fund 26,062 72,988 0.00
Virginia Municipal Bond Fund 56,750 81,176 0.00
Emerging Markets Fund 988,113 0.00 0.00
</TABLE>
BAAI received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to BAAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1997. The table below also states the advisory fees paid and waived by Barnett
Capital Advisers, Inc. with respect to the Emerald International Equity Fund
(predecessor to the International Value Fund) for the period ended December 1,
1996 through November 30, 1997.
81
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Government Money Market Fund $ 595,369.00 $1,087,306.00 $ 0.00
Tax Exempt Fund 2,307,746.00 3,589,593.00 0.00
Value Fund 9,794,835.00 0.00 0.00
Capital Growth Fund 5,714,094.00 0.00 0.00
Disciplined Equity Fund 1,064,026.00 0.00 0.00
Equity Index Fund 678,564.00 1,534,132.00 0.00
Emerging Growth Fund 2,666,535.00 0.00 0.00
Managed Index Fund 12,069.00 86,414.00 22,720.00
Managed SmallCap Index Fund 13.00 44,990.00 18,619.00
Balanced Assets Fund 1,798,693.00 0.00 0.00
Short-Intermediate Gov't Fund 1,886,178.00 943,089.00 0.00
Short-Term Income Fund 600,834.00 601,326.00 0.00
Diversified Income Fund 1,000,615.00 200,123.00 0.00
Strategic Fixed Income Fund 4,757,641.00 951,528.00 0.00
Municipal Income Fund 323,476.00 305,497.00 0.00
Short-Term Municipal Income Fund 60,734.00 294,153.00 0.00
Intermediate Municipal Bond Fund 189,645.00 277,372.00 0.00
Florida Intermediate Municipal Bond Fund 104,662.00 161,773.00 0.00
Georgia Intermediate Municipal Bond Fund 124,834.00 165,879.00 0.00
Maryland Intermediate Municipal Bond Fund 260,093.00 227,212.00 0.00
North Carolina Intermediate Municipal Bond Fund 76,726.00 121,064.00 0.00
South Carolina Intermediate Municipal Bond Fund 152,937.00 197,205.00 0.00
Tennessee Intermediate Municipal Bond Fund 14,485.00 79,715.00 0.00
Texas Intermediate Municipal Bond Fund 54,898.00 104,929.00 0.00
Virginia Intermediate Municipal Bond Fund 614,014.00 520,946.00 0.00
Florida Municipal Bond Fund 112,099.00 117,651.00 0.00
Georgia Municipal Bond Fund 26,675.00 61,249.00 0.00
Maryland Municipal Bond Fund 15,208.00 67,979.00 0.00
North Carolina Municipal Bond Fund 80,159.00 92,926.00 0.00
South Carolina Municipal Bond Fund 40,452.00 67,297.00 0.00
Tennessee Municipal Bond Fund 2,763.00 47,192.00 3,159.00
Texas Municipal Bond Fund 35,113.00 69,111.00 0.00
Virginia Municipal Bond Fund 49,575.00 71,879.00 0.00
Emerging Markets Fund 661,747.00 0.00 0.00
Prime Fund 6,849,130.00 1,579,771.00 0.00
Treasury Fund 4,030,618.00 1,026,792.00 0.00
Equity Income Fund 2,632,510.00 0.00 0.00
International Equity Fund 8,870,691.00 0.00 0.00
International Value Fund 395,837.00 0.00 4,304.00
Government Securities Fund 568,081.00 156,808.00 0.00
</TABLE>
The Pilot U.S. Government Fund (predecessor to the U.S. Government Bond
Fund) and the Pilot Small Capitalization Equity Fund (predecessor to the Pilot
Small Company Growth Fund) paid and waived the following advisory and
sub-advisory fees under a prior advisory agreement with Boatmen's during the
periods indicated.
ADVISORY AND SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1996 - MAY 16, 1997
Advisory
Fee
Pilot US Government Fund
Advisory Fee $552,504
Advisory Waiver (125,674)
--------
426,830
Pilot Small Capitalization Fund
Advisory Fee $ 731,622
Advisory Waiver $(250,320)
---------
$ 481,302
---------
82
<PAGE>
The table below states the net sub-advisory fees paid to TradeStreet
for the fiscal periods indicated. No fees were waived or reimbursed by the
Adviser during this periods.
SUB-ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C> <C>
Period Ending Period Ending
3/31/99 3/31/98
Net Amount Paid
Prime Fund $3,712,059 $2,959,571
Treasury Fund 1,514,431 1,763,574
Equity Income Fund 1,848,435 1,478,586
Government Securities Fund 251,074 181,945
Small Company Growth Fund 941,776 338,212
Government Money Market Fund 224,207 186,411
Tax Exempt Fund 1,496,795 1,199,059
Value Fund 5,907,376 5,222,656
Capital Growth Fund 2,085,548 1,905,808
Disciplined Equity Fund 1,193,414 412,093
Equity Index Fund 766,128 678,190
Emerging Growth Fund 694,042 945,572
Managed Index Fund 608,203 162,002
Managed SmallCap Index Fund 205,088 83,822
Managed Value Index Fund 11,167 2,505
Managed SmallCap Value Index Fund 4,902 1,410
Balanced Assets Fund 402,057 497,762
Short-Intermediate Gov't Fund 1,035,593 1,015,751
Short-Term Income Fund 645,337 503,025
Diversified Income Fund 574,485 432,003
Strategic Fixed Income Fund 2,800,433 2,287,350
Municipal Income Fund 441,332 275,353
Short-Term Municipal Income Fund 82,663 70,205
Intermediate Municipal Bond Fund 640,558 452,822
Florida Intermediate Municipal Bond Fund 163,780 109,963
Georgia Intermediate Municipal Bond Fund 108,963 80,200
Maryland Intermediate Municipal Bond Fund 127,375 65,563
North Carolina Intermediate Municipal Bond 140,804 94,711
Fund
South Carolina Intermediate Municipal Bond 189,337 140,524
Fund
Tennessee Intermediate Municipal Bond Fund 36,337 26,481
Texas Intermediate Municipal Bond Fund 275,982 180,591
Virginia Intermediate Municipal Bond Fund 186,964 156,145
Florida Municipal Bond Fund 104,208 31,220
Georgia Municipal Bond Fund 14,957 11,621
Maryland Municipal Bond Fund 20,994 12,663
North Carolina Municipal Bond Fund 26,344 20,727
South Carolina Municipal Bond Fund 16,161 13,424
Tennessee Municipal Bond Fund 7,594 6,964
Texas Municipal Bond Fund 12,015 11,556
Virginia Municipal Bond Fund 19,147 16,091
U.S. Government Bond Fund 263,059 ----
Strategic Equity Fund 233,947 ----
</TABLE>
83
<PAGE>
Period Ending
3/31/97
Net Amt.
Paid
Government Money Market Fund $ 231,367.00
Tax Exempt Fund 810,884.00
Value Fund 3,264,945.00
Capital Growth Fund 1,904,698.00
Disciplined Equity Fund 354,675.00
Equity Index Fund 442,539.00
Managed Index Fund 19,717.00
Managed SmallCap Index Fund 9,001.00
Emerging Growth Fund 888,845.00
Balanced Assets Fund 599,564.00
Short-Intermediate Gov't Fund 707,317.00
Short-Term Income Fund 300,416.00
Diversified Income Fund 300,184.00
Strategic Fixed Income Fund 1,427,292.00
Municipal Income Fund 73,380.00
Short-Term Municipal Income Fund 49,684.00
Intermediate Municipal Bond Fund 65,382.00
Florida Intermediate Municipal Bond Fund 37,301.00
Georgia Intermediate Municipal Bond Fund 40,700.00
Maryland Intermediate Municipal Bond Fund 59,822.00
North Carolina Intermediate Municipal Bond 27,691.00
Fund
South Carolina Intermediate Municipal Bond 49,020.00
Fund
Tennessee Intermediate Municipal Bond Fund 13,188.00
Texas Intermediate Municipal Bond Fund 22,376.00
Virginia Intermediate Municipal Bond Fund 158,894.00
Florida Municipal Bond Fund 26,804.00
Georgia Municipal Bond Fund 10,258.00
Maryland Municipal Bond Fund 9,705.00
North Carolina Municipal Bond Fund 20,193.00
South Carolina Municipal Bond Fund 12,571.00
Tennessee Municipal Bond Fund 5,828.00
Texas Municipal Bond Fund 12,160.00
Virginia Municipal Bond Fund 14,170.00
Emerging Markets Fund 511,350.00
Prime Fund 2,296,435.00
Treasury Fund 1,377,806.00
Equity Income Fund 777,371.00
Government Securities Fund 170,424.00
The table below states the net sub-advisory fees paid to Gartmore for
the fiscal period indicated. No fees were waived or reimbursed by the Adviser
during those periods.
SUB-ADVISORY FEES
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/999 3/31/98 3/31/97
<S> <C> <C> <C>
International Equity Fund $5,826,400 $9,260,333.98 $6,899,426.00
International Growth Fund 1,935,481 4,331,994.06 n/a
Emerging Markets Fund 288,796 988,113.20 511,350.00
</TABLE>
The table below states the net sub-advisory fees paid to Marsico for
the fiscal year indicated. No fees were waived or reimbursed by the Adviser
during those periods.
SUB-ADVISORY FEES
<TABLE>
<CAPTION>
Period Ending Period Ending
3/31/999 3/31/98
<S> <C> <C>
Nations Marsico Focused Equities Fund $1,033,332 $ 14,311
Nations Marsico Growth & Income Fund 363,877 5,780
</TABLE>
84
<PAGE>
The table below states the net sub-advisory fees paid to Brandes for
the fiscal period indicated. No fees were waived or reimbursed by the Adviser
during these periods.
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/99 5/15/98 11/30/97
<S> <C> <C> <C>
International Value Fund $570,822 $177,516.52 $212,631.72
</TABLE>
CO-ADMINISTRATORS AND SUB-ADMINISTRATOR
Stephens Inc. and BAAI (the "Co-Administrators") serve as
co-administrators of each Company.
The Co-Administrators serve under co-administration agreements
("Co-Administration Agreements"), which were approved by the Boards of
Directors/Trustees on November 5-6, 1998. The Co-Administrators receive, as
compensation for their services rendered under the Co-Administration Agreements,
administration fees, computed daily and paid monthly, at the annual rate of:
0.10% of the money market Funds; 0.12% of the fixed income and international
Funds; and 0.13% of the domestic equity Funds, of the average daily net assets
of each such Fund.
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among
other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to each Company, (iii) furnish corporate secretarial
services to each Company, including coordinating the preparation and
distribution of materials for Board of Directors/Trustees meetings, (iv)
coordinate the provision of legal advice to each Company with respect to
regulatory matters, (v) coordinate the preparation of reports to each Company's
shareholders and the SEC, including annual and semi-annual reports, (vi)
coordinating the provision of services to each Company by the Transfer Agent,
Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects
of each Company's operations. Stephens bears all expenses incurred in connection
with the performance of its services.
Also, pursuant to the Co-Administration Agreement, BAAI has agreed to,
among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Company's reports to shareholders and the SEC, (iv)
prepare and file each Company's federal and state tax returns, (v) perform
monthly compliance testing for the Company, and (vi) prepare and furnish the
Company monthly broker security transaction summaries and transaction listings
and performance information. BAAI bears all expenses incurred in connection with
the performance of its services.
The Co-Administration Agreement may be terminated by a vote of a majority
of the respective Board of Directors/Trustees, by Stephens or by BAAI,
respectively, on 60 days' written notice without penalty. The Co-Administration
Agreements are not assignable without the written consent of the other party.
Furthermore, the Co-Administration Agreements provide that Stephens and BAAI
shall not be liable to the Funds or to their shareholders except in the case of
Stephens' or BAAI's, willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
BNY serves as sub-administrator for the Funds pursuant to
sub-administration agreements. Pursuant to their terms, BNY assists Stephens and
BAAI in supervising, coordinating and monitoring various aspects of the Funds'
administrative operations. For providing such services, BNY is entitled to
receive a monthly fee from Stephens and BAAI based on an annual rate of 0.01% of
the Funds' average daily net assets.
The table set forth below states the net Co-Administration fees paid to
BAAI and waived for the fiscal period December 1, 1998 through March 31, 1999.
85
<PAGE>
CO-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $224,770 0
Treasury Fund 83,137 0
Equity Income Fund 26,068 0
Government Securities Fund 5,693 0
International Equity Fund 26,254 0
International Growth Fund 7,126 0
International Value Fund 4,657 0
Small Company Growth Fund 12,417 0
U.S. Government Bond Fund 4,095 0
Government Money Market Fund 18,715 0
Tax Exempt Fund 92,397 0
Value Fund 77,026 0
Capital Growth Fund 27,883 0
Disciplined Equity Fund 17,500 0
Equity Index Fund 30,267 0
Emerging Growth Fund 7,974 0
Managed Index Fund 23,116 0
Managed SmallCap Index Fund 7,330 0
Managed Value Index Fund 328 0
Managed SmallCap Value Index Fund 180 0
Nations Marsico Growth & Income Fund 4,686 0
Nations Marsico Focused Equities Fund 13,634 0
Balanced Assets Fund 5,289 0
Short-Intermediate Gov't Fund 22,020 0
Short-Term Income Fund 14,084 0
Diversified Income Fund 13,321 0
Strategic Fixed Income Fund 61,222 0
Municipal Income Fund 22,441 0
Short-Term Municipal Income Fund 4,056 0
Intermediate Municipal Bond Fund 31,012 0
Florida Intermediate Municipal Bond Fund 8,212 0
Georgia Intermediate Municipal Bond Fund 5,394 0
Maryland Intermediate Municipal Bond Fund 6,862 0
North Carolina Intermediate Municipal Bond Fund 6,825 0
South Carolina Intermediate Municipal Bond Fund 8,946 0
Tennessee Intermediate Municipal Bond Fund 1,803 0
Texas Intermediate Municipal Bond Fund 13,204 0
Virginia Intermediate Municipal Bond Fund 9,640 0
Florida Municipal Bond Fund 5,342 0
Georgia Municipal Bond Fund 780 0
Maryland Municipal Bond Fund 1,144 0
North Carolina Municipal Bond Fund 1,360 0
South Carolina Municipal Bond Fund 801 0
Tennessee Municipal Bond Fund 361 0
Texas Municipal Bond Fund 569 0
Virginia Municipal Bond Fund 907 0
Emerging Markets Fund 501 0
Strategic Equity Fund 7,172 0
Total: 968,521
</TABLE>
86
<PAGE>
The table set forth below states the net Co-Administration fees paid to
Stephens and waived for the fiscal period December 1, 1998 through March 31,
1999.
CO-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $1,786,232 $449,540
Treasury Fund 644,316 166,276
Equity Income Fund 157,132 ---
Government Securities Fund 31,535 ---
International Equity Fund 97,425 ---
International Growth Fund 26,598 ---
International Value Fund 17,477 ---
Small Company Growth Fund 75,409 ---
U.S. Government Bond Fund 22,681 ---
Government Money Market Fund 145,044 37,431
Tax Exempt Fund 716,080 184,796
Value Fund 561,488 ---
Capital Growth Fund 168,052 ---
Disciplined Equity Fund 105,027 ---
Equity Index Fund 183,645 ---
Emerging Growth Fund 47,253 ---
Managed Index Fund 140,297 ---
Managed SmallCap Index Fund 44,531 ---
Managed Value Index Fund 1,995 ---
Managed SmallCap Value Index Fund 1,091 ---
Nations Marsico Growth & Income Fund 28,322 ---
Nations Marsico Focused Equities Fund 82,370 ---
Balanced Assets Fund 32,122 ---
Short-Intermediate Gov't Fund 121,946 ---
Short-Term Income Fund 78,018 ---
Diversified Income Fund 73,849 ---
Strategic Fixed Income Fund 372,610 ---
Municipal Income Fund 124,746 44,881
Short-Term Municipal Income Fund 22,854 8,113
Intermediate Municipal Bond Fund 172,364 62,025
Florida Intermediate Municipal Bond Fund 45,671 16,423
Georgia Intermediate Municipal Bond Fund 29,968 10,787
Maryland Intermediate Municipal Bond Fund 38,131 13,725
North Carolina Intermediate Municipal Bond Fund 37,951 13,647
South Carolina Intermediate Municipal Bond Fund 50,278 17,891
Tennessee Intermediate Municipal Bond Fund 10,131 3,603
Texas Intermediate Municipal Bond Fund 74,216 26,408
Virginia Intermediate Municipal Bond Fund 54,229 19,280
Florida Municipal Bond Fund 29,669 10,686
Georgia Municipal Bond Fund 4,337 1,560
Maryland Municipal Bond Fund 6,359 2,285
North Carolina Municipal Bond Fund 7,559 2,719
South Carolina Municipal Bond Fund 4,508 1,602
Tennessee Municipal Bond Fund 2,023 720
Texas Municipal Bond Fund 3,195 1,138
Virginia Municipal Bond Fund 5,104 1,817
Emerging Markets Fund 1,034 ---
Strategic Equity Fund 43,466 ---
Total: 6,530,338 1,097,353
--------- ---------
</TABLE>
The table set forth below states the net Sub-Administration fees paid to
BNY and waived for the fiscal year period December 1, 1998 through March 31,
1999.
SUB-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $238,058 $0
Treasury Fund 104,546 ---
Equity Income Fund 99,504 ---
Government Securities Fund 13,627 ---
International Equity Fund 141,937 ---
International Growth Fund 35,926 ---
International Value Fund 25,331 ---
Small Company Growth Fund 47,608 ---
U.S. Government Bond Fund 9,779 ---
Government Money Market Fund 23,373 ---
Tax Exempt Fund 160,022 ---
Value Fund 199,844 ---
Capital Growth Fund 109,532 ---
Disciplined Equity Fund 69,020 ---
Equity Index Fund 120,888 ---
Emerging Growth Fund 29,998 ---
Managed Index Fund 91,320 ---
Managed SmallCap Index Fund 27,811 ---
Managed Value Index Fund 1,058 ---
Managed SmallCap Value Index Fund 694 ---
Nations Marsico Growth & Income Fund 22,432 ---
Nations Marsico Focused Equities Fund 66,100 ---
Balanced Assets Fund 20,228 ---
Short-Intermediate Gov't Fund 52,627 ---
Short-Term Income Fund 33,736 ---
Diversified Income Fund 32,296 ---
Strategic Fixed Income Fund 112,350 ---
Municipal Income Fund 55,722 ---
Short-Term Municipal Income Fund 11,595 ---
Intermediate Municipal Bond Fund 76,838 ---
Florida Intermediate Municipal Bond Fund 20,539 ---
Georgia Intermediate Municipal Bond Fund 13,341 ---
Maryland Intermediate Municipal Bond Fund 16,968 ---
North Carolina Intermediate Municipal Bond Fund 17,041 ---
South Carolina Intermediate Municipal Bond Fund 24,764 ---
Tennessee Intermediate Municipal Bond Fund 5,015 ---
Texas Intermediate Municipal Bond Fund 36,575 ---
Virginia Intermediate Municipal Bond Fund 26,442 ---
Florida Municipal Bond Fund 13,099 ---
Georgia Municipal Bond Fund 1,950 ---
Maryland Municipal Bond Fund 2,886 ---
North Carolina Municipal Bond Fund 3,389 ---
South Carolina Municipal Bond Fund 2,252 ---
Tennessee Municipal Bond Fund 989 ---
Texas Municipal Bond Fund 1,579 ---
Virginia Municipal Bond Fund 2,511 ---
Emerging Markets Fund 2,648 ---
Strategic Equity Fund 30,044 ---
Total: 2,255,832
---------
</TABLE>
87
<PAGE>
The table set forth below states the net Co-Administration fees paid to
First Data Investor Services, Inc. ("First Data") and waived for the fiscal
period December 1, 1998 through March 31, 1999, under the previous
co-administration arrangements. The amounts paid and waived are for the time
period to the end of the conversion to The Bank of New York. The conversion
dates are as follows: January 4, 1999 for Marsico Focused Equities Fund and
Marisco Growth and Income Fund; January 14, 1999 for Balanced Assets, Capital
Growth, Disciplined Equity, Emerging Growth, Equity Income, Equity Index,
Managed Index, Managed SmallCap Index, Managed SmallCap Value Index, Managed
Value Index, Small Company Growth, Strategic Equity, and Value; January 26, 1999
for Short Term Municipal, South Carolina Intermediate Municipal Bond, South
Carolina Municipal Bond, Tennessee Intermediate Municipal Bond, Tennessee
Municipal Bond, Texas Intermediate Municipal Bond, Texas Municipal Bond,
Virginia Intermediate Municipal Bond, and Virginia Municipal Bond; February 2,
1999 for Municipal Income, Intermediate Municipal Bond, Florida Intermediate
Municipal Bond, Florida Municipal Bond, Georgia Intermediate Municipal Bond,
Georgia Municipal Bond, Maryland Intermediate Bond, Maryland Municipal Bond,
North Carolina Intermediate Municipal Bond, and North Carolina Municipal Bond;
and February 3, 1999 for Diversified Income, Government Securities, Short
Intermediate Government, Short Term Income, Strategic Fixed Income and U.S.
Government Bond.
ADMINISTRATION FEES
Fees Paid
Total
Prime Fund --
Treasury Fund --
Equity Income Fund 28,525
Government Securities Fund 11,769
International Equity Fund 36,158
International Growth Fund 9,941
International Value Fund 6,011
Small Company Growth Fund 13,005
U.S. Government Bond Fund 8,485
Government Money Market Fund -
Tax Exempt Fund -
Value Fund 81,131
Capital Growth Fund 29,132
Disciplined Equity Fund 18,589
Equity Index Fund 29,435
Emerging Growth Fund 9,726
Managed Index Fund 22,948
Managed SmallCap Index Fund 7,791
Managed Value Index Fund 424
Managed SmallCap Value Index Fund 186
Nations Marsico Growth & Income Fund 2,795
Nations Marsico Focused Equities Fund 7,708
Balanced Assets Fund 5,546
Short-Intermediate Gov't Fund 45,565
Short-Term Income Fund 29,076
Diversified Income Fund 27,213
Strategic Fixed Income Fund 126,271
Municipal Income Fund 44,763
Short-Term Municipal Income Fund 6,885
Intermediate Municipal Bond Fund 62,000
Florida Intermediate Municipal Bond Fund 16,273
Georgia Intermediate Municipal Bond Fund 10,822
Maryland Intermediate Municipal Bond Fund 13,746
North Carolina Intermediate Municipal Bond Fund 13,539
South Carolina Intermediate Municipal Bond Fund 15,768
Tennessee Intermediate Municipal Bond Fund 3,157
Texas Intermediate Municipal Bond Fund 23,244
Virginia Intermediate Municipal Bond Fund 16,760
Florida Municipal Bond Fund 10,787
Georgia Municipal Bond Fund 1,548
Maryland Municipal Bond Fund 2,245
North Carolina Municipal Bond Fund 2,702
South Carolina Municipal Bond Funds 1,386
Tennessee Municipal Bond Fund 640
Texas Municipal Bond Fund 1,000
Virginia Municipal Bond Fund 1,603
Emerging Markets Fund 1,539
Strategic Equity Fund 6,368
Total 814,205
-------
88
<PAGE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal period April 1, 1998 through November 30,
1998, under the previous administration arrangements. The administration
arrangements have been revised and the fees set forth below are not reflective
of those changes. The new arrangements appointing Stephens and BAAI as
Co-Administrators and BNY as Sub-Administrator were effective on December 1,
1998.
ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $3,867,209 $900,323
Treasury Fund 1,654,837 384,444
Equity Income Fund 417,585 --
Government Securities Fund 59,181 --
International Equity Fund 179,847 --
International Growth Fund 68,148 --
International Value Fund 20,181 --
Small Company Growth Fund 159,748 --
U.S. Government Bond Fund 73,538 --
Government Money Market Fund 190,129 44,099
Tax Exempt Fund 1,545,156 359,494
Value Fund 1,009,530 --
Capital Growth Fund 347,733 --
Disciplined Equity Fund 183,239 --
Equity Index Fund 294,366 --
Emerging Growth Fund 120,329 --
Managed Index Fund 238,669 --
Managed SmallCap Index Fund 83,393 --
Managed Value Index Fund 4,997 --
Managed SmallCap Value Index Fund 1,960 --
Marsico Growth & Income Fund 21,106 --
Marsico Focused Equities Fund 58,002 --
Balanced Assets Fund 68,260 --
Short-Intermediate Gov't Fund 254,040 --
Short-Term Income Fund 155,386 --
Diversified Income Fund 134,498 --
Strategic Fixed Income Fund 676,515 --
Municipal Income Fund 217,522 81,215
Short-Term Municipal Income Fund 41,725 15,506
Intermediate Municipal Bond Fund 326,173 120,993
Florida Intermediate Municipal Bond Fund 81,828 30,370
Georgia Intermediate Municipal Bond Fund 54,784 20,345
Maryland Intermediate Municipal Bond Fund 60,219 22,669
North Carolina Intermediate Municipal Bond Fund 71,685 26,583
South Carolina Intermediate Municipal Bond Fund 97,730 36,206
Tennessee Intermediate Municipal Bond Fund 18,283 6,779
Texas Intermediate Municipal Bond Fund 141,467 52,443
Virginia Intermediate Municipal Bond Fund 91,890 34,139
Florida Municipal Bond Fund 50,506 19,089
Georgia Municipal Bond Fund 7,300 2,712
Maryland Municipal Bond Fund 9,956 3,712
North Carolina Municipal Bond Fund 12,927 4,808
South Carolina Municipal Bond Fund 8,113 3,015
Tennessee Municipal Bond Fund 3,915 1,449
Texas Municipal Bond Fund 6,191 2,296
Virginia Municipal Bond Fund 9,842 3,653
Emerging Markets Fund 3,220 --
Strategic Equity Fund 13,355 --
================== =================
Total 13,216,213 2,176,342
================== =================
</TABLE>
89
<PAGE>
The table set forth below states the net Co-Administration fees paid to
First Data Investor Services, Inc. ("First Data") and waived for the fiscal
period April 1, 1998 through November 30, 1998, under the previous
co-administration arrangements.
CO-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund 284,797 $0
Treasury Fund 121,786 --
Equity Income Fund 198,370 --
Government Securities Fund 42,490 --
International Equity Fund 348,548 --
International Growth Fund 123,149 --
International Value Fund 39,973 --
Small Company Growth Fund 72,787 --
U.S. Government Bond Fund 51,881 --
Government Money Market Fund 14,031 --
Tax Exempt Fund 114,181 --
Value Fund 466,814 --
Capital Growth Fund 167,156 --
Disciplined Equity Fund 93,854 --
Equity Index Fund 133,941 --
Emerging Growth Fund 63,781 --
Managed Index Fund 108,909 --
Managed SmallCap Index Fund 38,005 --
Managed Value Index Fund 2,281 --
Managed SmallCap Value Index Fund 897 --
Marsico Growth & Income Fund 9,838 --
Marsico Focused Equities Fund 27,007 --
Balanced Assets Fund 31,160 --
Short-Intermediate Gov't Fund 181,172 --
Short-Term Income Fund 111,375 --
Diversified Income Fund 96,188 --
Strategic Fixed Income Fund 483,249 --
Municipal Income Fund 156,232 --
Short-Term Municipal Income Fund 29,854 --
Intermediate Municipal Bond Fund 233,013 --
Florida Intermediate Municipal Bond Fund 58,485 --
Georgia Intermediate Municipal Bond Fund 39,175 --
Maryland Intermediate Municipal Bond Fund 43,548 --
North Carolina Intermediate Municipal Bond Fund 51,196 --
South Carolina Intermediate Municipal Bond Fund 69,741 --
Tennessee Intermediate Municipal Bond Fund 13,055 --
Texas Intermediate Municipal Bond Fund 101,011 --
Virginia Intermediate Municipal Bond Fund 65,729 --
Florida Municipal Bond Fund 36,636 --
Georgia Municipal Bond Fund 5,224 --
Maryland Municipal Bond Fund 7,143 --
North Carolina Municipal Bond Fund 9,256 --
South Carolina Municipal Bond Fund 5,805 --
Tennessee Municipal Bond Fund 2,793 --
Texas Municipal Bond Fund 4,422 --
Virginia Municipal Bond Fund 7,036 --
Emerging Markets Fund 24,047 --
Strategic Equity Fund 6,331 --
================== =================
4,397,352 --
================== =================
</TABLE>
90
<PAGE>
The table set forth below states the net Sub-Administration fees paid to
BAAI (or its predecessor) and waived for the fiscal period April 1, 1998 through
November 30, 1998, under the previous sub-administration arrangements.
SUB-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $ 349,604 $ 0
Treasury Fund 145,599 --
Equity Income Fund 47,576 --
Government Securities Fund 8,778 --
International Equity Fund 41,411 --
International Growth Fund 13,950 --
International Value Fund 6,468 --
Small Company Growth Fund 19,999 --
U.S. Government Bond Fund 8,998 --
Government Money Market Fund 16,333 --
Tax Exempt Fund 138,133 --
Value Fund 116,337 --
Capital Growth Fund 40,508 --
Disciplined Equity Fund 25,274 --
Equity Index Fund 35,149 --
Emerging Growth Fund 13,771 --
Managed Index Fund 29,454 --
Managed SmallCap Index Fund 10,373 --
Managed Value Index Fund 615 --
Managed SmallCap Value Index Fund 247 --
Nations Marsico Growth & Income Fund 3,058 --
Nations Marsico Focused Equities Fund 8,279 --
Balanced Assets Fund 8,508 --
Short-Intermediate Gov't Fund 35,005 --
Short-Term Income Fund 22,627 --
Diversified Income Fund 19,103 --
Strategic Fixed Income Fund 95,000 --
Municipal Income Fund 32,318 --
Short-Term Municipal Income Fund 5,952 --
Intermediate Municipal Bond Fund 45,778 --
Florida Intermediate Municipal Bond Fund 11,540 --
Georgia Intermediate Municipal Bond Fund 7,764 --
Maryland Intermediate Municipal Bond Fund 9,579 --
North Carolina Intermediate Municipal Bond Fund 10,031 --
South Carolina Intermediate Municipal Bond Fund 13,556 --
Tennessee Intermediate Municipal Bond Fund 2,553 --
Texas Intermediate Municipal Bond Fund 19,744 --
Virginia Intermediate Municipal Bond Fund 13,073 --
Florida Municipal Bond Fund 8,298 --
Georgia Municipal Bond Fund 1,044 --
Maryland Municipal Bond Fund 1,466 --
North Carolina Municipal Bond Fund 1,854 --
South Carolina Municipal Bond Fund 1,157 --
Tennessee Municipal Bond Fund 542 --
Texas Municipal Bond Fund 866 --
Virginia Municipal Bond Fund 1,392 --
Emerging Markets Fund 1,702 --
Strategic Equity Fund 2,188 --
================== =================
Total; 1,452,554 --
================== =================
</TABLE>
91
<PAGE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1998, under the previous
administration arrangements.
ADMINISTRATION FEES
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
<S> <C> <C>
Prime Fund 4,056,997 1,110,297
Treasury Fund 2,423,641 664,082
Equity Income Fund 494,468 0.00
Government Securities Fund 71,126 0.00
International Equity Fund 405,314 0.00
International Growth Fund 230,311 0.00
International Value Fund n/a n/a
Small Company Growth Fund 96,976 0.00
U.S. Government Bond Fund 89,058 0.00
Government Money Market Fund 259,300 71,128
Tax Exempt Fund 1,591,584 436,123
Value Fund 1,408,801 0.00
Capital Growth Fund 503,034 0.00
Disciplined Equity Fund 101,504 0.00
Equity Index Fund 458,619 0.00
Emerging Growth Fund 246,308 0.00
Managed Index Fund 111,133 0.00
Managed SmallCap Index Fund 61,116 0.00
Managed Value Index Fund 1,630 0.00
Managed SmallCap Value Index Fund 848 0.00
Nations Marsico Growth & Income Fund 898 0.00
Nations Marsico Focused Equities Fund 2,227 0.00
Balanced Assets Fund 134,032 0.00
Short-Intermediate Gov't Fund 401,570 0.00
Short-Term Income Fund 203,225 0.00
Diversified Income Fund 173,538 0.00
Strategic Fixed Income Fund 903,615 0.00
Municipal Income Fund 153,482 78,672
Short-Term Municipal Income Fund 38,788 20,059
Intermediate Municipal Bond Fund 254,780 129,378
Florida Intermediate Municipal Bond Fund 61,898 31,419
Georgia Intermediate Municipal Bond Fund 44,811 22,914
Maryland Intermediate Municipal Bond Fund 36,010 26,201
North Carolina Intermediate Municipal Bond Fund 53,527 27,061
South Carolina Intermediate Municipal Bond Fund 79,235 40,150
Tennessee Intermediate Municipal Bond Fund 14,824 7,566
Texas Intermediate Municipal Bond Fund 102,899 51,598
Virginia Intermediate Municipal Bond Fund 85,542 44,703
Florida Municipal Bond Fund 17,169 8,920
Georgia Municipal Bond Fund 6,369 3,320
Maryland Municipal Bond Fund 6,978 3,619
North Carolina Municipal Bond Fund 11,379 5,922
South Carolina Municipal Bond Funds 7,376 3,836
Tennessee Municipal Bond Fund 3,826 1,990
Texas Municipal Bond Fund 6,334 3,301
Virginia Municipal Bond Fund 8,843 4,598
Emerging Markets Fund 21,266 0.00
</TABLE>
92
<PAGE>
The table below sets forth the total co-administration fees paid to
First Data Investor Services Group, Inc. ("First Data") and waived by First Data
for the fiscal year ended March 31, 1998. First Data was the co-administrator
under the previous administration arrangements.
CO-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
<S> <C> <C>
Prime Fund 384,193 0.00
Treasury Fund 232,691 0.00
Equity Income Fund 244,825 0.00
Government Securities Fund 50,171 0.00
International Equity Fund 623,612 0.00
International Growth Fund 306,814 0.00
International Value Fund n/a n/a
Small Company Growth Fund 43,762 0.00
U.S. Government Bond Fund 59,434 0.00
Government Money Market Fund 25,208 0.00
Tax Exempt Fund 152,908 0.00
Value Fund 680,262 0.00
Capital Growth Fund 259,289 0.00
Disciplined Equity Fund 63,108 0.00
Equity Index Fund 214,846 0.00
Emerging Growth Fund 131,921 0.00
Managed Index Fund 50,870 0.00
Managed SmallCap Index Fund 22,706 0.00
Managed Value Index Fund 709 0.00
Managed SmallCap Value Index Fund 371 0.00
Nations Marsico Growth & Income Fund 387 0.00
Nations Marsico Focused Equities Fund 953 0.00
Balanced Assets Fund 65,073 0.00
Short-Intermediate Gov't Fund 275,597 0.00
Short-Term Income Fund 132,125 0.00
Diversified Income Fund 114,464 0.00
Strategic Fixed Income Fund 621,285 0.00
Municipal Income Fund 161,207 0.00
Short-Term Municipal Income Fund 41,447 0.00
Intermediate Municipal Bond Fund 262,730 0.00
Florida Intermediate Municipal Bond Fund 63,773 0.00
Georgia Intermediate Municipal Bond Fund 46,846 0.00
Maryland Intermediate Municipal Bond Fund 31,450 0.00
North Carolina Intermediate Municipal Bond Fund 54,714 0.00
South Carolina Intermediate Municipal Bond Fund 81,364 0.00
Tennessee Intermediate Municipal Bond Fund 15,440 0.00
Texas Intermediate Municipal Bond Fund 103,490 0.00
Virginia Intermediate Municipal Bond Fund 92,909 0.00
Florida Municipal Bond Fund 18,511 0.00
Georgia Municipal Bond Fund 6,911 0.00
Maryland Municipal Bond Fund 7,494 0.00
North Carolina Municipal Bond Fund 12,309 0.00
South Carolina Municipal Bond Fund 7,965 0.00
Tennessee Municipal Bond Fund 4,133 0.00
Texas Municipal Bond Fund 6,873 0.00
Virginia Municipal Bond Fund 9,547 0.00
Emerging Markets Fund 67,559 0.00
</TABLE>
93
<PAGE>
The table set forth below states the net Sub-Administration fees paid
and waived to Bank of America, or its affiliate BAAI (or their predecessors),
for the fiscal year ended March 31, 1998.
SUB-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $555,149 $0
Treasury Fund 332,041 --
Equity Income Fund 73,929 --
Government Securities Fund 12,130 --
International Equity Fund 102,893 --
International Growth Fund 55,097 --
International Value Fund 0 --
Small Company Growth Fund 14,378 --
U.S. Government Bond Fund 15,227 --
Government Money Market Fund 35,564 --
Tax Exempt Fund 218,062 --
Value Fund 208,906 --
Capital Growth Fund 76,232 --
Disciplined Equity Fund 16,484 --
Equity Index Fund 67,819 --
Emerging Growth Fund 37,823 --
Managed Index Fund 16,200 --
Managed SmallCap Index Fund 8,382 --
Managed Value Index Fund 250 --
Managed SmallCap Value Index Fund 141 --
Nations Marsico Growth & Income Fund 128 --
Nations Marsico Focused Equities Fund 318 --
Balanced Assets Fund 19,910 --
Short-Intermediate Gov't Fund 67,717 --
Short-Term Income Fund 33,535 --
Diversified Income Fund 28,800 --
Strategic Fixed Income Fund 152,490 --
Municipal Income Fund 39,336 --
Short-Term Municipal Income Fund 10,029 --
Intermediate Municipal Bond Fund 64,689 --
Florida Intermediate Municipal Bond Fund 15,709 --
Georgia Intermediate Municipal Bond Fund 11,457 --
Maryland Intermediate Municipal Bond Fund 9,366 --
North Carolina Intermediate Municipal Bond Fund 13,530 --
South Carolina Intermediate Municipal Bond Fund 20,075 --
Tennessee Intermediate Municipal Bond Fund 3,783 --
Texas Intermediate Municipal Bond Fund 25,799 --
Virginia Intermediate Municipal Bond Fund 22,306 --
Florida Municipal Bond Fund 4,460 --
Georgia Municipal Bond Fund 1,660 --
Maryland Municipal Bond Fund 1,809 --
North Carolina Municipal Bond Fund 2,961 --
South Carolina Municipal Bond Fund 1,918 --
Tennessee Municipal Bond Fund 995 --
Texas Municipal Bond Fund 1,651 --
Virginia Municipal Bond Fund 2,299 --
Emerging Markets Fund 8,983 --
</TABLE>
94
<PAGE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1997.
ADMINISTRATION FEES
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
<S> <C> <C>
Government Money Market Fund $281,893.00 $39,867.00
Tax Exempt Fund 995,984.00 151,529.00
Value Fund 792,002.00 0.00
Capital Growth Fund 463,687.00 0.00
Disciplined Equity Fund 81,365.00 0.00
Equity Index Fund 270,994.00 0.00
Managed Index Fund 12,195.00 0.00
Managed SmallCap Index Fund 1,626.00 0.00
Emerging Growth Fund 211,748.00 0.00
Balanced Assets Fund 146,269.00 0.00
Short-Intermediate Government Fund 252,303.00 0.00
Short-Term Income Fund 104,245.00 0.00
Diversified Income Fund 103,988.00 0.00
Strategic Fixed Income Fund 510,826.00 0.00
Municipal Income Fund 46,849.00 10,434.00
Short-Term Municipal Income Fund 31,084.00 7,479.00
Intermediate Municipal Bond Fund 40,902.00 9,878.00
Florida Intermediate Municipal Bond Fund 23,525.00 5,513.00
Georgia Intermediate Municipal Bond Fund 25,682.00 5,977.00
Maryland Intermediate Municipal Bond Fund 38,122.00 2,519.00
North Carolina Intermediate Municipal Bond Fund 17,628.00 3,971.00
South Carolina Intermediate Municipal Bond Fund 31,091.00 7,071.00
Tennessee Intermediate Municipal Bond Fund 8,422.00 1,869.00
Texas Intermediate Municipal Bond Fund 14,310.00 3,130.00
Virginia Intermediate Municipal Bond Fund 101,774.00 22,264.00
Florida Municipal Bond Fund 17,082.00 3,824.00
Georgia Municipal Bond Fund 6,500.00 1,497.00
Maryland Municipal Bond Fund 6,151.00 1,408.00
North Carolina Municipal Bond Fund 12,881.00 2,857.00
South Carolina Municipal Bond Fund 7,923.00 1,846.00
Tennessee Municipal Bond Fund 3,695.00 847.00
Texas Municipal Bond Fund 7,747.00 1,724.00
Virginia Municipal Bond Fund 8,995.00 2,043.00
Prime Fund 3,775,833.00 419,503.00
Treasury Fund 2,254,616.00 250,485.00
Equity Income Fund 388,686.00 0.00
International Equity Fund 985,632.00 0.00
Government Securities Fund 113,616.00 0.00
Emerging Markets Fund 60,159.00 0.00
</TABLE>
The table below sets forth the total sub-administration fees paid to
First Data and waived by First Data for the fiscal year ended March 31, 1997.
CO-ADMINISTRATION FEES
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
<S> <C> <C>
Government Money Market Fund $ 98,906.00 $ 0.00
Tax Exempt Fund 326,822.00 0.00
Value Fund 513,976.00 0.00
Capital Growth Fund 298,193.00 0.00
Disciplined Equity Fund 60,505.00 0.00
Equity Index Fund 171,545.00 0.00
Managed Index Fund 7,522.00 0.00
Managed SmallCap Index Fund 7,375.00 0.00
Emerging Growth Fund 143,790.00 0.00
Balanced Assets Fund 93,557.00 0.00
Short-Intermediate Government Fund 219,240.00 0.00
Short-Term Income Fund 96,033.00 0.00
Diversified Income Fund 96,135.00 0.00
Strategic Fixed Income Fund 440,702.00 0.00
Municipal Income Fund 47,546.00 0.00
Short-Term Municipal Income Fund 32,415.00 0.00
Intermediate Municipal Bond Fund 42,623.00 0.00
Florida Intermediate Municipal Bond Fund 24,249.00 0.00
Georgia Intermediate Municipal Bond Fund 26,483.00 0.00
Maryland Intermediate Municipal Bond Fund 38,819.00 0.00
North Carolina Intermediate Municipal Bond Fund 17,960.00 0.00
South Carolina Intermediate Municipal Bond Fund 31,867.00 0.00
Tennessee Intermediate Municipal Bond Fund 8,549.00 0.00
Texas Intermediate Municipal Bond Fund 14,526.00 0.00
Virginia Intermediate Municipal Bond Fund 102,954.00 0.00
Florida Municipal Bond Fund 17,385.00 0.00
Georgia Municipal Bond Fund 6,657.00 0.00
Maryland Municipal Bond Fund 6,306.00 0.00
North Carolina Municipal Bond Fund 13,109.00 0.00
South Carolina Municipal Bond Fund 8,189.00 0.00
Tennessee Municipal Bond Fund 3,784.00 0.00
Texas Municipal Bond Fund 7,900.00 0.00
Virginia Municipal Bond Fund 9,205.00 0.00
</TABLE>
95
<PAGE>
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Companies, in direct proportion to the fees
payable to the Adviser and the Administrator by the Companies, if the expenses
of the Companies exceed the applicable expense limitation of any state in which
the Funds' shares are registered or qualified for sale.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING ARRANGEMENTS FOR INVESTOR SHARES
INVESTOR A SHARES. Each Company has adopted an Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A Shares. The
Investor A Plan provides that each Fund may pay the Distributor or banks,
broker/dealers or other financial institutions that offer shares of the Fund and
that have entered into a Sales Support Agreement with the Distributor ("Selling
Agents") or a Shareholder Servicing Agreement with the respective Company,
("Servicing Agents"), up to 0.10% (on an annualized basis) of the average daily
net asset value of Investor A Shares of the Money Market Funds and up to 0.25%
(on an annualized basis) of the average daily net asset value of the Non-Money
Market Funds.
With respect to the Money Market Funds, such payments may be made to
(i) the Distributor for reimbursements of distribution-related expenses actually
incurred by the Distributor, including, but not limited to, expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature and costs of administering the Investor A Plan, or
(ii) Selling Agents that have entered into a Sales Support Agreement with the
Distributor for providing sales support assistance in connection with the sale
of Investor A Shares of the Money Market Funds. The sales support assistance
provided by a Selling Agent under a Sales Support Agreement may include
forwarding sales literature and advertising provided by the Companies or the
Distributor to their customers and providing such other sales support assistance
as may be requested by the Distributor from time to time. Currently,
substantially all fees paid by the Money Market Funds pursuant to the Investor A
Plan are paid to compensate Selling Agents for providing sales support services,
with any remaining amounts being used by the Distributor to partially defray
other expenses incurred by the Distributor in distributing Investor A Shares.
Fees received by the Distributor pursuant to the Investor A Plan will not be
used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of the Distributor.
96
<PAGE>
With respect to the Non-Money Market Funds, (except the Short-Term
Income Fund and the Short-Term Municipal Income Fund) payments under the
Investor A Plan may be made to the Distributor for providing the
distribution-related services described in (i) above or to Servicing Agents that
have entered into a Shareholder Servicing Agreement with each Company for
providing shareholder support services to their Customers which hold of record
or beneficially Investor A Shares of a Non-Money Market Fund. Such shareholder
support services provided by Servicing Agents to holders of Investor A Shares of
the Non-Money Market Funds may include (i) aggregating and processing purchase
and redemption requests for Investor A Shares from their Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing their Customers with a service that invests the
assets of their accounts in Investor A Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of their Customers; (iv) providing information
periodically to their Customers showing their positions in Investor A Shares;
(v) arranging for bank wires; (vi) responding to their Customers' inquiries
concerning their investment in Investor A Shares; (vii) providing sub-accounting
with respect to Investor A Shares beneficially owned by their Customers or the
information necessary to us for sub-accounting; (viii) if required by law,
forwarding shareholder communications from each Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to their Customers (ix) forwarding to their
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as each Company may
reasonably request to the extent the Selling Agent is permitted to do so under
applicable statutes, rules or regulations. The Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund may not pay for
personal services and/or maintenance of shareholder accounts, as such terms are
interpreted by the NASD, under the Investor A Plan.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
In addition, NFI has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of the Money Market Funds (the "Money
Market Investor A Servicing Plan"). Pursuant to the Money Market Investor A
Servicing Plan, which became effective on March 28, 1993, each Money Market Fund
may pay banks, broker/dealers or other financial institutions that have entered
into a Shareholder Servicing Agreement with the Company ("Servicing Agents") up
to 0.25% (on an annualized basis) of the average daily net asset value of the
Investor A Shares of each Money Market Fund for providing shareholder support
services. Such shareholder support services provided by Servicing Agents may
include those shareholder support services discussed above with respect to the
Investor A Shares of the Non-Money Market Funds. Fees paid pursuant to the Money
Market Investor A Servicing Plan are calculated daily and paid monthly.
In addition, NFT has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of NFT's Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund (the "Investor A
Servicing Plan"). Pursuant to the Investor A Servicing Plan, each such Fund may
pay banks, broker/dealers or other financial institutions that have entered into
a Shareholder Servicing Agreement with NFT ("Servicing Agents") up to 0.25% (on
an annualized basis) of the average daily net asset value of the Investor A
Shares of each Fund for providing shareholder support services. Such shareholder
support services provided by Servicing Agents may include those shareholder
support services discussed above with respect to the Investor A Plan. Fees paid
pursuant to the Investor A Servicing Plan are calculated daily and paid monthly.
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
97
<PAGE>
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained
$0.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor A Shares
of the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
During the fiscal year ended March 31,1997, the Distributor received
the following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received
the following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
98
<PAGE>
During the fiscal year ended March 31,1999, the Distributor received
the following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
INVESTOR B SHARES OF THE MONEY MARKET FUNDS AND INVESTOR C SHARES OF
THE NON-MONEY MARKET FUNDS. The Directors/Trustees of the Companies have
approved an Amended and Restated Distribution Plan in accordance with Rule 12b-1
under the 1940 Act for the Investor B Shares of Money Market Funds and Investor
C Shares of the Non-Money Market Funds (the "Investor B/C Plan"). Pursuant to
the Investor B/C Plan, each Fund may pay the Distributor for certain expenses
that are incurred in connection with the distribution of shares. Payments under
the Investor B/C Plan will be calculated daily and paid monthly at a rate set
from time to time by the Board of Directors provided that the annual rate may
not exceed 0.75% of the average daily net asset value of Investor C Shares of a
Non-Money Market Fund and 0.10% of the average daily net asset value of Investor
B Shares of a Money Market Fund. Payments to the Distributor pursuant to the
Investor B/C Plan will be used (i) to compensate banks, other financial
institutions or a securities broker/dealer that have entered into a Sales
Support Agreement with the Distributor ("Selling Agents") for providing sales
support assistance relating to Investor B or Investor C Shares, for promotional
activities intended to result in the sale of Investor B or Investor C Shares
such as to pay for the preparation, printing and distribution of prospectuses to
other than current shareholders, and (iii) to compensate Selling Agents for
providing sales support services with respect to their Customers who are, from
time to time, beneficial and record holders of Investor B or Investor C Shares.
Currently, substantially all fees paid pursuant to the Investor B/C Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor B or Investor C Shares. Fees received by the Distributor pursuant to
the Investor B/C Plan will not be used to pay any interest expenses, carrying
charges or other financing costs (except to the extent permitted by the SEC) and
will not be used to pay any general and administrative expenses of the
Distributor.
Pursuant to the Investor B/C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market Funds. Such
Selling Agents will be compensated at the annual rate of up to 0.75% of the
average daily net asset value of the Investor C Shares of the Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/C
Plan and payments received pursuant to contingent deferred sales charges. Any
such excess may be recovered by the Distributor in future years so long as the
Investor B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Funds ("Servicing Agents") for certain expenses that are incurred by the
Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor B or Investor C Shares; (v)
arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in such Investor B or Investor C Shares; (vii) providing
sub-accounting with respect to such Investor B or Investor C Shares beneficially
owned by Customers or providing the information to us necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
from the Company (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(ix) forwarding to Customers proxy statements and proxies containing any
proposals regarding the Shareholder Servicing Agreement; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Company may reasonably request to the extent the Servicing Agent is
permitted to do so under applicable statutes, rules or regulations.
99
<PAGE>
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFI Money Market Funds: $4,403,155.44. Of this amount, the Distributor
retained $302.33.
During the fiscal year ended March 31,1997, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFI Non-Money Market Funds: $38,342.90 and $587.17,
respectively. Of these amounts, the Distributor retained $4,441.52 and $587.17,
respectively.
During the fiscal year ended March 31,1997, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFT Money Market Funds: $488,455.68. Of this amount, the Distributor
retained $369.80.
During the fiscal year ended March 31,1997, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFT Non-Money Market Funds: $252,094.80 and $6,716.67,
respectively. Of these amounts, the Distributor retained $43,497.58 and
$6,716.67, respectively.
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFI Money Market Funds: $3,466,866.65. Of this amount, the Distributor
retained $7,743.41.
During the fiscal year ended March 31,1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFI Non-Money Market Funds: $98,350.80 and $18,143.54
respectively. Of these amounts, the Distributor retained $33,051.16 and
$18,143.54, respectively.
During the fiscal year ended March 31,1998, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFT Money Market Funds: $562,681.69. Of this amount, the Distributor
retained $730.94.
During the fiscal year ended March 31,1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFT Non-Money Market Funds: $369,785.35 and $18,619.52,
respectively. Of these amounts, the Distributor retained $148,710.43 and
$18,619.52, respectively.
During the fiscal year ended March 31,1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFP Non-Money Market Funds: $2,682.36 and $14.74,
respectively. Of these amounts, the Distributor retained $1,646.52 and $14.74,
respectively.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFI Money Market Funds: $2,583,885. Of this amount, the Distributor
retained $0.
100
<PAGE>
During the fiscal year ended March 31,1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFI Non-Money Market Funds: $105,900 and $35,425,
respectively. Of these amounts, the Distributor retained $30,890 and $35,425,
respectively.
During the fiscal year ended March 31,1999, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFT Money Market Funds: $757,547. Of this amount, the Distributor
retained $0.
During the fiscal year ended March 31,1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFT Non-Money Market Funds: $363,700 and $32,180,
respectively. Of these amounts, the Distributor retained $196,144 and $32,180,
respectively.
During the fiscal year ended March 31,1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFP Non-Money Market Funds: $2,022 and $421,
respectively. Of these amounts, the Distributor retained $1,023 and $421,
respectively.
INVESTOR C SHARES OF THE MONEY MARKET FUNDS AND INVESTOR B SHARES OF
THE NON-MONEY MARKET FUNDS. The Directors/Trustees of each Company have approved
a Distribution Plan (the "Investor B Distribution Plan") with respect to
Investor B Shares of the Non-Money Market Funds. Pursuant to the Investor B
Distribution Plan, a Non-Money Market Fund may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of the Fund's Investor B Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Investor B Shares with
the Distributor ("Selling Agents"). Payments under a Fund's Investor B
Distribution Plan will be calculated daily and paid monthly at a rate or rates
set from time to time by the Board of Directors provided that the annual rate
may not exceed 0.75% of the average daily net asset value of each Non-Money
Market Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor B Distribution Plan may be made with respect to
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; overhead
and other office expenses of the Distributor relating to the foregoing (which
may be calculated as a carrying charge in the Distributor's or Selling Agents'
unreimbursed expenses), incurred in connection with distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating the Distributor's or
Selling Agents' offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefit costs of administrative,
operations and support personnel, utility costs, communication costs and the
costs of stationery and supplies, (ii) the costs of client sales seminars and
travel related to distribution and sales support activities, and (iii) other
expenses relating to distribution and sales support activities.
In addition, the Directors/Trustees have approved a Shareholder
Servicing Plan with respect to Investor C Shares of the Money Market Funds and
Investor B Shares of the Non-Money Market Funds ("Investor C/B Servicing Plan").
Pursuant to the Investor C/B Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor C/B Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors/Trustees, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Investor C Shares of the Money Market Funds and Investor B Shares of the
Non-Money Market Funds.
101
<PAGE>
The fees payable under the Investor C/B Servicing Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for such Investor C or Investor
B Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
B Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Companies on behalf of Customers;
(iv) providing information periodically to Customers showing their positions in
such Investor C or Investor B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in such Investor
C or Investor B Shares; (vii) providing sub-accounting with respect to such
Investor C or Investor B Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Companies (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor C
Servicing Plan or related agreements; (x) providing general shareholder liaison
Services; and (xi) providing such other similar services as the Companies may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor B Distribution Plan and Investor
C/B Servicing Plan (together, the "Investor C/B Plans") are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/B Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/B Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/B Plans are in
effect. Because there is no requirement under the Investor C/B Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/B Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/B Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/B Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses.
During the fiscal year ended March 31, 1997, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFI: $0 and $0, respectively.
Of these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1997, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively.
Of these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31, 1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFI: $0 and $0, respectively.
Of these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively.
Of these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal period ended March 31, 1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFI: $1,329,398 and $455,023,
respectively. Of these amounts, the prior distributor retained $0 and $0,
respectively.
102
<PAGE>
During the fiscal period ended March 31, 1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFT: $5,531,784 and
$1,763,011, respectively. Of these amounts, the Distributor retained $0 and $0,
respectively.
During the fiscal period ended March 31, 1999, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFP: $3,723 and $6,855,
respectively. Of these amounts, the Distributor retained $0 and $0,
respectively.
DAILY SHARES OF THE MONEY MARKET FUNDS. The Directors/Trustees have
approved a Distribution Plan (the "Daily Distribution Plan") with respect to
Daily Shares of the Money Market Funds. Pursuant to the Daily Distribution Plan,
a Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Daily Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Daily Shares with the Distributor ("Selling
Agents"). Payments under a Fund's Daily Distribution Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Board of
Directors provided that the annual rate may not exceed 0.45 % of the average
daily net asset value of each Money Market Fund's Daily Shares.
The fees payable under the Daily Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Daily
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan
with respect to Daily Shares of the Money Market Funds (the "Daily Servicing
Plan"). Pursuant to the Daily Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Daily Servicing Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Directors, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Daily
Shares of the Money Market Funds.
The fees payable under the Daily Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Daily Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Daily Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Daily Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Daily Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
103
<PAGE>
The fees payable under the Daily Distribution Plan and Daily Servicing
Plan (together, the "Daily Plans") are treated by the Funds as an expense in the
year they are accrued. At any given time, a Selling Agent and/or Servicing Agent
may incur expenses in connection with services provided pursuant to its
agreements with the Distributor under the Daily Plans which exceed the total of
(i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Daily
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Daily Shares. Any such excess expenses may be recovered in future
years, so long as the Daily Plans are in effect. Because there is no requirement
under the Daily Plans that the Distributor be paid or the Selling Agents and
Servicing Agents be compensated or reimbursed for all their expenses or any
requirement that the Daily Plans be continued from year to year, such excess
amount, if any, does not constitute a liability to a Fund or the Distributor.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Daily Plans or in connection with
contingent deferred sales charges, if for any reason the Daily Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses.
During the fiscal year ended March 31, 1997, the Distributor received
$0 from Rule 12b-1 fees in connection with Daily Shares of the Money Market
Funds. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31, 1998, the Distributor received
$0 from Rule 12b-1 fees in connection with Daily Shares of the Money Market
Funds. Of this amount, the Distributor retained $0.
During the fiscal period ended March 31, 1999, the Distributor received
the following amounts from Rule 12b-1 fees in connection with Daily Shares of
the Money Market Funds: $0 and $0, respectively. Of these amounts, the prior
Distributor retained $0 and $0, respectively.
MARSICO SHARES OF THE PRIME FUND. In addition, the Directors have
approved a Shareholder Servicing Plan with respect to the Marsico Shares of the
Prime Fund (the "Marsico Servicing Plan"). Pursuant to the Marsico Servicing
Plan, a Fund may compensate or reimburse banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with the Company ("Servicing Agents") for certain activities or expenses of the
Servicing Agents in connection with shareholder services that are provided by
the Servicing Agents. Payments under the Marsico Servicing Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of the Marsico Shares of the Prime Fund.
The fees payable under the Marsico Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Marsico Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Marsico Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Marsico Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Marsico Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
104
<PAGE>
During the fiscal period ended March 31, 1999, the Servicing Agents
received the following amounts from Rule 12b-1 fees in connection with the
Marsico Shares of the Prime Fund: $0 and $0 respectively. Of these amounts, the
Servicing Agents retained $0 and $0, respectively.
INFORMATION APPLICABLE TO INVESTOR A, INVESTOR B, INVESTOR C AND DAILY
SHARES. The Investor A Plan, the Money Market Investor A Servicing Plan, the
Investor B/C Plan, the Investor B/C Servicing Plan, the Investor C Plan, the
Daily Distribution Plan, the Daily Servicing Plan and the Investor C/B Servicing
Plan (each a "Plan" and collectively the "Plans") may only be used for the
purposes specified above and as stated in each such Plan. Compensation payable
to Selling Agents or Servicing Agents for shareholder support services under the
Investor A Plan, the Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan, Daily Servicing Plan and the Investor C/B Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Conduct governing receipt by NASD members of shareholder
servicing plan fees from registered investment companies (the "NASD Servicing
Plan Rule"), which became effective on July 7, 1993. Such compensation shall
only be paid for services determined to be permissible under the NASD Servicing
Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997, with
respect to the Investor C Shares of the Money Market Funds, on March 22, 1991,
with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
B Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Daily Shares
of the Money Market Funds was initially approved on August 4, 1993. The Plans
continue in effect as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors. On October 12, 1996, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor B Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor B Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor B Shares.
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22, 1991, and was amended March 19, 1992. The Investor A Shares' Plan with
respect to the International Equity Fund became effective September 6, 1991 and
was amended March 19, 1992 and February 3, 1993.
105
<PAGE>
The Investor A Plan, Investor B/C Plan and Investor C/B Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B or Investor C, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Money Market
Investor A Servicing Plan, the Investor B/C Servicing Plan and the Investor C/N
Servicing Plan may be terminated by a vote of a majority of the Qualified
Directors. As long as a Plan is in effect, the selection or nomination of the
Qualified Directors is committed to the discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling and/or
Servicing Agents of compensation from the Company in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
NET FEES PAID
(SHAREHOLDER SERVICING
NET FEES PAID (12B-1 COMPONENT) COMPONENT)
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 NET FEES PAID
<S> <C> <C> <C>
Prime Fund $ 1,748,661 $ 4,371,958 $ 6,120,619
Treasury Fund 1,506,882 3,767,468 5,274,350
Equity Income Fund 162,472 -- 162,472
International Equity Fund 39,141 -- 39,141
Government Securities Fund 52,251 -- 52,251
Small Company Growth Fund 42,982 -- 42,982
U.S. Government Bond Fund 6,517 -- 6,517
International Growth Fund 60,698 -- 60,698
International Value Fund 12,282 -- 12,282
Emerging Markets Fund 1,904 -- 1,904
Value Fund 399,157 -- 399,157
Capital Growth Fund 127,702 -- 127,702
Emerging Growth Fund 56,378 -- 56,378
Equity Index Fund 20,255 -- 20,255
Managed Index Fund 90,380 -- 90,380
Managed SmallCap Index Fund 28,353 -- 28,353
Managed Value Index Fund 8,413 -- 8,413
Managed SmallCap Value Index Fund 6,828 -- 6,828
Disciplined Equity Fund 166,141 -- 166,141
Nations Marsico Focused Equities Fund 144,518 -- 144,518
Nations Marsico Growth & Income Fund 42,482 -- 42,282
Balanced Assets Fund 66,729 -- 66,729
Short-Intermediate Government Fund 103,329 -- 103,329
Short-Term Income Fund -- 36,877 36,877
Diversified Income Fund 37,912 -- 37,912
Strategic Fixed Income Fund 76,543 -- 76,543
Municipal Income Fund 50,814 -- 50,814
Short-Term Municipal Income Fund -- 91,654 91,654
Intermediate Municipal Bond Fund 25,402 -- 25,402
FL Intermediate Municipal Fund 29,231 -- 29,231
FL Municipal Bond Fund 126,858 -- 126,858
GA Intermediate Municipal Fund 35,872 -- 35,872
GA Municipal Bond Fund 3,536 -- 3,536
MD Intermediate Municipal Fund 33,199 -- 33,199
MD Municipal Bond Fund 4,600 -- 4,600
NC Intermediate Municipal Fund 19,767 -- 19,767
NC Municipal Bond Fund 3,113 -- 3,113
SC Intermediate Municipal Fund 35,287 -- 35,287
SC Municipal Bond Fund 3,739 -- 3,739
TN Intermediate Municipal Fund 18,421 -- 18,421
TN Municipal Bond Fund 1,604 -- 1,604
TX Intermediate Municipal Fund 8,449 -- 8,449
TX Municipal Bond Fund 995 -- 995
VA Intermediate Municipal Fund 118,364 -- 118,364
VA Municipal Bond Fund 2,937 -- 2,937
Government Money Market Fund 21,122 52,809 73,931
Tax Exempt Fund 129,245 323,135 452,380
Total: 5,681,465 8,643,901 14,325,366
</TABLE>
106
<PAGE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR B SHARES - MONEY MARKET FUNDS
INVESTOR C SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET FEES PAID
(SHAREHOLDER SERVICING
NET FEES PAID (12B-1 COMPONENT) COMPONENT)
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 NET FEES PAID
<S> <C> <C> <C>
Prime Fund $ -- $ 1,757,890 $ 1,757,890
Treasury Fund -- 825,995 825,995
Equity Income Fund 1,165,248 388,416 1,553,664
International Equity Fund 253,359 84,453 337,812
Government Securities Fund 233,565 97,311 330,876
Small Company Growth Fund 39,700 13,233 52,933
U.S. Government Bond Fund 21,803 9,084 30,887
International Growth Fund 6,553 2,184 8,737
International Value Fund 15,184 5,061 20,245
Emerging Markets Fund 6,813 2,271 9,084
Value Fund 1,352,049 450,683 1,802,732
Capital Growth Fund 494,863 164,954 659,817
Emerging Growth Fund 306,640 102,213 408,853
Equity Index Fund -- -- --
Managed Index Fund -- -- --
Managed SmallCap Index Fund -- -- --
Managed Value Index Fund -- -- --
Managed SmallCap Value Index Fund -- -- --
Disciplined Equity Fund 355,444 118,481 473,925
Nations Marsico Focused Equities Fund 955,914 318,638 1,274,552
Nations Marsico Growth & Income Fund 336,117 112,039 448,156
Balanced Assets Fund 699,898 233,299 933,197
Short-Intermediate Government Fund 68,547 31,158 99,705
Short-Term Income Fund 5,932 14,830 20,762
Diversified Income Fund 463,956 193,299 657,255
Strategic Fixed Income Fund 22,688 10,313 33,001
Municipal Income Fund 109,549 45,641 155,190
Short-Term Municipal Income Fund 14,076 35,193 49,269
Intermediate Municipal Bond Fund 15,865 7,211 23,076
FL Intermediate Municipal Fund 29,411 13,369 42,780
FL Municipal Bond Fund 120,857 50,353 171,210
GA Intermediate Municipal Fund 55,000 25,000 80,000
GA Municipal Bond Fund 74,388 30,992 105,380
MD Intermediate Municipal Fund 38,423 17,465 55,888
MD Municipal Bond Fund 91,295 38,037 129,332
NC Intermediate Municipal Fund 48,847 22,203 71,050
NC Municipal Bond Fund 177,700 74,035 251,735
SC Intermediate Municipal Fund 51,578 23,444 75,022
SC Municipal Bond Fund 74,504 31,041 105,545
TN Intermediate Municipal Fund 20,961 9,528 30,489
TN Municipal Bond Fund 33,460 13,941 47,401
TX Intermediate Municipal Fund 15,432 7,015 22,447
TX Municipal Bond Fund 56,947 23,726 80,673
VA Intermediate Municipal Fund 72,048 32,749 104,797
VA Municipal Bond Fund 94,114 39,211 133,325
Government Money Market Fund -- 247,038 247,038
Tax Exempt Fund -- 510,512 510,512
Total: 7,998,728 6,233,509 14,232,237
========= ========= ==========
</TABLE>
NOTE:All fees paid under the Investor A and Investor C/B Shares Distribution
Plans were accrued as payments to broker/dealers and financial institutions
offering such shares to their customers.
107
<PAGE>
INVESTOR B SHARES - NON-MONEY MARKET FUNDS
INVESTOR C SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET FEES PAID
NET FEES PAID (SHAREHOLDER SERVICING
(12B-1 COMPONENT) COMPONENT)
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 NET FEES PAID
<S> <C> <C> <C>
Prime Fund $ -- $ 137,935 $ 137,935
Treasury Fund -- 9,159 9,159
Equity Income Fund 46,659 15,553 62,212
International Equity Fund 6,788 2,263 9,051
Government Securities Fund 2,135 712 2,847
Small Company Growth Fund 13,529 4,510 18,039
U.S. Government Bond Fund 6,649 2,216 8,865
International Growth Fund 3,360 1,120 4,480
International Value Fund 522 174 696
Emerging Markets Fund 1,100 367 1,467
Value Fund 71,650 23,883 95,533
Capital Growth Fund 30,228 10,076 40,304
Emerging Growth Fund 12,613 4,204 16,817
Equity Index Fund -- -- --
Managed Index Fund 11,139 11,139 22,278
Managed SmallCap Index Fund 2,236 2,236 4,472
Managed Value Index Fund 26 26 52
Managed SmallCap Value Index Fund 216 216 432
Disciplined Equity Fund 10,223 3,408 13,631
Nations Marsico Focused Equities Fund 19,789 6,596 26,385
Nations Marsico Growth & Income Fund 7,885 2,628 10,513
Balanced Assets Fund 12,435 4,145 16,580
Short-Intermediate Government Fund 5,604 1,868 7,472
Short-Term Income Fund 2,073 691 2,764
Diversified Income Fund 10,647 3,549 14,196
Strategic Fixed Income Fund 5,929 1,976 7,905
Municipal Income Fund 11,918 3,973 15,891
Short-Term Municipal Income Fund 10,582 3,527 14,109
Intermediate Municipal Bond Fund 6,246 2,082 8,328
FL Intermediate Municipal Fund 7,774 2,591 10,365
FL Municipal Bond Fund 57 19 76
GA Intermediate Municipal Fund 5,487 1,829 7,316
GA Municipal Bond Fund 36 12 48
MD Intermediate Municipal Fund 3,769 1,256 5,025
MD Municipal Bond Fund 18 6 24
NC Intermediate Municipal Fund 981 327 1,308
NC Municipal Bond Fund 19 6 25
SC Intermediate Municipal Fund 11,717 3,906 15,623
SC Municipal Bond Fund 329 110 439
TN Intermediate Municipal Fund 20 7 27
TN Municipal Bond Fund 291 97 388
TX Intermediate Municipal Fund 957 319 1,276
TX Municipal Bond Fund 541 180 721
VA Intermediate Municipal Fund 7,242 2,414 9,656
VA Municipal Bond Fund 19 6 25
Government Money Market Fund -- 3,221 3,221
Tax Exempt Fund -- 94,950 94,950
Total: 351,438 371,488 722,926
------- ------- -------
</TABLE>
108
<PAGE>
DAILY SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET FEES PAID
NET FEES PAID (12B-1 (SHAREHOLDER
FUND COMPONENT) SERVICING COMPONENT) NET FEES PAID
YEAR ENDED 3/31/99 YEAR ENDED 3/31/99
<S> <C> <C> <C>
Prime Fund $ 3,581,606 $ 3,581,606 $ 7,163,212
Treasury Fund 454,853 454,853 909,706
Government Money Market Fund 88,313 88,313 176,626
Tax-Exempt Fund 456,264 456,264 912,528
Total: 4,581,036 4,581,036 9,162,072
--------- --------- ---------
MARSICO SHARES - MONEY MARKET FUNDS
(SHAREHOLDER SERVICING)
FUND YEAR ENDED 3/31/99
------------------------------ ------------------------------------
Prime Fund $4,560.00
</TABLE>
109
<PAGE>
FEES PAID PURSUANT TO THE ADMINISTRATION PLAN
PRIMARY B SHARES
<TABLE>
<CAPTION>
NET ADMIN
FEES PAID NET ADMIN
YEAR ENDED 3/31/99 FEES WAIVED
<S> <C> <C>
Prime Fund $ 51,551 $ --
Treasury Fund 36,527 --
Equity Income Fund -- --
International Equity Fund 7 --
Government Securities Fund -- --
Small Company Growth Fund -- --
U.S. Government Bond Fund -- --
International Growth Fund -- --
International Value Fund -- --
Emerging Markets Fund 92 --
Value Fund -- --
Capital Growth Fund 772 --
Emerging Growth Fund 12 --
Equity Index Fund 844 --
Managed Index Fund 17 --
Managed SmallCap Index Fund 466 --
Managed Value Index Fund -- --
Managed SmallCap Value Index Fund -- --
Disciplined Equity Fund -- --
Nations Marsico Focused Equities Fund -- --
Nations Marsico Growth & Income Fund -- --
Balanced Assets Fund 6,069 1,931
Short-Intermediate Government Fund 945 1,055
Short-Term Income Fund -- --
Diversified Income Fund -- --
Strategic Fixed Income Fund -- --
Municipal Income Fund -- --
Short-Term Municipal Income Fund -- --
Intermediate Municipal Bond Fund -- --
FL Intermediate Municipal Fund -- --
FL Municipal Bond Fund -- --
GA Intermediate Municipal Fund -- --
GA Municipal Bond Fund -- --
Kansas Intermediate Municipal Fund -- --
MD Intermediate Municipal Fund -- --
MD Municipal Bond Fund -- --
NC Intermediate Municipal Fund -- --
NC Municipal Bond Fund -- --
SC Intermediate Municipal Fund -- --
SC Municipal Bond Fund -- --
TN Intermediate Municipal Fund -- --
TN Municipal Bond Fund -- --
TX Intermediate Municipal Fund -- --
TX Municipal Bond Fund -- --
VA Intermediate Municipal Fund -- --
VA Municipal Bond Fund -- --
Government Money Market Fund 4,040 --
Tax Exempt Fund 22,002 --
Total: 123,344 2,986
------- ------
</TABLE>
110
<PAGE>
SHAREHOLDER SERVICING AGREEMENTS (PRIMARY B SHARES) - MONEY MARKET FUNDS
As stated in the Prospectuses for the Money Market Funds' Primary Shares of NFI
and the Prospectuses for the Primary B Shares of NFT, each of NFI and NFT has a
separate Shareholder Servicing Plan with respect to the Non-Money Market Funds'
Primary B Shares of NFI and the Primary B Shares of NFI and the Primary B Shares
of NFT except the Value Fund, Capital Growth Fund, Emerging Growth Fund,
Disciplined Equity Fund, Equity Index Fund, Managed Index Fund, Managed SmallCap
Index Fund, Managed Value Index Fund, Managed SmallCap Value Index Fund,
Balanced Assets Fund, Short-Intermediate Government Fund, Short-Term Income
Fund, Diversified Income Fund and Strategic Fixed Income Fund. Pursuant to the
Shareholder Servicing Plans, NFI and NFT each has entered into separate
agreements with certain banks pertaining to the provision of administrative
services to their customers who may from time to time own of record or
beneficially Primary B Shares ("Customers") in consideration for the payment of
up to 0.25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase, exchange and
redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders with the Distributor or the transfer
agents; (ii) providing Customers with a service that invests the assets of their
accounts in Primary B Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder Serving Plan; and
(x) providing such other similar services as may reasonably be requested to the
extent permitted under applicable statutes, rules, or regulations.
111
<PAGE>
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the Qualified Directors,
specifically approves the plan at least annually.
SHAREHOLDER SERVICING PLAN (MARSICO SHARES) - PRIME FUND
As stated in the Prospectus for the Prime Fund's Marsico Shares of NFI, there is
a separate Shareholder Servicing Plan with respect to the Prime Fund's Marsico
Shares of NFI. Pursuant to the Shareholder Servicing Plan, NFI has entered into
a separate agreement with a servicing agent pertaining to the provision of
shareholder support services to its customers who may from time to time own of
record or beneficially Marsico Shares ("Customers") in consideration for the
payment of up to 0.25% (on an annualized basis) of the net asset value of such
shares. Such services may include: (i) general shareholder liaison services;
(ii) aggregating and processing purchase, exchange and redemption requests for
Marsico Shares from Customers and transmitting promptly net purchase and
redemption orders with the Distributor or the Transfer Agent; (iii) providing
Customers with a service that invests the assets of their accounts in Marsico
Shares pursuant to specific or pre-authorized instructions; (iv) processing
dividend and distribution payments from the Company on behalf of Customers; (v)
providing information periodically to Customers showing their positions in
Marsico Shares; (vi) arranging for bank wires; (vii) responding to Customer
inquiries concerning their investment in Marsico Shares; (viii) providing
sub-accounting with respect to Marsico Shares beneficially owned by Customers or
the information necessary for sub-accounting; (ix) if required by law,
forwarding shareholder communications (such as proxies, shareholder reports
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (x) forwarding to Customers proxy statements and proxies
containing any proposals regarding the shareholder servicing agreement or
Shareholder Serving Plan; and (xi) providing such other similar services as may
reasonably be requested to the extent permitted under applicable statutes,
rules, or regulations.
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the disinterested Directors,
specifically approves the plan at least annually.
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES) - NON-MONEY MARKET FUNDS
As stated in the Prospectus for the Non-Money Market Funds' Primary B
Shares, each Company has a separate Shareholder Administration Plan (the
"Administration Plan") with respect to such shares. Pursuant to the
Administration Plan, each Company may enter into agreements ("Administration
Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners of Non-Money Market Fund Primary B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their customers who may from time to
time own of record or beneficially Primary B Shares ("Customers") in
consideration for the payment of up to 0.60% (on an annualized basis) of the net
asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
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EXPENSES
The Administrator furnishes, without additional cost to each Company,
the services of the Treasurer and Secretary of each Company and such other
personnel (other than the personnel of the Adviser) as are required for the
proper conduct of each Company's affairs. The Distributor bears the incremental
expenses of printing and distributing prospectuses used by the Distributor or
furnished by the Distributor to investors in connection with the public offering
of each Company's shares and the costs of any other promotional or sales
literature, except that to the extent permitted under the Plans relating to the
Investor A, Investor B or Investor C Shares of each Fund, sales-related expenses
incurred by the Distributor may be reimbursed by each Company.
Each Company pays or causes to be paid all other expenses of each
Company, including, without limitation: the fees of the Adviser, the
Administrator and Co-Administrator; the charges and expenses of any registrar,
any custodian or depository appointed by each Company for the safekeeping of its
cash, fund securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by each Company; brokerage commissions
chargeable to each Company in connection with fund securities transactions to
which each Company is a party; all taxes, including securities issuance and
transfer taxes; corporate fees payable by each Company to federal, state or
other governmental agencies; all costs and expenses in connection with the
registration and maintenance of registration of each Company and its shares with
the SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of typesetting
prospectuses and statements of additional information of each Company (including
supplements thereto) and periodic reports and of printing and distributing such
prospectuses and statements of additional information (including supplements
thereto) to each Company's shareholders; all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing proxy statements and
reports to shareholders; fees and travel expenses of directors or director
members of any advisory board or committee; all expenses incident to the payment
of any dividend or distribution, whether in shares or cash; charges and expenses
of any outside service used for pricing of each Company's shares; fees and
expenses of legal counsel and of independent auditors in connection with any
matter relating to each Company; membership dues of industry associations;
interest payable on Company borrowings; postage and long-distance telephone
charges; insurance premiums on property or personnel (including officers and
directors) of each Company which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of each Company's operation unless otherwise explicitly assumed by the Adviser),
the Administrator or Co-Administrator.
Expenses of each Company which are not directly attributable to the
operations of any class of shares or Fund are pro-rated among all classes of
shares or Fund of each Company based upon the relative net assets of each class
or Fund. Expenses of each Company which are not directly attributable to a
specific class of shares but are directly attributable to a specific Fund are
prorated among all the classes of shares of such Fund based upon the relative
net assets of each such class of shares. Expenses of each Company which are
directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require BAAI, TradeStreet, Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Fund's shares are registered or qualified for
sale, as such limitations may be raised or lowered from time to time, and the
aggregate of all such investment advisory, sub-advisory, and administration fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by BAAI, TradeStreet, Gartmore or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to BAAI, TradeStreet, Gartmore and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, BAAI,
TradeStreet, Gartmore and the Administrator will reimburse the Company no later
than the last day of the first month of the next succeeding fiscal year, for any
such annual operating expenses (after reduction of all investment advisory and
administration fees in excess of such limitation).
TRANSFER AGENTS AND CUSTODIANS
First Data is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent for each Companies Primary
Shares and Investor Shares. Under the transfer agency agreements, the transfer
agent maintains shareholder account records for the Company, handles certain
communications between shareholders and the Companies, and distributes dividends
and distributions payable by the Companies to shareholders, and produces
statements with respect to account activity for the Companies and its
shareholders for these services. The transfer agent receives a monthly fee
computed on the basis of the number of shareholder accounts that it maintains
for each Company during the month and is reimbursed for out-of-pocket expenses.
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<PAGE>
Bank of America serves as sub-transfer agent for each Fund's Primary
Shares.
The Bank of New York ("BONY") 90 Washington Street, New York, N.Y.
10286 serves as custodian for the Funds' assets. As custodian, BONY maintains
the Funds' securities cash and other property, delivers securities against
payment upon sale and pays for securities against delivery upon purchase, makes
payments on behalf of such Funds for payments of dividends, distributions and
redemptions, endorses and collects on behalf of such Funds all checks, and
receives all dividends and other distributions made on securities owned by such
Funds.
The Bank of New York ("BONY"), Avenue des Arts, 35 1040 Brussels,
Belgium serves as custodian for the assets of the international Funds.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to
delegate certain foreign custody matters to foreign custody managers and to
modify the criteria applied in the selection process. Accordingly, BONY serves
as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement,
under which the Boards of Directors/Trustees retain the responsibility for
selecting foreign compulsory depositories, although BONY agrees to make certain
findings with respect to such depositories and to monitor such depositories.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Funds.
Pursuant to a distribution agreement (the "Distribution Agreement"),
the Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Companies or
the Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Companies pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors/Trustees
or a vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors/Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, or by the Distributor.
INDEPENDENT ACCOUNTANTS AND REPORTS
The Companies issue unaudited financial information semi-annually and
audited financial statements annually. The Companies furnish proxy statements
and other shareholder reports to shareholders of record.
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<PAGE>
The annual financial statements will be audited by each Company's
independent accountant. The Board of Directors/Trustees has selected
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, as each Company's independent accountant to audit each Company's books
and review each Company's tax returns for the Funds' fiscal year ended March 31,
2000. PricewaterhouseCoopers LLP was the independent public accountants for the
Funds (except Nations International Value Fund) for the period ended March 31,
1999. KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215 were the independent
auditors for the Emerald International Equity Fund (predecessor to the Nations
International Value Fund) for the fiscal period December 1, 1997 through May 15,
1998 and for the fiscal year ended November 30, 1997.
The Annual Reports for the fiscal period ended March 31, 1999 are
hereby incorporated herein by reference in this SAI. The Annual Reports for the
Emerald International Equity Fund (the predecessor to the Nations International
Value Fund) for the fiscal period ended May 15, 1998 and for the fiscal year
ended November 30, 1997 are also incorporated herein by reference. These Annual
Reports will be sent free of charge with this SAI to any shareholder who
requests this SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Companies. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
Morrison & Foerster LLP, counsel to the Companies and special counsel
to Bank of America has advised the Companies and Bank of America that Bank of
America and its affiliates may perform the services contemplated by the
Investment Advisory Agreement and this Prospectus without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such federal or state
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
FUND TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors/Trustees of
each Company, the Adviser is responsible for decisions to buy and sell
securities for each Fund, for the selection of broker/dealers, for the execution
of such Fund's securities transactions, and for the allocation of brokerage fees
in connection with such transactions. The Adviser's primary consideration in
effecting a security transaction is to obtain the best net price and the most
favorable execution of the order. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a negotiated
commission for their services. Orders may be directed to any broker to the
extent and in the manner permitted by applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
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<PAGE>
In placing orders for portfolio securities of a Fund, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. In seeking
such execution, the Adviser will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors,
including, without limitation, the size and type of the transaction, the nature
and character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions and
the reasonableness of the spread or commission, if any. In addition, the Adviser
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of a Fund, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of a Fund. Services furnished by such brokers may be used by
the Adviser in providing investment advisory and investment management services
for the Companies.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Directors/Trustees of the respective Company. On exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers.
Transactions on foreign stock exchanges involve payment of brokerage commissions
which are generally fixed. Transactions in both foreign and domestic
over-the-counter markets are generally principal transactions with dealers, and
the costs of such transactions involve dealer spreads rather than brokerage
commissions. With respect to over-the-counter transactions, the Adviser, where
possible, will deal directly with dealers who make a market in the securities
involved except in those circumstances in which better prices and execution are
available elsewhere.
In certain instances there may be securities which are suitable for
more than one Fund as well as for one or more of the other clients of the
Adviser. Investment decisions for each Fund and for the Adviser's other clients
are made with the goal of achieving their respective investment objectives. It
may happen that a particular security is bought or sold for only one client even
though it may be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as far
as a Fund is concerned. The Companies believe that over time its ability to
participate in volume transactions will produce superior executions for the
Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
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<PAGE>
The Companies will not execute portfolio transactions through, or
purchase or sell portfolio securities from or to the distributor, the Adviser,
the administrator, the co-administrator or their affiliates, acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by applicable law. In addition, the Companies will not give preference
to correspondents of Bank of America or its affiliates, with respect to such
transactions or securities. (However, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with Bank of America or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the distributor, the Adviser, the administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Certain affiliates of Bank of America Corporation and its subsidiary
banks may have deposit, loan or commercial banking relationships with the
corporate users of facilities financed by industrial development revenue bonds
or private activity bonds purchased by the Tax Exempt Fund, the Municipal Income
Fund, the Short-Term Municipal Income Fund, the Intermediate Municipal Bond
Fund, the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds (the "Tax-Free Bond Funds"). Bank of America or certain of its affiliates
may serve as trustee, tender agent, guarantor, placement agent, underwriter, or
in some other capacity, with respect to certain issues of municipal securities.
Under certain circumstances, the Tax-Free Bond Funds may purchase municipal
securities from a member of an underwriting syndicate in which an affiliate of
Bank of America is a member. NFT has adopted procedures pursuant to Rule 10f-3
under the 1940 Act, and intends to comply with the requirements of Rule 10f-3,
in connection with any purchases of municipal securities that may be subject to
such Rule.
Under the 1940 Act, persons affiliated with a Company are prohibited
from dealing with such Company as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. Each of the Funds may purchase securities from underwriting syndicates
of which Bank of America or any of its affiliates is a member under certain
conditions, in accordance with the provisions of a rule adopted under the 1940
Act and any restrictions imposed by the Board of Governors of the Federal
Reserve System.
Investment decisions for each Fund are made independently from those
for each Company's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Funds and another investment
portfolio, investment company, or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each Fund and such other investment
portfolio, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for the Funds
with those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------- ------------------------ ------------------------ --------------------------
FUND FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED MARCH
MARCH 31, 1999 MARCH 31, 1998 31, 1997
- ------------------------------------- ------------------------ ------------------------ --------------------------
Managed SmallCap Index $ 375,659 $ 143,732 $ 54,486.18
- ------------------------------------- ------------------------ ------------------------ --------------------------
Disciplined Equity 283,016 152,295 288,643.86
- ------------------------------------- ------------------------ ------------------------ --------------------------
Equity Index 92,695 208,604 115,828.91
- ------------------------------------- ------------------------ ------------------------ --------------------------
Emerging Growth 431,473 477,588 554,981.41
- ------------------------------------- ------------------------ ------------------------ --------------------------
Capital Growth Fund 1,102,071 1,392,418 1,584,909.43
- ------------------------------------- ------------------------ ------------------------ --------------------------
Managed Index 313,849 119,677 24,684.19
- ------------------------------------- ------------------------ ------------------------ --------------------------
Value 2,871,137 3,142,078 1,784,504.83
- ------------------------------------- ------------------------ ------------------------ --------------------------
Balanced Assets 522,389 1,207,000 1,965,293.04
- ------------------------------------- ------------------------ ------------------------ --------------------------
Emerging Markets 35,689 284,328 207,518.87
- ------------------------------------- ------------------------ ------------------------ --------------------------
Equity Income 1,472,491 1,111,460 1,083,187.32
- ------------------------------------- ------------------------ ------------------------ --------------------------
International Equity 2,201,631 2,421,975 1,738,165.19
- ------------------------------------- ------------------------ ------------------------ --------------------------
International Growth 212,788 1,054,454 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Managed Small Cap Value Index 16,486 5,469 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Nations Marsico Focused Equities 830,511 25,934 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Nations Marsico Growth & Income 265,230 9,903 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Small Company Growth 596,033 184,948 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Strategic Equity 96,069 0 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
Managed Value Index 15,461 0 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
International Value 45,493 0 0
- ------------------------------------- ------------------------ ------------------------ --------------------------
</TABLE>
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During the fiscal periods ended March 31, 1999, 1998, and 1997, NFT and
its Funds, NFP and its Fund, and NFI and its Funds, did not pay brokerage
commissions to NationsBanc Investments, Inc. (or its predecessors), NationsBanc
Capital Markets, Inc., or Stephens.
NFT did pay brokerage commissions to Nations Montgomery Securities LLC
("NMS") during the fiscal year ended March 31, 1999, for Nations Marsico Focused
Equities Fund, in the amount of $56,267.46, which is 6.77% of the total
commissions paid for the Fund. NFT did pay brokerage commissions to Westminster
Research Clearing NMS during the fiscal year ended March 31, 1999, for Nations
Marsico Focused Equities Fund, in the amount of $1,361.74, which is 0.16% of the
total commissions paid for the Fund. NFT did pay brokerage commissions to NMS
during the fiscal year ended March 31, 1999, for Nations Marsico Growth & Income
Fund, in the amount of $16,886.60, which is 6.36% of the total commissions paid
for the Fund. NFT did pay brokerage commissions to Westminster Research Clearing
NMS during the fiscal year ended March 31, 1999, for Nations Marsico Growth &
Income Fund, in the amount of $1,310.65, which is 0.49% of the total commissions
paid for the Fund.
NFP did pay brokerage commissions to NMS during the fiscal year ended
March 31, 1999, for the Emerging Markets Fund, in the amount of $31,719.95,
which is 7.35% of the total commissions paid for the Fund.
NFI did pay brokerage commissions to NMS during the fiscal year ended
March 31, 1999, for the Small Company Growth Fund, in the amount of $7,212.00,
which is 1.21% of the total commissions paid for the Fund.
No other Funds of NFP, NFI or NFT paid brokerage fees during the fiscal
years ended March 31, 1999, 1998 and 1997.
SECTION 28(E) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), the Adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's Directors/Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
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<PAGE>
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Funds. Similarly, any research services received by the Adviser through the
placement of fund transactions of other clients may be of value to the Adviser
in fulfilling its obligations to the Funds. The Adviser is of the opinion that
this material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Companies by improving the quality of the
Adviser's investment advice. The advisory fees paid by the Companies are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions and underwriting concessions by the Adviser's clients, including the
Funds.
DESCRIPTION OF SHARES
DESCRIPTION OF SHARES OF THE COMPANIES
The Companies' Boards of Directors/Trustees have authorized the
issuance of the classes of shares of the Funds indicated above and may, in the
future, authorize the creation of additional investment portfolios or classes of
shares.
The Boards may classify or reclassify any unissued shares of a Company
into shares of any class, classes or Fund in addition to those already
authorized by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any Fund or class. Any such classification or
reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
All shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
shareholders of the other Funds to approve the proposal as to those Portfolios.
As used in the Prospectus and in this SAI, the term "majority," when referring
to approvals to be obtained from shareholders of a Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
shareholders of more than 50% of the outstanding interests of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of a Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the shareholders of more
than 50% of the Company's outstanding shares are present in person or by proxy,
or (ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one votE for each full share held and fractional votes for
fractional shares held.
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<PAGE>
Each Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Trustees/Directors under the 1940 Act.
However, each Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Board
member, if requested in writing by the shareholders of at least 10% of the
Company's outstanding voting shares, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund, as are declared in
the discretion of the Board members. In the event of the liquidation or
dissolution of a Company, shareholders of that Company's Funds are entitled to
receive the assets attributable to the Fund that are available for distribution,
and a distribution of any general assets not attributable to a particular Fund
that are available for distribution in such manner and on such basis as the
Board members in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Companies.
Net investment income for the Funds for dividend purposes consists of
(i) interest accrued and original issue discount earned on a Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Company prorated to a Fund on the basis of
its relative net assets, plus dividend or distribution income on a Fund's
assets.
Prior to purchasing shares in one of the Funds, the impact of dividends
or distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving an amount equal to the fair market value of the
shares received, determined as of the reinvestment date.
The Funds use the so-called "equalization accounting method" to
allocate a portion of earnings and profits to redemption proceeds. This method
permits a fund to achieve more balanced distributions for both continuing and
departing shareholders. Continuing shareholders should realize tax savings or
deferrals through this method, and departing shareholders will not have their
tax obligations change. Although using this method will not affect a Fund's
total returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
DIVIDENDS AND DISTRIBUTIONS OF NFI
NATIONS PRIME AND TREASURY FUNDS. All of the net investment income
earned by each of the Money Market Funds is declared daily as a dividend to the
shareholders of record of each class of shares of each Fund. The Investor A,
Investor B, Investor C, Daily, Marsico and Primary B Shares of each such Fund
shall accrue an additional expense not borne by the Primary A Shares as a result
of the Rule 12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder
Administration Plan and/or Shareholder Administration Agreements applicable to
each such class of shares. Consequently, a separate calculation shall be made to
arrive at the dividends of each class of shares. Dividends normally accrue on
the first day that a purchase order is effective but not on the date that a
redemption order is effective. Thus, if a purchase order is accepted prior to
12:00 noon Eastern Standard Time, the shareholder will receive dividends
beginning that day. All dividends declared during a month will be paid in cash
within five business days after the end of the month. If a shareholder of record
redeems all of the shares in its account at any time during the month, all
dividends declared through the date of redemption are paid to the shareholder
along with the proceeds of the redemption within five business days of the
redemption.
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EQUITY INCOME FUND, INTERNATIONAL EQUITY FUND AND INTERNATIONAL GROWTH
FUND. Dividends and distributions from net investment income, if any, are
declared and paid quarterly, and capital gains distributions are declared and
paid annually. The Investor A, Investor B, Investor C and Primary B Shares of
the Funds shall accrue an additional expense not borne by the Primary A Shares
as a result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan
or Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
GOVERNMENT SECURITIES FUND AND GOVERNMENT BOND FUND. Dividends and
distributions from net investment income are declared daily and paid monthly,
and capital gains distributions are declared and paid annually. The Investor A,
Investor B, Investor C and Primary B Shares of the Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the 12b-1
Plans and the Shareholder Servicing Plan or Shareholder Administration Plan
and/or Shareholder Administration Agreements. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of shares of the Funds.
SMALL COMPANY GROWTH FUND AND INTERNATIONAL VALUE FUND. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor B and Investor C Shares of the Funds shall accrue an
additional expense not borne by the Primary A Shares or Primary B Shares as a
result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or
Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
DIVIDENDS AND DISTRIBUTIONS OF NFP
EMERGING MARKETS FUND. Dividends and distributions from net investment
income, if any, are declared and paid quarterly, and capital gains distributions
are declared and paid annually. The Investor A, Investor B, Investor C and
Primary B Shares of the Funds shall accrue an additional expense not borne by
the Primary A Shares as a result of the applicable Rule 12b-1 Plan, Shareholder
Servicing Plan and/or Shareholder Administration Plan. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of shares of the Funds.
DIVIDENDS AND DISTRIBUTIONS OF NFT
Dividends from net investment income are declared and paid monthly by
the Capital Growth Fund, the Disciplined Equity Fund, the Managed Index Fund and
the Value Fund. The Short-Intermediate Government Fund, the Short-Term Income
Fund, the Diversified Income Fund, the Strategic Fixed Income Fund, the NFT
Money Market Funds, and the Tax-Free Bond Funds declare dividends daily and pay
them monthly. All other NFT Non-Money Market Funds declare and pay dividends
from net investment income each calendar quarter.
MONEY MARKET FUNDS. All of the net investment income earned by each of
the Money Market Funds is declared daily as a dividend to the shareholders of
record of each class of shares of each Fund. The Investor A, Investor B,
Investor C, Daily and Primary B Shares of each such Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the Rule
12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder Administration
Plan and/or Shareholder Administration Agreements applicable to each such class
of shares. Consequently, a separate calculation shall be made to arrive at the
dividends of each class of shares. Dividends normally accrue on the first day
that a purchase order is effective but not on the date that a redemption order
is effective. Thus, if a purchase order is accepted prior to 12:00 noon Eastern
Standard Time, the shareholder will receive dividends beginning that day. All
dividends declared during a month will be paid in cash within five business days
after the end of the month. If a shareholder of record redeems all of the shares
in its account at any time during the month, all dividends declared through the
date of redemption are paid to the shareholder along with the proceeds of the
redemption within five business days of the redemption. Net income for dividend
purposes consists of (i) interest accrued and original issue discount earned on
the Fund's assets, (ii) plus the amortization of market discount (including, in
the case of the Tax Exempt Fund, market discount on tax-exempt obligations
purchased after April 30, 1993) and minus the amortization of market premium on
such assets, (iii) less accrued expenses directly attributable to the Fund and
the general expenses of Nations Funds prorated to a Fund on the basis of its
relative net assets. Shares of the Money Market Funds begin earning dividends on
the day the purchase order is executed and continue earning dividends through
and including the day before the redemption order is executed (e.g., the
settlement date).
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NON-MONEY MARKET FUNDS. With respect to the Non-Money Market Funds, net
investment income for dividend purposes consist of items (i), (ii) and (iii)
discussed above with respect to the Money Market Funds and dividend or
distribution income on such assets.
Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Shares of the Equity Funds and the Balanced Fund are eligible to
receive dividends when declared, provided however, that the purchase order for
such shares is received at least one day prior to the dividend declaration and
such shares continue to be eligible for dividends through and including the day
before the redemption order is executed.
NET ASSET VALUE DETERMINATION
Money Market Funds
The Money Market Funds use the amortized cost method of valuation to
value their shares in such Funds. Pursuant to this method, a security is valued
at its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by the Board of Trustees. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
security.
Each of the Money Market Funds invest only in high quality instruments
and maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that a
Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. NFP's and
NFI's Board of Directors and NFT's Board of Trustees each have established
procedures reasonably designed, taking into account current market conditions
and each Money Market Fund's investment objective, to stabilize the net asset
value per share of each Money Market Fund for purposes of sales and redemptions
at $1.00. These procedures include review by the Board of Directors/Trustees, at
such intervals as it deems appropriate, to determine the extent, if any, to
which the net asset value per share of each Money Market Fund calculated by
using available market quotations deviates from $1.00 per share. In the event
such deviation exceeds one-half of one percent, the Board of Directors/Trustees
will promptly consider what action, if any, should be initiated. If the Board of
Directors/Trustees believes that the extent of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it has agreed to take such steps as it
considers appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
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Non-Money Market Funds
With respect to the Non-Money Market Funds, a security listed or traded
on an exchange is valued at its last sales price on the exchange where the
security is principally traded or, lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on that
day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date. With respect to
the Bond Funds, securities may be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities.
With respect to the Non-Money Market Funds, securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors/Trustees of the Company.
Short-Term obligations having 60 days or less to maturity are valued at
amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the directors/trustees.
For purposes of determining the net asset value per share of the
International Funds, all assets and liabilities of the International Funds
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and offer prices of such currencies against U.S.
dollars quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.
A Company may redeem shares involuntarily to reimburse the Funds for
any loss sustained by reason of the failure of a shareholder to make full
payment for Investor Shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Investor Shares as provided in the related Prospectuses from
time to time. A Company also may make payment for redemptions in readily
marketable securities or other property if it is appropriate to do so in light
of such Company's responsibilities under the 1940 Act.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction
with the Prospectuses. The Prospectuses of the Funds describe generally the tax
treatment of distributions by the Funds. This section of the SAI includes
additional information concerning Federal income taxes.
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GENERAL
The Companies intend to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and, thus, the provisions of the Code applicable to regulated investment
companies generally will be applied to each Fund, rather than to a Company as a
whole. In addition, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each Fund will not be taxed on its net investment income and capital
gains distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Fund derive at least 90% of its
annual gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gains are directly
related to the regulated investment company's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) the Fund diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
Each Fund also must distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income which, for this purpose,
includes net short-term capital gains and certain other items earned in each
taxable year. In general, these distributions must actually or be deemed to be
made in the taxable year. However, in certain circumstances, such distributions
may be made in the 12 months following the taxable year. Furthermore,
distributions declared in October, November or December of one taxable year and
paid by January 31 of the following taxable year will be treated as paid by
December 31 the first taxable year. The Funds intend to pay out substantially
all of their net investment income and net capital gain (if any) for each year.
In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than
to the extent of its tax-exempt interest income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. Each
Fund intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gain by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
PRIVATE LETTER RULING
In order for a Fund to maintain regulated investment company status
under the Code, its dividends, including--for this purpose--capital gain
distributions, must not constitute "preferential dividends," within the meaning
of Section 562(c) of the Code. The Companies have received a private letter
ruling from the Internal Revenue Service ("IRS") generally to the effect that
the following will not give rise to preferential dividends: differing fees
imposed on the different classes of shares with respect to servicing,
distribution and administrative support services, and transfer agency
arrangements; differing sales charges on purchases and redemptions of such
shares; and conversion features resulting in the Companies paying different
dividends or distributions on the different classes of shares.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio
securities by a Fund will generally be capital gains and losses. Such gains and
losses will ordinarily be long-term capital gains and losses if the securities
have been held by the Fund for more than one year at the time of disposition of
the securities.
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Gains recognized on the disposition of a debt obligation purchased by a
Fund at a market discount (generally at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a Fund involving certain financial
forward, futures or options contracts may be considered, for tax purposes, to
constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a Fund
were treated as entering into "straddles" by engaging in certain financial
forward, futures or option contracts, such straddles could be characterized as
"mixed straddles" if the futures, forwards, or options comprising a part of such
straddles were governed by Section 1256 of the Code. The Fund may make one or
more elections with respect to "mixed straddles." Depending upon which election
is made, if any, the results with respect to the Fund may differ. Generally, to
the extent the straddle rules apply to positions established by the Fund, losses
realized by the Fund may be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and the conversion
transaction rules, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
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If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
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FOREIGN TAXES
Income and dividends received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the value of a Fund's total
assets at the close of its taxable year consists of securities of non-U.S.
corporations, the Fund will be eligible to file an election with the IRS
pursuant to which the regulated investment company may pass-through to its
shareholders foreign taxes paid by the regulated investment company, which may
be claimed either as a credit or deduction by the shareholders. Only the
International Funds expect to qualify for the election. However, even if a Fund
qualifies for the election, foreign taxes will only pass-through to a Fund
shareholder if (i) the shareholder holds the Fund shares for at least 16 days
during the 30 day period beginning 15 days prior to the date upon which the
shareholder becomes entitled to receive Fund distributions corresponding with
the pass-through of the foreign taxes paid by the Fund, and (ii) with respect to
foreign source dividends received by the Fund on shares giving rise to foreign
tax, the Fund holds the shares for at least 16 days during the 30 day period
beginning 15 days prior to the date upon which the Fund becomes entitled to the
dividend.
An individual with $300 or less of creditable foreign taxes generally
is exempt from foreign source income and certain other limitations imposed by
the Code on claiming a credit for such taxes. The $300 amount is increased to
$600 for joint filers.
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by a Fund as capital gain
distributions will be taxed to shareholders as long-term term capital gain (to
the extent such distributions equal or exceed the Fund's actual net capital
gains for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in a
written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to a redemption (including a
redemption in-kind) or an exchange will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
be received in the case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a capital gain distribution with respect to
any Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations have been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do not apply to losses realized under a
periodic redemption plan.
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FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 20%; and the maximum corporate tax rate applicable to ordinary income
and net capital gain is 35% (marginal tax rates may be higher for some
corporations to reduce or eliminate the benefit of lower marginal income tax
rates). Naturally, the amount of tax payable by an individual or corporation
will be affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
CORPORATE SHAREHOLDERS
Corporate shareholders of the Funds may be eligible for the
dividends-received deduction on distributions attributable to dividends received
from domestic corporations, which, if received directly by the corporate
shareholder, would qualify for such deduction. A distribution by a Fund
attributable to dividends of a domestic corporation will only qualify for the
dividends-received deduction if (i) the corporate shareholder generally holds
the Fund shares upon which the distribution is made for at least 46 days during
the 90 day period beginning 45 days prior to the date upon which the shareholder
becomes entitled to the distribution; and (ii) the Fund generally holds the
shares of the domestic corporation producing the dividend income for at least 46
days during the 90 day period beginning 45 days prior to the date upon which the
Fund becomes entitled to such dividend income.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by a Fund to a
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (each a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate if applicable). Withholding will not apply if a
distribution paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment of the foreign shareholder), in
which case the reporting and withholding requirements applicable to U.S. persons
will apply. Distributions of net long-term capital gains are generally not
subject to tax withholding.
BACKUP WITHHOLDING
The Companies may be required to withhold, subject to certain
exemptions, at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Fund shareholder, if the
shareholder fails to certify that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies a Company that the shareholder's TIN is
incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's Federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Companies could subject the investor to
penalties imposed by the IRS.
SPECIAL TAX CONSIDERATIONS PERTAINING TO THE MUNICIPAL INCOME FUND, SHORT-TERM
MUNICIPAL INCOME FUND, INTERMEDIATE MUNICIPAL BOND FUND, THE STATE INTERMEDIATE
MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
127
<PAGE>
The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds (each, a "Tax-Free Bond Fund" and
collectively the "Tax-Free Bond Funds") are designed to provide investors with a
high level of income exempt from Federal and, with respect to the Florida
Intermediate Municipal Bond Fund and Florida Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund and Georgia Municipal Bond Fund, Maryland
Intermediate Municipal Bond Fund and Maryland Municipal Bond Fund, North
Carolina Intermediate Municipal Bond Fund and North Carolina Municipal Bond
Fund, South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund and Tennessee
Municipal Bond Fund, and Virginia Intermediate Municipal Bond Fund and Virginia
Municipal Bond Fund, Florida state intangibles tax, and the Georgia, Maryland,
North Carolina, South Carolina, or Virginia state income tax, and the Tennessee
Hall Income Tax on unearned income, respectively. Florida and Texas do not
presently impose any income tax but Florida currently imposes a state
intangibles tax on intangible personal property.
Each Tax-Free Bond Fund intends that at least 50% of the value of its
total assets at the close of each quarter of its taxable years will consist of
obligations the interest on which is exempt from Federal income tax, so that
they will qualify under the Code to pay "exempt-interest dividends." The portion
of total dividends paid by the Fund with respect to any taxable year that
constitutes exempt-interest dividends will be the same for all shareholders
receiving dividends during such year. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed as
capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for Federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, each
Tax-Exempt Bond Fund will notify its shareholders of the portion of the
dividends paid with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot exceed the excess of the amount of interest excludable from gross income
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code. Interest on indebtedness incurred to purchase or carry shares of a Fund
will not be deductible to the extent that the Fund's distributions are exempt
from Federal income tax.
In addition, the Federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items generally is tax-exempt interest from "private activity bonds."
To the extent that a Fund invests in private activity bonds, its shareholders
who pay AMT will be required to report that portion of Fund dividends
attributable to income from the bonds as a tax preference item in determining
their AMT. Shareholders will be notified of the tax status of distributions made
by the Fund. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax advisors before purchasing shares in the Fund. Furthermore,
shareholders will not be permitted to deduct any of their share of the Fund's
expenses in computing their AMT. With respect to a corporate shareholder of such
Funds, exempt-interest dividends paid by a Fund is included in the corporate
shareholder's "adjusted current earnings" as part of its AMT calculation, and
may also affect its Federal "environmental tax" liability. As of the printing of
this SAI, individuals are subject to an AMT at a maximum rate of 28% and
corporations at a maximum rate of 20%. Shareholders with questions or concerns
about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends all long-term and
short-term capital gains will be subject to state income tax (other than Florida
and Texas) unless specifically exempted by statute including, in the case of
Virginia, statutory provisions creating the agency or political subdivision.
128
<PAGE>
Florida does not impose a personal income tax. Thus individual
shareholders of the Funds will not be subject to any Florida income tax on
distribution received from the Funds. However, Florida does impose an income tax
on corporations. Consequently Florida imposes an annual intangible personal
property tax on intangible personal property (including but not limited to
stocks or shares of business trusts or mutual funds) held by persons domiciled
in the State of Florida, regardless of where such property is kept. Florida
counsel has, however, advised the Fund that shares in the Nations Florida
Intermediate Municipal Bond Fund and the Nations Florida Municipal Bond Fund
shall not be subject to Florida's intangible personal property tax if on January
1 of each tax year at least 90 percent of the net assets of the portfolio of
such Fund consists of obligations of the government of the United States of
America, its agencies, instrumentalities, the Commonwealth of Puerto Rico, the
government of Guam, the government of American Samoa, the government of the
Northern Mariana Islands, the State of Florida, its political subdivisions,
municipalities or other taxing districts.
The Nations Florida Intermediate Municipal Bond Fund and Nations
Florida Municipal Bond Fund anticipate that at least 90 percent of the net
assets of the portfolio will contain assets that are exempt from Florida's
intangible personal property tax on January 1 of each tax year. If the portfolio
of the Fund did not, however, meet this 90 percent test, the only the portion of
the net asset value of the portfolio which is made up of direct obligations of
the United States of America, its agencies, territories and possessions (as
described above) may be removed from the net asset value for purposes of
computing the intangible personal property tax. The remaining net asset value of
the portfolio and hence a portion of the net asset value of the shares in the
Nations Florida Intermediate Municipal Bond Fund and Nations Florida Municipal
Bond Fund would be subject to the intangible personal property tax. Notice as to
the tax status of your shares will be mailed to you annually. Owners of shares
in the Nations Florida Intermediate Municipal Bond Fund or Nations Florida
Municipal Bond Fund should consult their tax advisers with specific reference to
their own tax situation if advised that a portion of the portfolio of such Funds
consisted on January 1 of any year of assets which are not exempt from Florida's
annual intangible personal property tax. Such annual intangible personal
property tax, if any, is due and payable on June 30 of such year in which the
tax liability arises.
The portion of Nations Maryland Intermediate Municipal Bond Fund's and
Nations Maryland Municipal Bond Fund's exempt-interest dividends paid from
interest received by such Funds from tax-exempt obligations of the state of
Maryland or its political subdivisions or authorities, or obligations issued by
the government of Puerto Rico, the U.S. Virgin Islands or Guam or their
authorities ("Maryland Municipal Bonds") and distributions attributable to gains
from Maryland Municipal Bonds (other than obligations issued by U.S.
possessions) or interest on U.S. Government obligations will be exempt from
Maryland personal and corporate income taxes; any other dividends from Nations
Maryland Intermediate Municipal Bond Fund and Nations Maryland Municipal Bond
Fund will be subject to Maryland income tax. However, shareholders of Nations
Maryland Intermediate Municipal Bond Fund and Nations Maryland Municipal Bond
Fund that are financial institutions otherwise subject to Maryland financial
institution franchise taxes will be subject to such taxes on distributions
received from such Funds (including exempt-interest dividends). Individual
shareholders subject to income taxation by states other than Maryland will
realize a lower after tax rate of return than Maryland shareholders since the
dividends distributed by Nations Maryland Intermediate Municipal Bond Fund and
Nations Maryland Municipal Bond Fund generally will not be exempt, to any
significant degree, from income taxation by such other states. The Trust will
inform shareholders annually regarding the portion of Nations Maryland
Intermediate Municipal Bond Fund's and Nations Maryland Municipal Bond Fund's
distributions that constitutes exempt-interest dividends and the portion that is
exempt from Maryland income taxes. Maryland presently includes in Maryland
taxable income a portion of certain items of tax preference as defined in the
Code. Interest paid on certain private activity bonds constitutes such a tax
preference if the bonds (i) are not Maryland Municipal Bonds or (ii) are
Maryland Municipal Bonds issued by U.S. possessions. Accordingly, up to 50% of
any distributions from Nations Maryland Intermediate Municipal Bond Fund and
Nations Maryland Municipal Bond Fund attributable to interest on such private
activity bonds may not be exempt from Maryland State and local individual income
taxes. Shares of Nations Maryland Intermediate Municipal Bond Fund and Nations
Maryland Municipal Bond Fund will not be subject to the Maryland personal
property tax.
The North Carolina intangibles tax was repealed by Ch. 41, 1995 N.C.
Sess. Laws, effective for taxable years beginning on or after January 1, 1995.
Although capital gain distributions generally are subject to tax in North
Carolina, individual shareholders of the North Carolina Intermediate Municipal
Bond Fund and the North Carolina Municipal Bond Fund may deduct the amount of
capital gain distributions (if any) attributable to the sale of certain
obligations issued before July 1, 1995 from their federal taxable income for
purposes of determining their North Carolina taxable income.
129
<PAGE>
Although any net capital gain recognized with respect to the sale or
exchange of shares of a Fund may be subject to the South Carolina state income
tax, individuals, estates and trusts are entitled to a deduction for South
Carolina taxable income purposes equal to 44% of the net capital gain recognized
from the sale or exchange of an asset which has been held for a period of two or
more years. In the case of estates or trusts, the deduction is applicable only
to income taxed to the estate or trust or individual beneficiaries and not
income passed through to nonindividual beneficiaries.
The Tennessee Hall Income Tax imposes a tax on income received by way
of dividends from stock or interest on bonds. Dividends from a qualified
regulated investment company are exempt from the Hall Income Tax, but only to
the extent attributable to interest on bonds or securities of the U.S.
Government or any agency or instrumentality thereof or on bonds of the State of
Tennessee or any county or any municipality or political subdivision thereof,
including any agency, board, authority or commission of any of the above.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds
may involve sophisticated tax rules that may result in income or gain
recognition by a Fund without corresponding current cash receipts. Although the
Funds will seek to avoid significant noncash income, such noncash income could
be recognized by a Fund, in which case the Fund may distribute cash derived from
other sources in order to meet the minimum distribution requirements described
above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for each Company's
Funds may be obtained by calling the Company at (800) 321-7854.
From time to time, the yield and total return of a Fund's Investor
Shares and Primary Shares may be quoted in advertisements, shareholder reports,
and other communications to shareholders. Each Fund of the Company also may
quote information obtained from the Investment Company Institute in its
advertising materials and sales literature. In addition, certain potential
benefits of investing in world securities markets may be discussed in
promotional materials. Such benefits include, but are not limited to: a) the
expanded opportunities for investment in securities markets outside the U.S.; b)
the growth of securities markets outside the U.S. vis-a-vis U.S. markets; c) the
relative return associated with foreign securities markets vis-a-vis U.S.
markets; and d) a reduced risk of portfolio volatility resulting from a
diversified securities portfolio consisting of both U.S. and foreign securities.
Performance information is available by calling 1-800-321-7854 with respect to
Investor Shares and 1-800-621-2192 with respect to Primary Shares.
YIELD CALCULATIONS
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
130
<PAGE>
MONEY MARKET FUNDS. The "yield" and "effective yield" of Primary A,
Primary B, Investor A, Investor B, Investor C and Daily Shares of each Money
Market Fund of NFT are computed separately as described below according to
formulas prescribed by the SEC. The standardized seven-day yield is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the particular Fund involved having a
balance of one share of the class or series involved at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of an
account in each Fund includes the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares; and all fees, other than nonrecurring
account or sales charges, that are charged to shareholder accounts in proportion
to the length of the base period and the Fund's average account size. The
capital changes to be excluded from the calculation of the net change in account
value are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yield for a class or
series of shares in a Fund is computed by compounding the unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
In addition, the "tax-equivalent yield" of the Primary A, Primary B,
Investor A, Investor B, Investor C and Daily Shares of the Tax Exempt Fund is
computed by: (a) dividing the portion of the yield that is exempt from Federal
income tax by one minus a stated Federal income tax rate; and (b) adding the
figure resulting from (a) above to that portion, if any, of the yield that is
not exempt from Federal income tax.
The effective yield quotations for the Primary Shares and Investor
Shares of the Money Market Funds are computed by compounding the unannualized
seven-day base period return as follows: 1 is added to the base period return
and this sum is then raised to a power equal to (5/7), and 1 is then subtracted
from the result. Based on the seven-day period ended March 31, 1999, (the "base
period"), the current and effective yields of the various shares of the Money
Market Funds were as follows:
<TABLE>
<CAPTION>
Seven Day Yield
Effective
Yield Without Yield Tax
Fee Waivers Without Fee Tax Equivalent
Effective Waivers Equivalent Yield w/o
Yield Yield Yield Waivers
<S> <C> <C> <C> <C>
Prime Fund
Primary A Shares 4.82% 4.78% 4.94% 4.90% n/a n/a
Primary B Shares 4.57% 4.53% 4.68% 4.64% n/a n/a
Investor A Shares 4.47% 4.43% 4.57% 4.53% n/a n/a
Investor B Shares 4.57% 4.43% 4.68% 4.64% n/a n/a
Investor C Shares 4.58% 4.54% 4.68% 4.64% n/a n/a
Daily Shares 4.32% 4.08% 4.41% 4.17% n/a n/a
Marsico Shares 4.57% 4.53% 4.68% 4.64% n/a n/a
Treasury Fund
Primary A Shares 4.66% 4.61% 4.77% 4.72% n/a n/a
Primary B Shares 4.41% 4.38% 4.50% 4.45% n/a n/a
Investor A Shares 4.31% 4.26% 4.40% 4.35% n/a n/a
Investor B Shares 4.41% 4.26% 4.50% 4.35% n/a n/a
Investor C Shares 4.41% 4.36% 4.50% 4.45% n/a n/a
Daily Shares 4.16% 3.91% 4.24% 3.99% n/a n/a
SEVEN DAY YIELD FOR THE YEAR ENDED 3/31/99
Tax Equivalent Yields @ 39.6%
Effective Tax
Yield Yield Tax Equivalent
Without Effective Without Equivalent Yield
Yield Fee Waivers Yield Fee Waivers Yield Without
Fee Waivers
Government Money Market Fund
Primary A Shares 4.76% 4.48% 4.88% 4.60% n/a n/a
Primary B Shares 4.51% 4.23% 4.61% 4.33% n/a n/a
Investor A Shares 4.41% 4.13% 4.51% 4.23% n/a n/a
Investor B Shares 4.51 4.13% 4.61% 4.23% n/a n/a
Investor C Shares 4.50% 4.22% 4.61% 4.33% n/a n/a
Daily Shares 4.26% 3.78% 4.35% 3.87% n/a n/a
131
<PAGE>
Effective Tax
Yield Yield Tax Equivalent
Without Effective Without Equivalent Yield
Yield Fee Waivers Yield Fee Waivers Yield Without
Fee Waivers
Tax Exempt Fund
Primary A Shares 2.84% 2.69% 2.88% 2.63% 4.70% 4.29%
Primary B Shares 2.59% 2.34% 2.62% 2.37% 4.29% 3.87%
Investor A Shares 2.49% 2.24% 2.52% 2.27% 4.12% 3.71%
Investor B Shares 2.64% 2.24% 2.67% 2.27% 4.37% 3.71%
Investor C Shares 2.59% 2.34% 2.62% 2.37% 4.29% 3.87%
Daily Shares 2.34% 1.89 2.36% 1.91% 3.87% 3.13%
</TABLE>
NON-MONEY MARKET FUNDS. Yield is calculated separately for the Investor
A, Investor C, Investor B, Primary A and Primary B Shares of a Non-Money Market
Fund by dividing the net investment income per share for a particular class or
series of shares (as described below) earned during a 30-day period by the
maximum offering price per share on the last day of the period (for Primary A
and Primary B Shares, maximum offering price per share is the same as the net
asset value per share) and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. For a class or series of
shares in a Fund, net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
Yield = 2 [(a-b+ 1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period (again, for Primary A and Primary B
Shares, this is equivalent to net asset value per
share).
For the purpose of determining net investment income earned during the
period (variable- "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations. The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds calculate interest gained on tax-exempt
obligations issued without original issue discount and having a current market
discount by using the coupon rate of interest instead of the yield to maturity.
In the case of tax-exempt obligations that are issued with original issue
discount, where the discount based on the current market value exceeds the
then-remaining portion of original issue discount, the yield to maturity is the
imputed rate based on the original issue discount calculation. Conversely, where
the discount based on the current market value is less than the remaining
portion of the original issue discount, the yield to maturity is based on the
market value.
132
<PAGE>
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Funds to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. A Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's prospectus.
The Funds may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor C or Investor
B Shares. These may be calculated based on the Investor A, Investor C or
Investor B Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor C or Investor B Shares may also include additional yield
calculations prepared for the holders of Primary A or Primary B Shares. Such
additional quotations, therefore, will not reflect the effect of the sales
charges mentioned above.
INVESTOR A SHARES ONLY. Based on the foregoing calculations, the yield,
taking into account fee waivers and/or expense reimbursements, and the yield
without fee waivers and/or expense reimbursements for the 30-day period ended
March 31, 1999 were as follows:
THIRTY DAY YIELD FOR THE PERIOD ENDED 3/31/99
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
Short-Intermediate Government Fund
<S> <C> <C> <C> <C>
Primary A Shares 5.17% 4.97% n/a n/a
Primary B Shares 4.82% 4.37% n/a n/a
Investor A Shares 4.97% 4.72% n/a n/a
Investor B Shares 4.37% 3.97% n/a n/a
Investor C Shares 4.58% 4.14% n/a n/a
Short-Term Income Fund
Primary A Shares 5.69% 5.39% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.49% 5.14% n/a n/a
Investor B Shares 5.35% 4.40% n/a n/a
Investor C Shares 4.69% 3.90% n/a n/a
Diversified Income Fund
Primary A Shares 6.27% 6.17% n/a n/a
Primary B Shares n/a n/a n/a n/a
sInvestor A Shares 6.02% 5.92% n/a n/a
Investor B Shares 5.42% 5.17% n/a n/a
Investor C Shares 5.27% 5.03% n/a n/a
Strategic Fixed Income Fund
Primary A Shares 5.89% 5.79% n/a n/a
Primary B Shares 0.78% 0.78% n/a n/a
Investor A Shares 5.69% 5.54% n/a n/a
Investor B Shares 5.08% 4.78% n/a n/a
Investor C Shares 5.24% 4.86% n/a n/a
133
<PAGE>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
Municipal Income Fund
Primary A Shares 4.73% 4.53% 7.83% 7.50%
Investor A Shares 4.53% 4.28% 7.50% 7.09%
Investor B Shares 3.88% 3.53% 6.42% 5.84%
Investor C Shares 3.96% 2.52% 6.56% 4.17%
Short-Term Municipal Income Fund
Primary A Shares 4.07% 3.67% 6.74% 6.08%
Investor A Shares 3.87% 3.42% 6.41% 5.66%
Investor B Shares 3.72% 2.67% 6.16% 4.42%
Investor C Shares 3.07% 2.10% 5.08% 3.48%
Intermediate Municipal Bond Fund
Primary A Shares 4.56% 4.38% 7.55% 7.25%
Investor A Shares 4.36% 4.13% 7.22% 6.84%
Investor B Shares 3.76% 3.38% 6.23% 5.60%
Investor C Shares 4.06% 3.59% 6.72% 5.94%
Florida Intermediate Municipal Bond Fund
Primary A Shares 4.60% 4.38% 7.62% 7.25%
Investor A Shares 4.40% 4.13% 7.28% 6.84%
Investor B Shares 3.80% 3.38% 6.29% 5.60%
Investor C Shares 3.60% 3.24% 5.96% 5.36%
Georgia Intermediate Municipal Bond Fund
Primary A Shares 4.57% 4.34% 8.05% 7.65%
Investor A Shares 4.37% 4.09% 7.70% 7.20%
Investor B Shares 3.77% 3.34% 6.64% 5.88%
Investor C Shares 3.56% 3.14% 6.27% 5.53%
Maryland Intermediate Municipal Bond Fund
Primary A Shares 4.50% 4.26% 7.83% 7.41%
Investor A Shares 4.30% 4.01% 7.48% 6.98%
Investor B Shares 3.70% 3.26% 6.44% 5.68%
Investor C Shares 3.50% 3.08% 6.09% 5.36%
North Carolina Intermediate Municipal Bond Fund
Primary A Shares 4.52% 4.31% 8.11% 7.74%
Investor A Shares 4.32% 4.06% 7.75% 7.28%
Investor B Shares 3.73% 3.32% 6.70% 5.96%
Investor C Shares 3.52% 3.12% 6.32% 5.60%
South Carolina Intermediate Municipal Bond Fund
Primary A Shares 4.77% 4.58% 8.49% 8.15%
Investor A Shares 4.57% 4.33% 8.14% 7.71%
Investor B Shares 3.97% 3.58% 7.06% 6.38%
Investor C Shares 3.73% 3.36% 6.65% 5.98%
Tennessee Intermediate Municipal Bond Fund
Primary A Shares 4.45% 4.10% 7.84% 7.22%
Investor A Shares 4.25% 3.85% 7.49% 6.78%
Investor B Shares 3.65% 3.10% 6.43% 5.46%
Investor C Shares 4.73% 3.99% 8.33% 7.03%
Texas Intermediate Municipal Bond Fund
Primary A Shares 4.66% 4.48% 7.72% 7.42%
Investor A Shares 4.45% 4.22% 7.37% 6.99%
Investor B Shares 3.86% 3.48% 6.39% 5.76%
Investor C Shares 3.74% 3.39% 6.19% 5.61%
Virginia Intermediate Municipal Bond Fund
Primary A Shares 4.47% 4.27% 7.85% 7.50%
Investor A Shares 4.27% 4.02% 7.50% 7.07%
Investor B Shares 3.67% 3.27% 6.45% 5.74%
Investor C Shares 3.47% 3.11% 6.10% 5.46%
134
<PAGE>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
Florida Municipal Bond Fund
Primary A Shares 4.81% 4.56% 7.96% 7.55%
Investor A Shares 4.61% 4.31% 7.63% 7.14%
Investor B Shares 3.96% 3.56% 6.56% 5.89%
Investor C Shares 3.80% 3.48% 6.29% 5.76%
Georgia Municipal Bond Fund
Primary A Shares 4.47% 3.89% 7.87% 6.85%
Investor A Shares 4.27% 3.64% 7.52% 6.41%
Investor B Shares 3.62% 2.89% 6.37% 5.09%
Investor C Shares 3.47% 2.78% 6.12% 4.89%
Maryland Municipal Bond Fund
Primary A Shares 4.28% 3.81% 7.45% 6.63%
Investor A Shares 4.08% 3.56% 7.10% 6.19%
Investor B Shares 3.42% 2.80% 5.95% 4.88%
Investor C Shares 3.19% 2.59% 5.55% 4.51%
North Carolina Municipal Bond Fund
Primary A Shares 4.65% 4.25% 8.35% 7.63%
Investor A Shares 4.45% 4.00% 7.99% 7.18%
Investor B Shares 3.80% 3.25% 6.82% 5.83%
Investor C Shares 3.68% 3.15% 6.60% 5.66%
South Carolina Municipal Bond Fund
Primary A Shares 4.60% 4.02% 8.19% 7.16%
Investor A Shares 4.40% 3.77% 7.83% 6.71%
Investor B Shares 3.75% 3.01% 6.68% 5.35%
Investor C Shares 3.59% 2.85% 6.39% 5.08%
Tennessee Municipal Bond Fund
Primary A Shares 4.57% 3.62% 8.05% 6.37%
Investor A Shares 4.36% 3.36% 7.68% 5.91%
Investor B Shares 3.72% 2.62% 6.55% 4.62%
Investor C Shares 3.52% 2.43% 6.20% 4.28%
Texas Municipal Bond Fund
Primary A Shares 4.63% 3.98% 7.67% 6.59%
Investor A Shares 4.42% 3.72% 7.32% 6.16%
Investor B Shares 3.78% 2.98% 6.26% 4.93%
Investor C Shares 3.62% 2.83% 6.99% 4.69%
Virginia Municipal Bond Fund
Primary A Shares 4.75% 4.24% 8.34% 7.45%
Investor A Shares 4.54% 3.98% 7.98% 6.99%
Investor B Shares 3.89% 3.23% 6.83% 5.68%
Investor C Shares 3.53% 2.87% 6.20% 5.04%
</TABLE>
The "tax-equivalent" yield is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by (b) one minus
(i) a stated Federal income tax rate, and, for the State Intermediate Municipal
Bond Funds, (ii) a state income tax rate multiplied by one minus the stated
Federal income tax rate. The Federal income tax rate used in calculating the
"tax-equivalent" yield 39.6%. The state income tax rate used in calculating the
"tax-equivalent" yield of the State Intermediate Municipal Bond Funds is as
follows: Florida --0%;; Georgia --6%; Maryland --4.875%; North Carolina --7.75%;
South Carolina --7%; Tennessee 6%; Texas --0%; and Virginia --5.75%.
Hypothetical examples showing the level of taxable yield needed to
produce on after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided below are such illustrations:
135
<PAGE>
For the Georgia Intermediate Municipal Bond Fund and Georgia Municipal
Bond Fund:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
4% 5.91% 6.17% 6.65%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
5% 7.39% 7.71% 8.31%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
6% 8.87% 9.25% 9.97%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
7% 10.34% 10.79% 11.64%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
8% 11.82% 12.33% 13.30%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Georgia (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
For the Maryland Intermediate Municipal Bond Fund and Maryland
Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
4% 6.00% 6.26% 6.75%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
5% 7.50% 7.82% 8.43%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
6% 9.00% 9.39% 10.12%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
7% 10.50% 10.95% 11.81%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
8% 12.00% 12.52% 13.50%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%), Maryland (4.875%) and local county (which,
for purposes of the above table is approximately 2.5%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
For the North Carolina Intermediate Municipal Bond Fund and North
Carolina Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$60,000 $60,001-$61,400 $61,401-$128,100 $128,101-$278,450
(28%, 7%) (28%, 7.75%) (31%, 7.75%) (36%, 7.75%)
- ------------------- ------------------- ------------------ --------------------- -------------------
Joint Return $42,351-$100,000 $100,001-$102,300 $102,301-$155,950 $155,951-$278,450
(28%, 7%) (28%,7.75%) (31%, 7.75%) (36%, 7.75%)
- ------------------- ------------------- ------------------ --------------------- -------------------
136
<PAGE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------ -------------------
4% 6.12% 6.28% 6.78% 7.18%
- --------------------- ------------------ ------------------ ------------------ -------------------
5% 7.53% 7.86% 8.47% 8.97%
- --------------------- ------------------ ------------------ ------------------ -------------------
6% 9.07% 9.43% 10.46% 10.77%
- --------------------- ------------------ ------------------ ------------------ -------------------
7% 10.54% 11.00% 11.86% 12.54%
- --------------------- ------------------ ------------------ ------------------ -------------------
8% 12.04% 12.52% 13.55% 14.36%
- --------------------- ------------------ ------------------ ------------------ -------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31% 36%) and North Carolina (7%, 7.75%) tax rates and
assume a Federal tax benefit for the state and local taxes. Note that the
highest 1998 marginal Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal tax rate
imposed on taxable income in excess of $278,450.
For the South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450(36%,
(28%, 7%) (31%, 7%) 7%)
- ------------------- ------------------- -------------------- --------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
(28%, 7%) (31%, 7%) (36%, 7%)
- ------------------- ------------------- -------------------- --------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 5.97% 6.23% 6.72%
- --------------------- ------------------ ------------------ ------------------
5% 7.47% 7.79% 8.40%
- --------------------- ------------------ ------------------ ------------------
6% 8.96% 9.35% 10.08%
- --------------------- ------------------ ------------------ ------------------
7% 10.45% 10.91% 11.76%
- --------------------- ------------------ ------------------ ------------------
8% 11.95% 12.47% 13.44%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and South Carolina (7%) tax rates and assume
a Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
137
<PAGE>
For the Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
4% 5.91% 6.17% 6.65%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
5% 7.39% 7.71% 8.31%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
6% 8.87% 9.25% 9.97%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
7% 10.34% 10.79% 11.64%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
8% 11.82% 12.33% 13.30%
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Tennessee (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
For the Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-128,100 $128,101-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 5.89% 6.15% 6.63%
- --------------------- ------------------ ------------------ ------------------
5% 7.37% 7.69% 8.29%
- --------------------- ------------------ ------------------ ------------------
6% 8.84% 9.23% 9.95%
- --------------------- ------------------ ------------------ ------------------
7% 10.32% 10.76% 11.60%
- --------------------- ------------------ ------------------ ------------------
8% 11.79% 12.30% 13.26%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Virginia (5.75%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
For the Municipal Income Fund, Short-Term Municipal Income Fund, the
Intermediate Municipal Bond Fund, the Florida Intermediate Municipal Bond Fund,
Florida Municipal Bond Fund, the Texas Intermediate Municipal Bond Fund and
Texas Municipal Bond Fund:
138
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joint Return $42,352-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 5.56% 5.80% 6.25%
- --------------------- ------------------ ------------------ ------------------
5% 6.94% 7.25% 7.81%
- --------------------- ------------------ ------------------ ------------------
6% 8.33% 8.70% 9.38%
- --------------------- ------------------ ------------------ ------------------
7% 9.72% 10.14% 10.94%
- --------------------- ------------------ ------------------ ------------------
8% 11.11% 11.59% 12.50%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) tax rates. This analysis does not take into
account any state or local taxes imposed, although, with respect to the Florida
Intermediate Municipal Bond Fund, the Florida Municipal Bond Fund, the Texas
Intermediate Municipal Bond Fund and the Texas Municipal Bond Fund, neither
Florida nor Texas impose a personal income tax. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
There can be no assurance that all of a yield quoted by one of these
Funds will be tax-free since these Funds may invest in short-term taxable
obligations for temporary defensive periods as described in the Prospectuses.
Also, the above hypothetical examples are for illustration only. Tax laws and
regulations may be changed at any time by legislative or administrative actions
and such changes may make the information contained in such examples obsolete.
<TABLE>
<CAPTION>
Thirty Day Yield
Yield Without Fee
Government Securities Fund Yield Waivers
----- -------
<S> <C> <C>
Primary A Shares 5.69% 5.39%
Primary B Shares n/a n/a
Investor A Shares 5.49% 5.14%
Investor B Shares 5.35% 4.40
Investor C Shares 4.69% 3.90%
</TABLE>
During the period for which certain yield quotations are given above,
Bank of America and the Administrator voluntarily waived fees or reimbursed
certain expenses of such shares, thereby increasing yield figures. Such waivers
or expense reimbursements may be discontinued at any time.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC. Average annual total return
figures are computed by determining the average annual compounded rates of
return over the periods indicated in the advertisement, sales literature or
shareholders' report that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.
139
<PAGE>
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts.
The following figures, for the period ended March 31, 1999, reflect the
deduction of sales charges, if any, that would have been deducted from a sale of
shares.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS INCEPTION THROUGH INCEPTION THROUGH
3/31/99 WITHOUT SALES 3/31/99 INCLUDING
CHARGES SALES CHARGES
<S> <C> <C>
Emerging Markets Fund
Primary A. Shares -4.57% -4.57%
Primary B Shares -8.68% -8.68%
Investor A Shares -4.83% -6.32%
Investor B Shares -5.52% -6.28%
Investor C Shares -5.35% -5.35%
</TABLE>
The Primary Shares and Investor Shares of the Funds may also quote
their distribution rates, which express the historical amount of income
dividends paid to their shareholders during a one-month or a three-month (in the
case of the Emerging Markets Fund) period as a percentage of the maximum
offering price per share on the last day of such period.
The performance figures of the Funds as described above will vary from
time to time depending upon market and economic conditions, the composition of
their portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
140
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
5 YEAR PERIOD ENDED
ONE YEAR 3/31/99 OR INCEPTION
PERIOD ENDED 3/31/99 THROUGH 3/31/99
<S> <C> <C>
Equity Income Fund
Primary A Shares -9.40% 14.85%
Primary B -11.24% 11.37%
Investor A -9.87% 14.51%
Investor B 10.49% 13.85%
Investor C -10.28% 13.91%
International Equity Fund
Primary A 3.68% 7.60%
Primary B 3.71% 6.37%
Investor A 3.59% 7.37%
Investor B 2.65% 6.60%
Investor C 2.63% 6.64%
Government Securities Fund
Primary A 5.41% 6.04%
Primary B 2.09% 5.39%
Investor A 5.16% 5.78%
Investor B 4.53% 5.29%
Investor C 4.52% 5.30%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
ONE 10 YEAR
YEAR PERIOD ENDED
PERIOD 5-YEAR 3/31/99 OR
ENDED PERIOD ENDING INCEPTION
3/31/99 3/31/99 THROUGH
3/31/99
<S> <C> <C> <C>
Value Fund
Primary A Shares 4.15% 19.39% 15.26%
Primary B Shares 3.66 -- 19.14%
Investor A Shares 3.96% 19.14% 15.41%
Investor B Shares 3.11% 18.44% 16.95%
Investor C Shares 3.39% 18.50% 16.58%
Capital Growth Fund
Primary A Shares 14.99% 22.08% 18.77%
Primary B Shares 14.59% -- 25.67%
Investor A Shares 14.70% 21.82% 18.52%
Investor B Shares 13.86% 20.89% 18.79%
Investor C Shares 13.76% 21.09% 17.77%
Emerging Growth Fund
Primary A Shares -7.21% 15.25% 13.54%
Primary B Shares -4.25% -- 9.62%
Investor A Shares -7.41% 15.01% 13.55%
Investor B Shares -8.10% 14.14% 13.90%
Investor C Shares -8.08% 14.30% 12.85%
Managed Index Fund
Primary A Shares 15.25% -- 30.76%
Primary B Shares 14.78% -- 30.34%
Investor A Shares 14.97% -- 30.50%
Managed SmallCap Index Fund
Primary A Shares -20.50% -- 6.16%
Primary B Shares -21.05% -- 5.61%
Investor A Shares -20.67% -- 5.90%
Managed Value Index Fund
Primary A Shares 3.06% -- 12.54%
Primary B Shares 3.10% -- 12.57%
Investor A Shares 2.97% -- 12.39%
141
<PAGE>
ONE 10 YEAR
YEAR PERIOD ENDED
PERIOD 5-YEAR 3/31/99 OR
ENDED PERIOD ENDING INCEPTION
3/31/99 3/31/99 THROUGH
3/31/99
Managed SmallCap Value Index Fund
Primary A Shares -20.11% -- -6.17
Primary B Shares -20.22% -- -6.27%
Investor A Shares -20.23% -- -6.32%
Disciplined Equity Fund
Primary A Shares 15.74% 21.44% 25.33%
Primary B Shares 16.37% -- 27.11%
Investor A Shares 15.49% 21.22% 20.32%
Investor B Shares 14.69% -- 22.15%
Investor C Shares 14.64% -- 25.59%
Equity Index Fund
Primary A Shares 18.26% 25.84% 23.50%
Primary B Shares 17.63% -- 27.81%
Investor A Shares 18.00% -- 27.41%
Balanced Assets Fund
Primary A Shares -1.20% 13.62% 12.03%
Primary B Shares -2.18% -- 12.57%
Investor A Shares -1.36% 13.38% 11.80%
Investor B Shares -2.13% 12.71% 11.22%
Investor C Shares -2.17% 12.68% 11.08%
Short-Intermediate Government Fund
Primary A Shares 4.97% 5.63% 6.44%
Primary B Shares 4.61% -- 6.03%
Investor A Shares 4.76% 5.42% 6.27%
Investor B Shares 4.14% 4.94% 4.43%
Investor C Shares 4.05% 5.01% 4.89%
Short-Term Income Fund
Primary A Shares 6.07% 6.04% 5.54%
Primary B Shares 0.30% -- 3.40%
Investor A Shares 5.85% 5.83% 5.30%
Investor B Shares 5.70% 5.66% 5.25%
Investor C Shares 5.64% 5.65% 5.11%
Diversified Income Fund
Primary A Shares 5.00% 7.50% 8.14%
Primary B Shares -0.24% -- 5.09%
Investor A Shares 4.74% 7.23% 7.86%
Investor B Shares 4.11% 6.66% 6.23%
Investor C Shares 4.09% 6.74% 7.47%
Strategic Fixed Income Fund
Primary A Shares 5.61% 6.66% 6.61%
Primary B Shares 0.92% -- 4.76%
Investor A Shares 5.40% 6.44% 6.41%
Investor B Shares 4.76% 5.92% 5.24%
Investor C Shares 4.90% 6.06% 6.01%
142
<PAGE>
ONE 10 YEAR
YEAR PERIOD ENDED
PERIOD 5-YEAR 3/31/99 OR
ENDED PERIOD ENDING INCEPTION
3/31/99 3/31/99 THROUGH
3/31/99
Municipal Income Fund
Primary A Shares 5.42% 7.69% 7.78%
Investor A Shares 5.21% 7.47% 7.61%
Investor B Shares 4.53% 6.85% 5.65%
Investor C Shares 4.64% 6.96% 6.58%
Short-Term Municipal Income Fund
Primary A Shares 4.71% 4.85% 4.44%
Investor A Shares 4.50% 4.64% 4.30%
Investor B Shares 4.34% 4.48% 4.08%
Investor C Shares 4.29% -- 4.57%
Intermediate Municipal Bond Fund
Primary A Shares 5.33% 6.23% 5.51%
Investor A Shares 5.12% 6.02% 5.14%
Investor B Shares 4.49% 5.61% 4.72%
Investor C Shares 4.80% -- 6.85%
Florida Intermediate Municipal Bond Fund
Primary A Shares 4.95% 6.17% 5.98%
Investor A Shares 4.74% 5.96% 5.80%
Investor B Shares 4.11% 5.54% 4.91%
Investor C Shares 4.10% 5.54% 5.34%
Georgia Intermediate Municipal Bond Fund
Primary A Shares 5.20% 6.14% 6.35%
Investor A Shares 4.99% 5.93% 6.21%
Investor B Shares 4.37% 5.50% 4.84%
Investor C Shares 4.35% 5.50% 5.53%
Maryland Intermediate Municipal Bond Fund
Primary A Shares 5.18% 5.92% 6.55%
Investor A Shares 4.97% 5.71% 6.39%
Investor B Shares 4.34% 5.29% 4.60%
Investor C Shares 4.32% 5.28% 5.08%
North Carolina Intermediate Municipal Bond Fund
Primary A Shares 5.03% 6.12% 5.87%
Investor A Shares 4.82% 5.91% 5.66%
Investor B Shares 4.20% 5.49% 4.81%
Investor C Shares 4.18% 5.48% 5.21%
South Carolina Intermediate Municipal Bond Fund
Primary A Shares 5.22% 6.15% 6.15%
Investor A Shares 5.01% 5.94% 6.04%
Investor B Shares 4.39% 5.52% 4.91%
Investor C Shares 4.36% 5.52% 5.44%
143
<PAGE>
ONE 10 YEAR
YEAR PERIOD ENDED
PERIOD 5-YEAR 3/31/99 OR
ENDED PERIOD ENDING INCEPTION
3/31/99 3/31/99 THROUGH
3/31/99
Tennessee Intermediate Municipal Bond Fund
Primary A Shares 5.18% 6.07% 5.36%
Investor A Shares 4.97% 5.86% 5.25%
Investor B Shares 4.34% 5.44% 4.80%
Investor C Shares 4.28% -- 6.64%
Texas Intermediate Municipal Bond Fund
Primary A Shares 4.98% 5.98% 5.59%
Investor A Shares 4.77% 5.77% 5.14%
Investor B Shares 4.15% 5.35% 4.57%
Investor C Shares 4.14% -- 6.40%
Virginia Intermediate Municipal Bond Fund
Primary A Shares 5.21% 5.88% 6.38%
Investor A Shares 5.00% 5.67% 6.22%
Investor B Shares 4.38% 5.25% 4.62%
Investor C Shares 4.36% 5.25% 5.13%
Florida Municipal Bond Fund
Primary A Shares 4.90% 7.38% 5.39%
Investor A Shares 4.69% 7.16% 5.07%
Investor B Shares 4.01% 6.55% 4.42%
Investor C Shares 4.01% -- 8.45%
Georgia Municipal Bond Fund
Primary A Shares 5.89% 7.39% 5.39%
Investor A Shares 5.68% 7.13% 5.23%
Investor B Shares 5.00% 6.55% 4.60%
Investor C Shares 4.97% -- 8.71%
Maryland Municipal Bond Fund
Primary A Shares 4.93% -- 7.62%
Investor A Shares 4.72% 6.85% 5.20%
Investor B Shares 4.04% 6.23% 4.18%
Investor C Shares 4.02% -- 8.24%
North Carolina Municipal Bond Fund
Primary A Shares 5.40% 7.23% 5.21%
Investor A Shares 5.20% 7.02% 5.18%
Investor B Shares 4.53% 6.40% 4.50%
Investor C Shares 4.50% -- 8.60%
South Carolina Municipal Bond Fund
Primary A Shares 5.13% 7.28% 5.77%
Investor A Shares 4.92% 7.07% 5.85%
Investor B Shares 4.25% 6.45% 4.96%
Investor C Shares 4.23% -- 8.39%
144
<PAGE>
ONE 10 YEAR
YEAR PERIOD ENDED
PERIOD 5-YEAR 3/31/99 OR
ENDED PERIOD ENDING INCEPTION
3/31/99 3/31/99 THROUGH
3/31/99
Tennessee Municipal Bond Fund
Primary A Shares 5.53% 7.53% 6.65%
Investor A Shares 5.32% 7.32% 5.79%
Investor B Shares 4.64% 6.70% 4.92%
Investor C Shares 4.62% -- 8.64%
Texas Municipal Bond Fund
Primary A Shares 5.41% 7.44% 5.40%
Investor A Shares 5.20% 7.22% 5.36%
Investor B Shares 4.53% 6.60% 4.58%
Investor C Shares 4.51% -- 8.67%
Virginia Municipal Bond Fund
Primary A Shares 5.18% 7.45% 5.25%
Investor A Shares 4.98% 7.23% 5.36%
Investor B Shares 4.30% 6.61% 4.41%
Investor C Shares 4.21% -- 8.68%
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE ANNUAL TOTAL RETURN
5-Year period 5-Year Inception Inception
FYE FYE ending period through through
3/31/99 3/31/99 3/31/99 ending 3/31/99 3/31/99
Without Including Without 3/31/99 Without Including
Sales Sales Sales Including Sales Sales
Charges Charges Charges Sales Charges Charges
Charges
<S> <C> <C> <C> <C> <C> <C>
Value Fund
Primary A Shares 4.15% 4.15% 142.54% 142.54% 287.08% 287.08%
Primary B Shares 3.66% 3.66% -- -- 62.05% 62.05%
Investor A Shares 3.96% -2.04% 140.03% 126.21% 279.99% 258.23%
Investor B Shares 3.11% -1.44% 133.03% 131.03% 148.54% 147.54%
Investor C Shares 3.39% 2.48% 133.70% 133.70% 183.15% 183.15%
Capital Growth Fund
Primary A Shares 14.99% 14.99% 171.17% 171.17% 205.86% 205.86%
Primary B Shares 14.59% 14.59% - - 87.70% 87.70%
Investor A Shares 14.70% 8.09% 168.26% 152.80% 201.46% 184.13%
Investor B Shares 13.86% 9.42% 158.24% 156.24% 172.12% 171.12%
Investor C Shares 13.76% 12.87% 160.36% 160.36% 189.24% 189.24%
Emerging Growth Fund
Primary A Shares -7.21% -7.21% 103.30% 103.30% 123.13% 123.13%
Primary B Shares -4.25% -4.25% - - 28.79% 28.79%
Investor A Shares -7.41% -12.72% 101.19% 89.60% 122.79% 110.02%
Investor B Shares -8.10% -12.04% 93.69% 91.69% 113.16% 112.16%
Investor C Shares -8.08% -8.87% 95.12% 95.12% 113.74% 113.74%
Managed Index Fund
Primary A Shares 15.25% 15.25% - - 104.42% 104.42%
Primary B Shares 14.78% 14.78% - - 102.68% 102.68%
Investor A Shares 14.97% 14.97% - - 103.31% 103.31%
145
<PAGE>
5-Year period 5-Year Inception Inception
FYE FYE ending period through through
3/31/99 3/31/99 3/31/99 ending 3/31/99 3/31/99
Without Including Without 3/31/99 Without Including
Sales Sales Sales Including Sales Sales
Charges Charges Charges Sales Charges Charges
Charges
Managed SmallCap Index Fund
Primary A Shares -20.50% -20.50% - - 15.82% 15.82%
Primary B Shares -21.05% -21.05% - - 14.34% 14.34%
Investor A Shares -20.67% -20.67% - - 15.13% 15.13%
Managed Value Index Fund
Primary A Shares 3.06% 3.06% - - 17.36% 17.26%
Primary B Shares 3.10% 3.10% - - 17.30% 17.30%
Investor A Shares 2.97% 2.97% - - 17.06% 17.06%
Managed SmallCap Value Index Fund
Primary A Shares -20.11% -20.11% - - -8.22% -8.22%
Primary B Shares -20.22% -20.22% - - -8.35% -8.35%
Investor A Shares -20.23% -20.23% -- -- -8.43% -8.43%
Disciplined Equity Fund
Primary A Shares 15.74% 15.74% 164.10% 164.10% 333.37% 333.37%
Primary B Shares 16.37% 16.37% -- -- 93.69% 91.69%
Investor A Shares 15.49% 8.84% 161.70% 146.66% 185.93% 169.51%
Investor B Shares 14.69% 9.69% -- -- 164.58% 162.58%
Investor C Shares 14.64% 13.64% -- -- 142.83% 142.83%
Equity Index Fund
Primary A Shares 18.26% 18.26% 215.52% 215.52% 205.46% 205.46%
Primary B Shares 17.63% 17.63% -- -- 96.67% 96.67%
Investor A Shares 18.00% 18.00% -- -- 132.01% 132.01%
Balanced Assets Funds
Primary A Shares -1.20% -1.20% 89.35% 89.35% 109.26% 109.26%
Primary B Shares -2.18% -2.18% -- -- 38.58% 38.58%
Investor A Shares -1.36% -7.04% 87.33% 76.53% 106.30% 94.44%
Investor B Shares -2.13% -6.65% 81.92% 79.97% 85.52% 84.54%
Investor C Shares -2.17% -3.07% 81.67% 81.67% 97.81% 97.81%
Short-Intermediate Government Fund
Primary A Shares 4.97% 4.97% 31.53% 31.53% 61.33% 61.33%
Primary B Shares 4.61% 4.61% -- -- 17.50% 17.50%
Investor A Shares 4.76% 1.32% 30.21% 25.94% 59.24% 54.23%
Investor B Shares 4.14% 1.15% 27.24% 27.24% 28.67% 28.67%
Investor C Shares 4.05% 3.06% 27.66% 27.66% 38.24% 38.24%
Short-Term Income Fund
Primary A Shares 6.07% 6.07% 34.05% 34.05% 41.98% 41.98%
Primary B Shares 0.30% 0.30% -- -- 9.66% 9.66%
Investor A Shares 5.85% 4.78% 32.74% 31.40% 39.84% 38.45%
Investor B Shares 5.70% 5.70% 31.72% 31.72% 34.65% 38.65%
Investor C. Shares 5.64% 4.64% 31.63% 31.63% 38.17% 38.17%
Diversified Income Fund
Primary A Shares 5.00% 5.00% 43.54% 43.54% 65.24% 65.24%
Primary B Shares -0.24% -0.24% -- -- 14.67% 14.67%
Investor A Shares 4.74% -0.27% 41.76% 35.05% 61.67% 53.98%
Investor B Shares 4.11% -0.77% 38.04% 36.04% 42.11% 41.13%
Investor C Shares 4.09% 3.12% 38.57% 38.57% 58.46% 58.46%
Strategic Fixed Income Fund
Primary A Shares 5.61% 5.61% 38.01% 38.01% 50.83% 50.83%
Primary B Shares 0.92% 0.92% -- -- 13.67% 13.67%
Investor A Shares 5.40% 1.94% 36.63% 32.18% 48.45% 43.56%
Investor B Shares 4.76% 1.79% 33.30% 33.30% 34.59% 34.59%
Investor C Shares 4.90% 3.91% 34.23% 34.23% 45.05% 45.05%
146
<PAGE>
5-Year period 5-Year Inception Inception
FYE FYE ending period through through
3/31/99 3/31/99 3/31/99 ending 3/31/99 3/31/99
Without Including Without 3/31/99 Without Including
Sales Sales Sales Including Sales Sales
Charges Charges Charges Sales Charges Charges
Charges
Municipal Income Fund
Primary A Shares 5.42% 5.42% 44.82% 44.82% 84.33% 84.33%
Investor A Shares 5.21% 0.23% 43.38% 36.55% 81.99% 73.32%
Investor B Shares 4.53% 0.53% 39.30% 38.30% 37.64% 37.64%
Investor C Shares 4.64% 3.64% 40.02% 40.02% 54.14% 54.14%
Short-Term Municipal Income Fund
Primary A Shares 4.71% 4.71% 26.69% 26.69% 26.87% 26.87%
Investor A Shares 4.50% 3.47% 25.46% 24.20% 25.58% 24.33%
Investor B Shares 4.34% 4.34% 24.50% 24.50% 24.43% 24.43%
Investor C Shares 4.29% 3.29% -- -- 24.27% 24.27%
Intermediate Municipal Bond Fund
Primary A Shares 5.33% 5.33% 35.31% 35.31% 35.51% 35.51%
Investor A Shares 5.12% 1.66% 33.97% 29.57% 32.52% 28.20%
Investor B Shares 4.49% 1.49% 31.39% 31.39% 27.84% 27.84%
Investor C Shares 4.80% 3.80% -- -- 33.90% 33.90%
Florida Intermediate Municipal Bond
Fund
Primary A Shares 4.95% 4.95% 34.92% 34.92% 44.21% 44.21%
Investor A Shares 4.74% 1.35% 33.58% 29.22% 42.63% 37.93%
Investor B Shares 4.11% 1.11% 30.94% 30.94% 32.11% 32.11%
Investor C Shares 4.10% 3.10% 30.92% 30.92% 38.70% 38.70%
Georgia Intermediate Municipal Bond
Fund
Primary A Shares 5.20% 5.20% 34.69% 34.69% 54.62% 54.62%
Investor A Shares 4.99% 1.55% 33.35% 28.98% 51.56% 46.57%
Investor B Shares 4.37% 1.37% 30.72% 30.72% 31.60% 31.60%
Investor C Shares 4.35% 3.35% 30.70% 30.70% 44.06% 44.06%
Maryland Intermediate Municipal
Bond Fund
Primary A Shares 5.18% 5.18% 33.33% 33.33% 72.34% 72.34%
Investor A Shares 4.97% 1.56% 32.01% 27.76% 70.16% 64.57%
Investor B Shares 4.34% 1.34% 29.38% 29.38% 29.90% 29.90%
Investor C Shares 4.32% 3.32% 29.36% 29.36% 40.00% 40.00%
North Carolina Intermediate
Municipal Bond Fund
Primary A Shares 5.03% 5.03% 34.56% 34.56% 43.22% 43.22%
Investor A Shares 4.82% 1.41% 33.23% 28.86% 41.37% 36.73%
Investor B Shares 4.20% 1.20% 30.61% 30.61% 31.39% 31.39%
Investor C Shares 4.18% 3.18% 30.59% 30.59% 37.66% 37.66%
South Carolina Intermediate
Municipal Bond Fund
Primary A Shares 5.22% 5.22% 34.80% 34.80% 53.98% 53.98%
Investor A Shares 5.01% 1.62% 33.48% 29.18% 49.91% 44.97%
Investor B Shares 4.39% 1.39% 30.83% 30.83% 32.15% 32.15%
Investor C Shares 4.36% 3.36% 30.79% 30.79% 43.29% 43.29%
Tennessee Intermediate Municipal
Bond Fund
Primary A Shares 5.18% 5.18% 34.28% 34.28% 36.53% 36.53%
Investor A Shares 4.97% 1.55% 32.95% 28.62% 35.88% 31.41%
Investor B Shares 4.34% 1.34% 30.32% 30.32% 31.31% 31.31%
Investor C Shares 4.28% 3.28% -- -- 32.74% 32.74%
147
<PAGE>
5-Year period 5-Year Inception Inception
FYE FYE ending period through through
3/31/99 3/31/99 3/31/99 ending 3/31/99 3/31/99
Without Including Without 3/31/99 Without Including
Sales Sales Sales Including Sales Sales
Charges Charges Charges Sales Charges Charges
Charges
Texas Intermediate Municipal Bond
Fund
Primary A Shares 4.98% 4.98% 33.69% 33.69% 40.24% 40.24%
Investor A Shares 4.77% 1.39% 32.36% 28.09% 36.09% 31.68%
Investor B Shares 4.15% 1.16% 29.76% 29.76% 29.44% 29.44%
Investor C Shares 4.14% 3.14% - - 31.44% 31.44%
Virginia Intermediate Municipal
Bond Fund
Primary A Shares 5.21% 5.21% 33.06% 33.06% 80.33% 80.33%
Investor A Shares 5.00% 1.56% 31.76% 27.49% 75.50% 69.78%
Investor B Shares 4.38% 1.38% 29.15% 29.15% 30.05% 30.05%
Investor C Shares 4.36% 3.36% 29.12% 29.12% 40.47% 40.47%
Florida Municipal Bond Fund
Primary A Shares 4.90% 4.90% 42.76% 42.76% 32.07% 32.07%
Investor A Shares 4.69% -0.30% 41.31% 34.61% 29.97% 23.77%
Investor B Shares 4.01% 0.01% 37.31% 36.31% 26.51% 26.51%
Investor C Shares 4.01% 3.01% -- -- 42.94% 42.94%
Georgia Municipal Bond Fund
Primary A Shares 5.89% 5.89% 42.80% 42.80% 31.49% 31.49%
Investor A Shares 5.68% 0.65% 41.13% 34.50% 30.66% 24.43%
Investor B Shares 5.00% 1.00% 37.34% 36.34% 27.75% 27.75%
Investor C Shares 4.97% 3.97% -- -- 44.45% 44.45%
Maryland Municipal Bond Fund
Primary A Shares 4.93% 4.93% - - 39.45% 39.45%
Investor A Shares 4.72% -0.29% 39.30% 32.70% 31.52% 25.25%
Investor B Shares 4.04% 0.04% 35.28% 34.28% 24.93% 24.93%
Investor C Shares 4.02% 3.02% - - 41.71% 41.71%
North Carolina Municipal Bond Fund
Primary A Shares 5.40% 5.40% 41.79% 41.79% 30.33% 30.33%
Investor A Shares 5.20% 0.19% 40.37% 33.65% 31.45% 25.17%
Investor B Shares 4.53% 0.53% 36.37% 35.37% 27.06% 27.06%
Investor C Shares 4.50% 3.50% -- -- 43.82% 43.82%
South Carolina Municipal Bond Fund
Primary A Shares 5.13% 5.13% 42.12% 42.12% 34.31% 34.31%
Investor A Shares 4.92% -0.04% 40.70% 33.96% 35.88% 29.46%
Investor B Shares 4.25% 0.25% 36.68% 35.68% 30.15% 30.15%
Investor C Shares 4.23% 3.23% -- -- 42.62% 42.62%
Tennessee Municipal Bond Fund
Primary A Shares 5.53% 5.53% 43.77% 43.77% 38.70% 38.70%
Investor A Shares 5.32% 0.31% 42.34% 35.57% 35.57% 29.17%
Investor B Shares 4.64% 0.64% 38.29% 37.29% 29.89% 29.89%
Investor C Shares 4.62% 3.62% -- -- 44.08% 44.08%
Texas Municipal Bond Fund
Primary A Shares 5.41% 5.41% 43.14% 43.14% 31.10% 31.10%
Investor A Shares 5.20% 0.21% 41.72% 35.04% 31.79% 25.58%
Investor B Shares 4.53% 0.53% 37.67% 36.67% 27.56% 27.56%
Investor C Shares 4.51% 3.51% - - 44.22% 44.22%
Virginia Municipal Bond Fund
Primary A Shares 5.18% 5.18% 43.20% 43.20% 30.57% 30.57%
Investor A Shares 4.98% -0.05% 41.77% 35.03% 32.49% 26.20%
Investor B Shares 4.30% 0.30% 37.72% 36.72% 26.49% 26.49%
Investor C Shares 4.21% 3.21% -- -- 44.31% 44.31%
</TABLE>
148
<PAGE>
Fee waivers and/or expense reimbursements were in effect for the periods
presented. Primary B Shares were not offered during the period described above.
From time to time, the yields of each class of shares of a Money Market
Fund may be compared to the respective averages compiled by Donoghue's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 0 leading banks
and thrift institutions in the top five metropolitan statistical areas.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. The performance and yield of a
class of shares in the Value Fund, Capital Growth Fund, Balanced Assets Fund,
Equity Index Fund and Emerging Growth Fund may be compared to the Standard &
Poor's 00 Stock Index, an unmanaged index of a group of common stocks, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the
Exchange. The performance and yield of a class of shares in the
Short-Intermediate Government Fund may be compared to the Shearson Lehman
Intermediate Government Bond Index, an unmanaged index of intermediate
government securities. Performance and yield data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
Journal, and The New York Times, or in publications of a local or regional
nature, also may be used in comparing the performance of a class of shares in a
Fund.
The Short-Intermediate Government Fund seeks to provide higher current
yields than money market funds and short-term treasury obligations. The
Short-Intermediate Government Fund also seeks to maintain greater price
stability than higher yielding long-term bond funds. Therefore, in its
advertisements and sales materials, the Short-Intermediate Government Fund may
compare performance of the Short-Intermediate Government Fund to money market
indices, such as those compiled by IBC/Donoghue, Inc. and Bank Rate Monitor. In
such advertising and sales materials, the Short-Intermediate Government Fund may
also compare the price stability of the Short-Intermediate Government Fund, or
indices of funds with similar investment objectives, to indices of long term
government bond funds such as those compiled by Salomon Brothers and Shearson
Lehman Brothers Inc. The Short-Intermediate Government Fund is not meant to be a
substitute for a money market fund which seeks to maintain a fixed net asset
value of $1.00 per share.
Each Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
IBBOTSON DATA. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Funds may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth docile. At year-end 199, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $16.7 million. The unweighted average market capitalization
was $82.97 million, while the median was $6.0 million.
149
<PAGE>
Unlike an investment in a common stock mutual fund, an investment in
bonds that are held to maturity provides a fixed and stated rate of return.
Bonds have a senior priority in liquidation or bankruptcy to common stocks, and
interest on bonds is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two highest rating
categories are considered high quality and to present minimal risks of default.
See Schedule A for a more complete explanation of these ratings of corporate
bonds. An advantage of investing in government bonds is that, in many cases,
they are backed by the credit and taxing power of the United States government,
and therefore, such securities may present little or no risk of default.
Although government securities fluctuate in price, they are highly liquid and
may be purchased and sold with relatively small transaction costs (direct
purchase of Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than years.
This bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = (ERV-P) 100
-----
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts.
150
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
10 Year Period 10 Year Period
Ended 3/31/99 Ended 3/31/99
or Inception or Inception
FYE FYE Year Period Year Period through through
3/31/99 3/31/99 Ended 3/31/99 Ended 3/31/99 3/31/99 3/31/99
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund
Primary A Shares -9.40% -9.40% 99.87% 99.87% 173.45% 173.45%
Primary B Shares -11.24% -11.24% -- -- 34.56% 34.56%
Investor A Shares -9.87% -15.07% 96.89% 85.54% 165.91% 150.68%
Investor B Shares -10.49% -14.57% 91.28% 89.28% 95.79% 94.85%
Investor C Shares -10.28% -11.10% 91.75% 91.75% 124.23% 124.23%
International Equity Fund
Primary A Shares 3.68% 3.68% 44.25% 44.25% 73.43% 73.43%
Primary B Shares 3.71% 3.71% -- -- 18.57% 18.57%
Investor A Shares 3.59% -2.34% 42.70% 34.54% 63.50% 54.15%
Investor B Shares 2.65% -2.07% 37.68% 35.68% 53.85% 52.85%
Investor C Shares 2.63% 1.69% 37.94% 37.94% 60.20% 60.20%
Government Securities Fund
Primary A Shares 5.41% 5.41% 34.08% 34.08% 64.96% 64.96%
Primary B Shares 2.09% 2.09% -- -- 15.55% 15.55%
Investor A Shares 5.16% 0.20% 32.43% 26.11% 61.88% 54.18%
Investor B Shares 4.53% 0.55% 29.39% 28.40% 28.91% 28.91%
Investor C Shares 4.52% 3.52% 29.46% 29.46% 36.48% 36.48%
International Growth Fund
Primary A Shares 6.16% 6.16% 53.77% 53.77% 79.47% 79.47%
Primary B Shares 6.55% 6.55% -- -- 18.66% 18.66%
Investor A Shares 5.89% -0.18% 51.92% 43.17% 2,970.17% 2,795.01%
Investor B Shares 5.11% 1.18% -- -- 19.96% 17.40%
Investor C Shares 5.56% 4.76% -- -- 13.17% 13.17%
</TABLE>
* Primary A Shares of the Company do not carry a sales charge.
The Primary Shares and Investor Shares of the Equity Income Fund,
Government Securities Fund and International Equity Fund may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Government
Securities Fund) or a three-month (in the case of the Equity Income Fund and
International Equity Fund) period as a percentage of the maximum offering price
per share on the last day of such period. The performance figures of the Funds
as described above will vary from time to time depending upon market and
economic conditions, the composition of their portfolios and operating expenses.
These factors should be considered when comparing the performance figures of the
Funds with those of other investment companies and investment vehicles.
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by DONOGHUE'S
MONEY FUND REPORT, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the BANK
RATE MONITOR for money market deposit accounts offered by the 0 leading banks
and thrift institutions in the top five metropolitan statistical areas. Each
Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may compare
the performance and yield of a class or series of shares to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, OR in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
151
<PAGE>
In addition, the performance and yield of a class of shares in Nations
Equity Income Fund and Nations International Equity Fund may be compared to the
Standard & Poor's 500 Stock Index, an unmanaged index of a group of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. The performance and yield of a class of shares in
the Nations International Equity Fund may be compared to the Europe, Far East
and Australia Index, a recognized unmanaged index of international stocks. Any
given performance comparison should not be considered representative of a Fund's
performance for any future period.
MISCELLANEOUS
CERTAIN RECORD HOLDERS
The name, address and percentage of ownership of each person who is
known by the Registrant to have owned of record or beneficially five percent or
more of any of the Funds as of July 20, 1999 is:
<TABLE>
<CAPTION>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
<S> <C> <C> <C> <C>
Prime Fund Bank of America NA Primary A 97.86% 44.08%
Attn Tony Farrer 2,548,300,292.27;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America NA Primary B 100% .23%
Attn Tony Farrer (B Shares) 13,136,085.23;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
National Financial For the Investor A 73.43% 9.44%
Exclusive Benefit of our 545,820,012.38;
Customers record
200 Liberty Street
1 World Financial Center
Attn Mutual Funds 5th Flr
New York, NY 10281
BNY Cust IRA FBO Investor A 10.55% 0%
James L Bowen Jr 20,981.45;
195 Springhill Dr record
Tifton, GA 31794
J David Dalton TTEE Lowcountry Investor A 9.36% 0%
Orthopaedics Associates P/S/P 18,624.05;
Dated 08-05-87 record and
9313 Medical Plaza Drive Suite beneficial
302
Charleston, SC 29406
BNY Cust Rollover IRA FBO Investor A 8.78% 0%
James L Payne 17,469.28;
Box 434 record
Hemphill, TX 75948
Anne Valcourt Gdn FBO Danyel Investor A 7.61% 0%
Chaniequa Solange Valcourt 15,148.89;
c/o H R Chaplin record and
9930 W Broadview Dr beneficial
Bay Harbor Island, FL 33154
Jean E Kellogg and Investor A 5.21% 0%
Thomas G Kellogg JTTEN 10,373.79;
52109 Tara Dr record and
South Bend, IN 46628 beneficial
152
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
National Financial for the Daily Shares 99.07% 28.55%
Exclusive Benefit of our 1,650,881,769.69;
Customers record
200 Liberty St
1 World Financial Ctr
Attn Mutual Funds 5th Flr
New York, NY 10281
Sunstone Financial Group Inc Marsico Class 100% .47%
as Agt 28,146,272.74;
for Marisco Funds Inc. record
207 E Buffalo Ste 400
Milwaukee, WI 53202
Treasury Fund Bank of America NA Primary A 98.84% 30.51%
Attn Tony Farrer 644,048,073.72;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America NA Primary B 100% .65%
Attn Tony Farrer (B Shares) 13,779,548.960;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Hare & Co, Bank of New York Investor A 93.27% 46.33%
Attn STIF/Master Note 977,932,242.08;
One Wall Street 2nd FL record
New York, NY 10286
Hare & Co, Bank of New York Investor B 42.04% 4.42%
Attn Stif/Master Note 93,249,284.110;
One Wall Street 2nd Fl record
New York, NY 10286
Cleburne Texas Isd Investor B 5.53% .58%
General Fund 12,258,876.60;
103 South Walnut record and
Cleburne, TX 76031 beneficial
NFSC FEBO # W13-635901 Investor C 35.10% 0%
NFSC/FMTC IRA 71,890.910;
FBO John P Nicoson record and
13147 Ashvale Dr beneficial
Fairfax, VA 22033
NFSC FEBO # W52-725021 Investor C 24.73% 0%
NFSC/FMTC IRA 50,641.010;
FBO Retha C Whitehead record and
5226 Garfield Av beneficial
Kansas City, MO 64130
NFSC FEBO # W32-608246 Investor C 8.58% 0%
NFSC/FMTC IRA 17,563.630;
FBO Donald E Paul record and
3407 Shadowod Dr beneficial
Valrico, FL 33594
NFSC FEBO W68-959634 Investor C 6.60% 0%
NFSC FMTC IRA 13,523.950;
FBO Thomas J Schultz record and
1110 Sycamore Street beneficial
Lake Placid, FL 33852-8333
153
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W13-643629 Investor C; 5.86% 0%
NFSC/FMTC IRA 11,997.800;
FBO Maureen D Matricardi record and
8004 Carrleigh Pkwy beneficial
Springfield, VA 22152
NFSC FEBO # W13-643637 Investor C 5.86% 0%
NFSC/FMTC IRA 11,997.800;
FBO Edmund A Matricardi Jr record and
8004 Carrleigh Pkwy beneficial
Springfield, VA 22152
NFSC FEBO # W14-607207 Investor C 5.10% 0%
NFSC/FMTC IRA Rollover 10,436.800;
FBO James A Cox record and
2015 Ashton Pointe Dr beneficial
Dacula, GA 30019
National Financial for the Daily Shares 64.15% 5.31%
Exclusive Benefit of our 112,127,199.000;
Customers record
200 Liberty St
1 World Financial Ctr
Attn Mutual Funds 5th Flr
New York, NY 10281
Bank of America SWP Daily Shares 35.19% 2.91%
Disbursement Inc Bank of 61,500,000.000;
America Sweep/Autoborrow record
First Citizens Bldg
128 S Tryon St NC1-006-08-03
Charlotte, NC 28255
Equity Income Fund Bank of America NA Primary A 99.27% 77.39%
Attn Tony Farrer 45,515,158.582;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.240; record
111 Center Street
Little Rock, AR 72201
Government Bank of America NA Primary A 97.95% 52.22%
Securities Fund Attn Tony Farrer 12,196,720.398;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.061; record
111 Center Street
Little Rock, AR 72201
BA Investment Services, Inc. Investor C 31.15% .04%
FBO 435728581 10,460.251;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
154
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Corelink Financial Inc Investor C 18.83% .03%
PO Box 4054 6,321.228;
Concord, CA 94524-4054 record
BNY Cust IRA FBO Investor C 9.49% .01%
Mary Jane Russo 3,187.553;
8 Maybrook Ct record
Glen Arm, MD 21057
Banc of America Investment Investor C 9.36% .01%
Services 3,141.361;
FBO 436566931 record
3rd Floor #12640
San Francisco, CA 94107
International Equity Bank of America NA Primary A 90.81% 84.67%
Fund Attn Tony Farrer 48,132,227.524;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B; 100% 0%
Attn: Cindy Cole 0.894; record
111 Center Street
Little Rock, AR 72201
Bank of America NA Investor A 24.89% .73%
The Private Bank 412,936.745;
Attn Common Trust Funds Unit record
38329
PO Box 3577
Los Angeles, CA 90051-1577
H Grayson Mitchell Jr and Investor C 10.78% .01%
John Rawls TTEE FBO 6,994.999;
Grayson Mitchell Inc 401K Plan record and
P O Box 128 beneficial
Emporia, VA 23847
C A Porterfield & Rosalee Investor C 10.27% .01%
Moxley & Frank Minton TTEES 6,660.171;
Starmount Company record and
Capital Accumulation Plan beneficial
PO Box 10349
Greensboro, NC 27404-0349
C A Porterfield & Rosalee Investor C 10.17% .01%
Moxley & Frank Minton TTEES 6,600.192;
Starmount Company Employees record and
Tax Deferred Savings Plan beneficial
PO Box 10349
Greensboro, NC 27404-0349
E Larry Fonts TTEE FBO Investor C 9.02% .01%
Central Dallas Association 5,851.765;
Profit Sharing Plan record and
1201 Elm Street Suite 5310 beneficial
Dallas, TX 75270
Tatsushi T Kubo, Max W Investor C 8.56% .01%
Dahlgren, & John Dahlgren 5,553.362;
TTEES FBO record and
EPIC Products International beneficial
Corporation 401(K) Plan
PO Box 5808
Arlington, TX 76005-5808
155
<PAGE>
154
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Corel Ink Financial Inc Investor C 6.20% .01%
PO Box 4054 4,019.169;
Concord, CA 94524-4054 record
NFSC FEBO # W17-662682 Investor C 6.19% .01%
NFSC/FMTC IRA Rollover 4,016.225;
FBO Linda G Walker record and
7 Sally St beneficial
Spartanburg, SC 29301
Donald R Atkins and Investor C 5.37% .01%
David R Morgan TTEES 3,480.722;
Lyndon Steel 401K Profit record and
Sharing Pl beneficial
1947 Union Cross Road
Winston-Salem, NC 27107
International Growth Bank of America NA Primary A 96.77% 81.90%
Fund Attn Tony Farrer 9,284,952.814;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.355; record
111 Center Street
Little Rock, AR 72201
Kleinwort Benson Invest Mgt Ltd Investor A 7.70% .99%
Client Account 112,522.717;
Att Andy Poile record
PO Box 191 20 Fenchurch St
London, England EC3P 3DB
NFSC FEBO # W52-006904 Investor C 17.31% .04%
NFSC/FMTC IRA Rollover 4,750.323;
FBO Richard E Snowbarger record and
PO Box 3884 beneficial
Telluride, CO 81435
Jean F Baechlin Investor C 6.03% .01%
3775 Modoc Rd #226 1,655.966;
Santa Barbara, CA 93105 record and
beneficial
Philworld Inc Investor C 5.40% .01%
Dba Waldo Pizza 1,480.952;
Attn Phil Bourne record and
7433 Broadway St beneficial
Kansas City, MO 64114-1529
Dean Witter Reynolds Cust Investor C 5.11% .01%
IRA Rollover FBO 1,403.215;
Evelyn L Baker record
847 Aztec Dr
Independence, MO 64056
156
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
International Value Bank of America NA Primary A 74.87% 65.06%
Fund Attn Tony Farrer 9,859,632.501;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
PH Investments LLC Primary A 9.31% 8.09%
The Pilot House Lewis Wharf 1,225,490.196;
Boston, MA 02110 record and
beneficial
Charles Schwab & Co Inc Primary A 7.05% 6.13%
Special Custody Account 928,327.273;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Stephens Inc Primary B 100% 0%
Attn Cindy Cole 1.068; record
111 Center Street
Little Rock, AR 72201
FTC & Co Investor A 31.08% 2.27%
Attn: Dat Alynx #010 344,627.383;
P O Box 173736 record and
Denver, CO 80217-3736 beneficial
Charles Schwab & Co Inc Investor A 24.69% 1.81%
Special Custody Account 273,775.432;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
State Street Bank & Trust Co Investor C 62.58% .38%
TTEE 56,845.152;
FBO Coastgear & Company record
Attn: Kevin Smith
105 Rosemont Ave
Westwood, MA 02090
Merrill Lynch, Pierce, Fenner Investor C 16.28% .10%
& Smith Inc for the Sole 14,791.191;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, Fl 32246
Small Company Growth Bank of America NA Primary A 91.3451% 63.99%
Fund Attn Tony Farrer 25,738,255.153;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100.0000% 0%
Attn: Cindy Cole 1.138; record
111 Center Street
Little Rock, AR 72201
Roy R Martine & Investor A 19.4547% .03%
Kathleen H Martine JTWROS 10,893.595;
4009 Tottenham Court record and
Richmond, VA 23233-1771 beneficial
157
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Sarah A Barlow TTEE Investor A 6.4973% .01%
Sarah A Barlow Trust 3,638.117;
U/A Dtd 07/19/1990 record and
8400 Vamo Rd Apt 664 beneficial
Sarasota, FL 34231
Selma Lifsher Trustee Investor A 5.3458% .01%
Selma Lifsher Trust Dated 2,993.372;
3-2-89 record and
19355 Turnberry Way Apt PHA beneficial
Aventura, FL 33180
J David Dalton TTEE Lowcountry Investor A; 5.3035% .01%
Orthopedics Associates P/S/P 2,969.664;
Dated 08-05-87 record and
9313 Medical Plaza Drive Suite beneficial
302
Charleston, SC 29406
Corelink Financial Inc Investor C 9.2933% .04%
PO Box 4054 16,528.212
Concord, CA 94524-4054
NFSC FEBO # W50-724580 Investor C 7.4139% .03%
Members of Springdale 13,185.670;
Policemens record and
Pension & Relief Fund beneficial
c/o Ollen Stepp
201 Spring St
Springdale, AR 72764
NFSC FEBO #W53-641308 Investor C 5.2254% .02%
Dale H Wiewel 9,293.410;
200 Liberty Street record and
1 World Financial Cntr beneficial
New York, NY 10281
U. S. Government Bank of America NA Primary A 100% 89.15%
Bond Fund Attn Tony Farrer 10,045,256.255;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.116; record
111 Center Street
Little Rock, AR 72201
ISTCO Investor A 16.39% .44%
a Partnership 49,418.791;
PO Box 523 record
Belleville, IL 62222
Virginia United Methodist Investor A 7.13% .19%
Homes Inc 21,485.958;
7113 Three Chopt Rd Ste 300 record and
Richmond, VA 23226 beneficial
Gable & Gotwals Inc Profit Investor A 6.98% .19%
Sharing 21,032.371;
Plan Segregated FBO Adwan record and
Bank of Oklahoma NA TTEE beneficial
PO Box 2180
Tulsa, OK 74101
158
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
BA Investment Services, Inc. Investor A 6.78% .18%
FBO 583543251 20,437.445;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
BA Investment Services, Inc. Investor A 5.11% .14%
FBO 721753261 15,392.570;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
Commerce Bank N A Investor C 16.79% .21%
FBO Humphrey Farrington M/P 23,973.943;
Attn Mutual Fund Operations record
P O Box 13366 TBTS-2 Kansas City, MO 64199-3366
NFSC FEBO # W53-678562 Investor C 13.22% .17%
Ruth Lee Paar 18,875.364;
P O Box 102 record and
Warsaw, IL 62379 beneficial
Carla J Worley Investor C 12.86% .16%
CNSV William Cody Worley 18,363.028;
HC 62 Box 116 record and
Salem, MO 65560-8705 beneficial
NFSC FEBO # W52-004448 Investor C 8.01% .10%
Rodger N Lindgren TTEE 11,439.957;
Roger N Lindgren Revocable Tru record and
U/A 10/8/98 beneficial
1203 Geneva
Kearney, MO 64060
NFSC FEBO # W53-710237 Investor C 7.96% .10%
NFSC/FMTC IRA 11,370.151;
FBO Mildred Deluca record and
5512 Columbia Av beneficial
Saint Louis, MO 63139
NFSC FEBO # W65-054593 Investor C 7.21% .09%
Art Nachbar 10,287.742;
Gloria Nachbar record and
PO Box 6789 beneficial
Winter Springs, FL 32719
Government Money Bank of America NA Primary A 95.89% 63.88%
Market Fund Attn Tony Farrer 237,776,143.300;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America NA Primary B 100% .32%
Attn Tony Farrer 1,183,256.940;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
159
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
National Financial For the Investor A 62.54% 2.02%
Exclusive Benefit of our 7,534,113,260;
Customers record
200 Liberty Street
1 World Financial Center
Attn Mutual Funds 5th Floor
New York, NY 10281
Bear Stearns Securities Corp. Investor A 17.13% .55%
FBO 101-47604-23 2,063,872.600;
1 Metrotech Center North record
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. Investor A 8.82% .29%
FBO 101-47604-23 1,062,588.640;
1 Metrotech Center North record
Brooklyn, NY 11201-3859
Fasken Ltd Investor B 20.56% 5.03%
303 W Wall Ave Ste 1900 18,716,644.720;
Midland, TX 79701 record and
beneficial
Fasken Oil and Ranch Ltd Investor B 12.40% 3.03%
303 W Wall Ave Ste 1900 11,286,225.200;
Midland, TX 79701 record and
beneficial
Norbert Dickman & Investor B 9.87% 2.41%
Robert Dickson Trustees 8,983,167.280;
Barbara Fasken 1995 Trust record and
303 West Wall Ave Ste 1900 beneficial
Midland, TX 79701
Robert N Herman and Investor B 7.75% 1.90%
Ann L Herman JTWROS 7,059,295.960;
9601 Eagle Ridge Drive record and
Bethesda, MD 20817 beneficial
Columbia County Capital Investor B 6.82% 1.67%
Project Fund 6,213,425.910;
Attn Judy Lewis record and
PO Box 1529 beneficial
Lake City, FL 32056
American Woodmark Corp Investor B 5.62% 1.38%
Attn Laurie Logue 5,113,355.610;
3102 Shawnee Drive record and
Winchester, VA 22601 beneficial
Columbia County General Fund Investor B 5.02% 1.23%
Attn Judy Lewis 4,572,186.000;
PO Box 1529 record and
Lake City, FL 32056-0000 beneficial
NFSC FEBO # W69-008842 Investor C 93.95% .11%
NFSC/FMTC IRA Rollover 422,056.870;
FBO Thomas S. Spadaro record and
6409 Spyglass Lane beneficial
Bradenton, FL 34202
160
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
National Financial for the Daily; 97.25% 5.11%
Exclusive Benefit of our 19,011,524.930;
Customers record
200 Liberty St
1 World Financial Ctr
Attn Mutual Funds 5th Flr
New York, NY 10281
Tax Exempt Fund Bank of America NA Primary A 99.27% 82.23%
Attn Tony Farrer 1,984,615,440.120;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America NA Primary B 99.21% .44%
Attn Tony Farrer (B Shares) 10,574,347.220;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
National Financial For the Investor A 86.49% 1.69%
Exclusive Benefit of our 40,698,328.120;
Customers record
200 Liberty Street
1 World Financial Center
Attn Mutual Funds 5th Floor
New York, NY 10281
Hare & Co, Bank of New York Investor B 6.50% .51%
Attn Stif/Master Note 12,296,102.270;
One Wall Street 2nd Fl record
New York, NY 10286
Michele D Snyder Investor B 6.21% .49%
c/o Susan Johnston 11,751,320.600;
US Trust Company of New York record and
114 West 47th St beneficial
New York, NY 10036-1532
NFSC FEBO # W16-625205 Investor C 93.02% .01%
Calvin H Price 202,539.930;
Dorothy W Price record and
2900 Old Well Lane beneficial
Gastonia, NC 28054
NFSC FEBO # W67-609994 Investor C 6.98% 0%
Ricardo Serra 15,209.000;
Rua Prof Vital Palmae Silva 78 record and
Sao Paulo/Sp Brazil 25 beneficial
Brazil
National Financial for the Daily; 99.68% 6.90%
Exclusive Benefit of our 166,429,817.880;
Customers record
200 Liberty St
1 World Financial Ctr
Attn Mutual Funds 5th Flr
New York, NY 10281
Nations Value Fund Bank of America NA Primary A 90.07% 76.73%
Attn Tony Farrer 92,063,115.941;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
161
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Bank of America TTEE Primary A 5.59% 4.76%
NB 401K Plan 5,714,344.834;
U/A DTD 01/01/1983 record
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 0.958; record
111 Center Street
Little Rock, AR 72201
Roy R Martine & Investor A 23.63% .01%
Kathleen H Martine Jtwros 7,312.692;
4009 Tottenham Court record and
Richmond, VA 23233-1771 beneficial
Sarah A Barlow TTEE Investor A 7.89% 0%
Sarah A Barlow Trust 2,442.178;
U/A DTD 07/19/1990 record and
8400 Vamo Rd Apt 664 beneficial
Sarasota, FL 34231
BNY Cust IRA FBO Investor A 7.26% 0%
James L Bowen Jr 2,247.191;
195 Springhill Dr record
Tifton, GA 31794
Selma Lifsher Trustee Investor A 6.49% 0%
Selma Lifsher Trust Dated 2,009.376;
3-2-89 record and
19355 Turnberry Way Apt PHA beneficial
Aventura, FL 33180
BNY Cust Rollover IRA FBO Investor A 6.05% 0%
James L Payne 1,870.965;
Box 434 record
Hemphill, TX 75948
Anne Valcourt GDN FBO Danyel Investor A 5.24% 0%
Chaniequa Solange Valcourt 1,622.451;
c/o H R Chaplin record and
9930 W Broadview Dr beneficial
Bay Harbor Island, FL 33154
Capital Growth Fund Bank of America NA Primary A 98.01% 83.52%
Attn Tony Farrer 58,161,517.450;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.657; record
111 Center Street
Little Rock, AR 72201
NFSC FEBO #W18-006289 Investor A 5.32% .31%
200 Liberty Street 218,745.572;
1 World Financial Cntr record
New York, NY 10281
Robert Roberson TTEE FBO Investor C 5.54% .03%
Quality Brands Inc 19,626.556;
Employees 401K Plan record and
680 Main St beneficial
Lake Helen, FL 32744
162
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
E Larry Fonts TTEE FBO Investor C 5.41% .03%
Central Dallas Association 19,166.961;
Profit Sharing Plan record and
1201 Elm Street Suite 5310 beneficial
Dallas, TX 75270
NFSC FEBO # W16-719625 Investor C 5.41% .03%
NFSC/FMTC IRA 19,143.747;
FBO James A Hullender record and
211 Bluebird Rd beneficial
Lake Lure, NC 28746
Emerging Growth Fund Bank of America NA Primary A 98.11% 76.64%
Attn Tony Farrer 12,437,664.868;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.030; record
111 Center Street
Little Rock, AR 72201
Sheryle Isaacs TTEE Investor A 5.29% .29%
Good Buy Sportswear 46,693.181;
401K Saving Plan record and
2400 31st St S beneficial
St Petersburg, FL 33712
Mountain Star Partners Limited Investor A 5.25% .29%
Partnership 46,398.979;
c/o Telluride Management Corp record and
PO Box 5430 beneficial
Incline Village, NY 89450-5430
C A Porterfield & Rosalee Investor C 12.35% .09%
Moxley 13,878.412;
& Frank Minton TTEES FBO record and
Starmount Company Employees beneficial
Tax Deferred Savings Plan
PO Box 10349
Greensboro, NC 27404-0349
Tatsushi T Kubo, Max W Investor C 11.37% .08%
Dahlgren, & John Dahlgren 12,770.436;
TTEES FBO record and
Epic Products International beneficial
Corporation 401(K) Plan
PO Box 5808
Arlington, TX 76005-5808
NFSC FBO # W17-613169 Investor C 7.92% .05%
The Robbins Brick & Block Inc 8,899.937;
Em record and
Phillip C Robbins TTEE beneficial
Dtd 11011984
3862 US Hwy 221 S
Forest City, NC 28043
163
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Summerville Pediatrics PA Investor C 6.79% .05%
Profit Sharing Plan 7,631.017;
312 Midland Parkway record and
Summerville, SC 29485-8114 beneficial
H Grayson Mitchell Jr and Investor C 6.68% .05%
John Rawls TTEE FBO 7,501.869;
Grayson Mitchell Inc 401K Plan record and
P O Box 128 beneficial
Emporia, VA 23847
C A Porterfield & Rosalee Investor C 6.22% .04%
Moxley & Frank Minton TTEES 6,993.590;
Starmount Company record and
Capital Accumulation Plan beneficial
PO Box 10349
Greensboro, NC 27404-0349
Greg Zakarian and Investor C 5.29% .04%
V M Esposito TTEES FBO 5,943.762;
Antex Biologics Inc record and
Employee 401(K) Plan beneficial
300 Professional Drive
Gaithersburg, MD 20879
Anthony M Sfreddo TTEE Investor C 5.25% .04%
Triple S Termite & Pest 5,901.350;
Control 401(K) Plan record and
7416 Ceatreville Rd beneficial
Manassas, VA 20111
Equity Index Fund Bank of America NA Primary A 77.11% 75.76%
Attn Tony Farrer 29,911,542.123;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America TTEE Primary A 21.79% 21.40%
NB 401K Plan 8,450,442.185;
U/A DTD 01/01/1983 record
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 0.818; record
111 Center Street
Little Rock, AR 72201
NFSC FEBO # W67-635626 Investor A 22.72% .38%
The Carnival Corp Ret Plan TTEE 150,730.914;
First Union record
Attn: Lowell Zemnick
3655 NW 87 Av
Miami, FL 33178
BA Investment Services, Inc. Investor A 6.31% .11%
FBO 883003631 41,852.279;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
164
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Managed Index Fund Bank of America NA Primary A 91.96% 85.51%
Attn Tony Farrer 31,791,559.881;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Pamela S Keene and Primary B 99.55% 0%
William Steven Keene Jtwros 231.264; record
2016 Englewood Dr and beneficial
Apex, NC 27502
Charles Schwab & Co Inc Investor A 6.94% .48%
Special Custody Account 179,636.281;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Muir & Co Investor A 5.95% .41%
c/o Frost National Bank 154,169.851;
PO Box 2479 record and
San Antonio, TX 78298-2479 beneficial
Managed SmallCap Bank of America NA Primary A 87.10% 82.97%
Index Fund Attn Tony Farrer 14,283,455.381;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America NA TTEE Primary A 6.87% 6.55%
NB 401K Plan 1,127,155.875;
U/A DTD 01/01/1983 record
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.039; record
111 Center Street
Little Rock, AR 72201
Charles Schwab & Co Inc Investor A 48.02% 2.27%
Special Custody Account 390,069.921;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Dade Community Foundation Inc Investor A 5.28% .25%
200 South Biscayne Blvd Ste 42,899.498;
2780 record and
Miami, FL 33131-2343 beneficial
Charles Schwab & Co Inc Investor A 63.83% .75%
Special Custody Account 129,531.558;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
165
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
National Investor Services Corp Investor A 6.65% .08%
for the Exclusive Benefit of 13,489.990;
our Customers record
55 Water Street 32nd Fl
New York, NY 10041-3299
Managed Value Index Charles Schwab & Co Inc Primary A 51.66% 34.70%
Fund Special Custody Account 220,234.397;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Bank of America NA Primary A 33.93% 22.79%
Attn Tony Farrer 144,629.516;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Donaldson Lufkin Jenrette Primary A 5.39% 3.62%
Securities Corporation Inc. 22,964.070;
P.O. Box 2052 record
Jersey City, NJ 07303-9998
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.066; record
111 Center Street
Little Rock, AR 72201
Charles Schwab & Co Inc Investor A 48.66% 15.99%
Special Custody Account 101,506.651;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin Jenrette Investor A 6.55% 2.15%
Securities Corporation Inc. 13,656.752;
P. O. Box 2052 record
Jersey City, NJ 07303-9998
NFSC FEBO # W55-629405 Investor A 5.14% 1.69%
Connie L Shelton 10,724.760;
4242 N Capistrano #217 record and
Dallas, TX 75287 beneficial
Managed SmallCap Charles Schwab & Co Inc Primary A 57.86% 36.30%
Value Index Fund Special Custody Account 197,656.922;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Bank of America NA Primary A 16.47% 10.33%
Attn Tony Farrer 56,268.690;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Michael Larkin Tr Primary A 5.79% 3.63%
UA 01-06-98 19,782.552;
Courtland P Larkin & Patricia record and
F Larkin Irrev Family Trust beneficial
8665 Bay Colony Dr Apt 702
Naples, FL 34108
166
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.017; record
111 Center Street
Little Rock, AR 72201
Nations Marsico Bank of America NA Primary A 46.25% 9.85%
Growth & Income Fund Attn Tony Farrer 1,687,498.262;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Charles Schwab & Co Inc Primary A 23.61% 5.03%
Special Custody Account 861,424.997;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
FTC & Co Primary A 17.51% 3.73%
Data Lynx House Acct 04/13/98 639,029.562;
P O Box 173736 record and
Denver, CO 80217-3736 beneficial
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.002; record
111 Center Street
Little Rock, AR 72201
Merrill Lynch, Pierce, Fenner Investor A 52.37% 11.88%
& Smith Inc for the Sole 2,035,133.674;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Charles Schwab & Co Inc Investor A 9.88% 2.24%
Special Custody Account 383,826.942;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Merrill Lynch, Pierce, Fenner Investor C 35.03% 1.13%
& Smith Inc for the Sole 193,955.889;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Nations Marsico Bank of America NA Primary A 57.52% 8.85%
Focused Equities Fund Attn Tony Farrer 4,982,086.184;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
167
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Charles Schwab & Co Inc Primary A 34.78% 5.35%
Special Custody Account 3,012,311.771;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.012; record
111 Center Street
Little Rock, AR 72201
Charles Schwab & Co Inc Investor A 17.66% 5.77%
Special Custody Account 3,250,906.913;
for Benefit of Customers record
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Merrill Lynch, Pierce, Fenner Investor A 12.68% 4.15%
& Smith Inc for the Sole 2,334,255.954;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Merrill Lynch, Pierce, Fenner Investor B 5.35% 2.51%
& Smith Inc for the Sole 1,411,308.495;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Merrill Lynch, Pierce, Fenner Investor C 49.51% 2.30%
& Smith Inc for the Sole 1,294,556.944;
Benefit of its Customers record
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Disciplined Equity Bank of America NA Primary A 85.17% 65.78%
Fund Attn Tony Farrer 15,477,791.647;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Bank of America TTEE Primary A 13.50% 10.43%
NB 401K Plan 2,453,651.259;
U/A DTD 01/01/1983 record
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 0.889; record
111 Center Street
Little Rock, AR 72201
168
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Wendel & Co Investor A 5.61% .68%
c/o Bny Mtl Rd Reorg Dpt 160,069.991;
PO Box 1066 Wall Street Station record
New York, NY 10286
NFSC FEBO # W32-632465 Investor C 11.72% .04%
Tom Standifer P/Adm 9,911.299;
Lakeland Batteries Inx P/S/P record and
Tr Dtd 07011984 beneficial
1840 S Combee Rd
Lakeland, FL 33801
Summerville Pediatrics Pa Investor C 10.26% .04%
Profit Sharing Plan 8,672.579;
312 Midland Parkway record and
Summerville, SC 29485-8114 beneficial
James B Ford and Investor C 5.94% .02%
Joanne W Ford Jtten 5,021.041;
25 Century Blvd Suite 605 record and
Nashville, TN 37214 beneficial
NFSC FEBO # W19-659355 Investor C 5.29% .02%
Falcon Food Svc Co Inc 4,469.464;
12753 Pineacre Lane record and
West Palm Bch, FL 33414 beneficial
Strategic Equity Fund Bank of America NA Primary A 99.74% 99.76%
Attn Tony Farrer (B Shares) 24,377,409.091;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Balanced Assets Fund Bank of America NA Primary A 87.87% 28.18%
Attn Tony Farrer 3,575,841.552;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
The Bank of New York TTEE Primary A 6.73% 2.16%
Hitachi Semiconductors Pension 273,744.559;
Plan record
Attn: Stella Brown
One Wall Street 12th Floor
New York, NY 10286
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.359; record
111 Center Street
Little Rock, AR 72201
C A Porterfield & Rosalee Investor C 22.01% .26%
Moxley 33,326.831;
& Frank Minton TTEES FBO record and
Starmount Company Employees beneficial
Tax Deferred Savings Plan
PO Bxo 10349
Greensboro, NC 27404-0349
169
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
C A Porterfield & Rosalee Investor C 21.83% .26%
Moxley 33,060.949;
& Frank Minton TTEES FBO record and
Starmount Company beneficial
Capital Accumulation Plan
PO Box 10349
Greensboro, NC 27404-0349
Stuart K Colonna TTEE Investor C 13.38% .16%
Bayshore Concrete Products Corp 20,256.327;
Retirement Savings Plan record and
1 Bayshore Rd P O Box 230 beneficial
Cape Charles, VA 23310
Short-Intermediate Bank of America NA Primary A 97.63% 86.46%
Government Fund Attn Tony Farrer 131,495,874.557;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Reliance Trust Co Primary B 99.99% .04%
PO Box 48449 67,539.096;
Atlanta, GA 30362 record and
beneficial
Bank of America NA Investor A 23.55% 2.26%
The Private Bank 3,443,576.868;
Attn Common Trust Funds Unit record
38329
PO Box 3577
Los Angeles CA 90051-1577
NFSC FEBO #W14-610208 Investor A 6.17% .59%
Burgess Pigment Co 902,351.843;
PO Box 349 Deck Blvd record and
Sandersville, GA 31082 beneficial
NFSC FEBO # W17-718840 Investor B 7.96% .13%
Rental of Florence P/Adm 197,886.631;
Rntl of Florence Pft Shring record and
PO Box 12410 beneficial
Florence, SC 29504
NFSC FEBO # W26-653705 Investor C 25.51% .04%
True Way Evangelisticmission 62,661.158;
Attn: Wilmure Burden record and
PO Box 61365 beneficial
Virginia Bch, VA 23466
BA Investment Services, Inc. Investor C 19.15% .03%
FBO 435649131 47,045.023;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
Dorothy L Edwards Investor C 6.72% .01%
3400 Kim Court SW A25 16,498.306;
Roanoke, VA 24018 record and
beneficial
Short-Term Income Bank of America NA Primary A 94.77% 90.32%
Fund Attn Tony Farrer 38,964,844.054;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.032; record
111 Center Street
Little Rock, AR 72201
170
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO #W38-013528 Investor A 7.12% .24%
Kenneth D Pezzulla TTEE 103,021.916;
PATS Inc Empl Stock Ownership record and
U/A 7/1/94 beneficial
401 Washington Ave Suite 301
Towson, MD 21204
Michael D Shea Investor A 7.01% .23%
4770 South Atlanta Road 101,356.781;
Smyrna, GA 30080 record and
beneficial
Southern Gas Association Investor A 6.27% .21%
Investment Fund 90,722.121;
Attn Dotty Thornhill record and
3030 LBJ Freeway #1300 LB 60 beneficial
Dallas, TX 75234
NFSC FEBO #W17-656283 Investor A 5.59% .19%
Dr George B Richardson 80,823.300;
516 Azalea Lane record and
Florence, SC 29501 beneficial
Gator Broadcasting Corporation Investor A 5.28% .18%
Attn DavidGregg 111 76,321.190;
2200 Claredon St record and
Arlington, VA 22201-3331 beneficial
NFSC FEBO # W17-731269 Investor B 9.99% .09%
West Anderson Rural Water & 40,758.093;
Sewer Co Inc record and
2767 Whitehall Rd beneficial
Anderson, SC 29625
NFSC FEBO # W17-730858 Investor B 6.44% .06%
NFSC/FMTC IRA 26,268.375;
FBO James R Vaughn record and
234 Cureton Lane beneficial
Pickens, SC 29671
NFSC FEBO # W17-731277 Investor B 5.93% .06%
W Anderson Rural Water & Sewer 24,170.344;
Reserve Fund record and
2767 Whitehall Rd beneficial
Anderson, SC 29625
Alden Enterprises Inc Investor C 19.45% .06%
5900 Gulf Blvd 25,588.536;
St Pete Beach, FL 33706 record and
beneficial
NFSC FEBO # W62-019461 Investor C 15.50% .05%
Nations Bank Collateral Acct 20,387.360;
FBO C Louise Wilson record and
2945 Froitzhem Sreet beneficial
Callahan, FL 32011
171
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
The Lincolnshire Trust Investor C 13.08% .04%
5208 Lincolnshire 17,211.104;
Dallas, TX 75287 record and
beneficial
James B Clement Investor C 9.21% .03%
P O Box 5C 12,109.606;
Lafayette, LA 70505-6003 record and
beneficial
Erna M Weidner Investor C 6.15% .02%
108 Lariat 8,084.500;
San Antonio, TX 78232-1004 record and
beneficial
BA Investment Services, Inc. Investor C 6.06% .02%
FBO 435996951 7,972.973;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
BNY Cust IRA FBO Investor C 5.04% .02%
Don E Bastian 6,623.932;
1920 Barron Ct record
Charlottesville, VA 22911-7584
Diversified Income Bank of America NA Primary A 91.80% 51.60%
Fund Attn Tony Farrer 12,572,954.727;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.063; record
111 Center Street
Little Rock, AR 72201
BNY Cust IRA FBO Investor A 14.55% .05%
James L Bowen Jr. 12,664.419;
195 Springhill Dr record
Tifton, GA 31794
J David Dalton TTEE Lowcountry Investor A 8.61% .03%
Orthopedics Associates P/S/P 7,493.283;
Dated 08-05-87 record and
9313 Medical Plaza Drive Suite beneficial
302
Charleston, SC 29406
Jean E. Kellogg and Investor A 7.19% .03%
Thomas G. Kellogg JTTEN 6,261.685;
52109 Tara Dr record and
South Bend, IN 46628 beneficial
BNY Cust Rollover IRA FBO Investor A 6.06% .02%
James L. Payne 5,272.125;
Box 434 record
Hemphill, TX 75948
172
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
BNY Cust IRA FBO Investor A 5.48% .02%
Jeremiah J. Leahy 4,772.866;
1101 N Elm St #503 record
Greensboro, NC 27401
BNY Cust IRA FBO Investor A 5.33% .02%
Cleveland H White 4,652.747;
133 George Ln record
Bonneau, SC 29431
Anne Valcourt GDN FBO Danyel Investor A 5.25% .02%
Chaniequa Solange Valcourt 4,571.845;
C/O H R Chaplin record and
9930 W Broadview Dr beneficial
Bay Harbor Island, FL 33154
Bank of America NA Investor A 6.49% .97%
The Private Bank 236,861.105;
Attn Common Trust Funds Unit record and
38329 beneficial
PO Box 3577
Los Angeles, CA 90051-1577
BA Investment Services, Inc. Investor C 11.76% .07%
FBO 300181211 18,205.192;
185 Berry St. record
3rd Floor #12640
San Francisco, CA 94107
NFSC FEBO # W17-662682 Investor C 9.96% .06%
NFSC/FMTC IRA Rollover 15,425.100;
FBO Linda G Walker record and
7 Sally St beneficial
Sprartanburg, SC 29301
Stuart K Colonna TTEE Investor C 6.62% .04%
Bayshore Concrete Products Corp 10,246.662;
Retirement Savings Plan record and
1 Bayshore Rd P O Box 230 beneficial
Cape Charles, VA 23310
NFSC FEBO # W15-001520 Investor C 6.19% .04%
Clarence G Boehm 9,587.622;
136 E Edgewater Dr record and
Charleston, SC 29407 beneficial
NFSC FEBO # W15-005630 Investor C 5.73% .04%
Rita C Cook 8,875.156;
8405 E Saddlebrook Dr record and
Charleston, SC 29420 beneficial
Strategic Fixed Bank of America NA Primary A 95.51% 93.59%
Income Fund Attn Tony Farrer 175,940,400.921;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.050; record
111 Center Street
Little Rock, AR 72201
173
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Mercantile Safe Dep & Trust Co Investor A 7.59% .12%
TTEE 222,311.538;
Case Communications Defined record
Benefit Plan A/C# 3400306
U/A DTD 05/28/1984
766 Old Hammonds Ferry Road
Linthicum, MD 21090
Alden Enterprises Inc Investor C 21.56% .01%
5900 Gulf Blvd 25,172.293;
St Pete Beach, FL 33706 record and
beneficial
Summerville Pediatrics Pa Investor C 17.59% .01%
Profit Sharing Plan 20,537.281;
312 Midland Parkway record and
Summerville, SC 29485-8114 beneficial
BNY Cust IRA FBO Investor C 8.24% .01%
James A Blanchard 9,616.933;
9 Las Brisas record
Austin, TX 78746
Carver Development Board Investor C 6.96% 0%
Endowment Fund 8,130.824;
226 N Hackberry St record and
San Antonio, TX 78202 beneficial
Dorothy L Edwards Investor C 5.85% 0%
3400 Kim Court SW A25 6,827.791;
Roanoke, VA 24018 record and
beneficial
Erna M Weidner Investor C 5.21% 0%
108 Lariat 6,087.443;
San Antonio, TX 78232-1004 record and
beneficial
Municipal Income Fund Bank of America NA Primary A 99.73% 91.11%
Attn Tony Farrer 54,774,310.248;
1401 Elm Street 11th Floor record and
Dallas, TX 75202-2911 beneficial
NFSC FEBO # W38-676063 Investor B 6.60% .13%
Sid Meier 78,253.956;
2 Sheepfold La record and
Hunt Valley, MD 21030 beneficial
Denise Maxwell Investor C 21.99% .08%
45 Sallebrook 46,055.756;
Houston, TX 77024 record and
beneficial
NFSC FEBO # W53-715107 Investor C 8.43% .03%
Rosalie Chod TTEE 17,644.084;
The Rosalie Chod Rev Tr record and
U/A 8/25/89 beneficial
286 Hewlett Ct
Saint Louis, MO 63141
174
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W65-633313 Investor C 5.87% .02%
College Park Partners Ltd 12,291.077;
a Partnership record and
117 Spring Chase Circle beneficial
Atlamonte Springs, FL 32714
Emmet David Gelhot Investor C 5.05% .02%
5630 Oleatha Avenue 10,578.066
Saint Louis, MO 63139-1504
Harry Singer Family LTD Investor A 8.90% .19%
A Colorado LTD Partnership 112,324.561;
2960 Wentworth record and
Weston, FL 33332 beneficial
NFSC FEBO #W65-028193 Investor A 7.40% .16%
Thurman D Kitchin 93,419.025;
P O Box 1479 record and
Winter Park, FL 32790 beneficial
Short Term Bank of America NA Primary A 98.89% 57.37%
Muni.cipal Income Attn Tony Farrer 6,574,680.212;
Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Balsa & Co Investor A 17.89% 5.34%
c/o Chase Manhattan Bank 612,417.268;
PO Box 1768 Grand Central record
Station
New York, NY 10163-1768
Robert Sunderland Investor A 9.16% 2.74%
PO Box 25900 313,715.126;
Shawnee Mission, KS 66225-5900 record and
beneficial
J Michael Nixon Investor A 6.40% 1.91%
621 SW Baypoint Circle 219,122.511;
Palm City, FL 34990-1753 record and
beneficial
NFSC FEBO # W52-000035 Investor A 5.83% 1.74%
Fred J Nesbit 199,401.795;
Linda M Nesbit record and
415 45th St beneficial
Des Moines, IA 50312
NFSC FEBO # W52-686921 Investor A 5.33% 1.59%
Robert E Esrey TR 182,426.388;
Robert E Esrey TTEE record and
U/A 11/30/94 beneficial
4435 Main St Ste 1000
Kansas City, MO 64111
175
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W52-600571 Investor B 22.13% 2.04%
Joseph Carter 233,712.038;
Diana Carter record and
3000 W 117th St beneficial
Leawood, KS 66211
NFSC FEBO # W15-000515 Investor B 10.58% .97%
William L Spadoni 111,692.622;
Julia S Spadoni record and
PO Box 1019 beneficial
Myrtle Beach, SC 29578
NFSC FEBO # W13-629138 Investor B 6.69% .62%
Paragon Assets II 70,605.322;
4520 King Street #205 record and
Alexandria, VA 22302 beneficial
NFSC FEBO # W27-709450 Investor B 5.90% .54%
James D Yopp Jr 62,279.218;
1095 Fieldwood Lane record and
Winston Salem, NC 27106 beneficial
NFSC FEBO # W26-783200 Investor B 5.07% .47%
James H Sparks 53,542.645;
Karen M Sparks record and
4006 N Witchduck Rd beneficial
Virginia Bch, VA 23455
Donald E Steen & Investor C 38.31% .95%
Trudy K Steen Jtwros 108,365.595;
5715 Thames Ct record and
Dallas, TX 75252 beneficial
Christopher H Williams Investor C 26.17% .65%
10 Hampton Hills Lane 74,025.169;
Richmond, VA 23226 record and
beneficial
NFSC FEBO # W14-689122 Investor C 9.66% .24%
Dr Cecil J Waylan 27,330.684;
Karen S Waylan record and
9275 Chandler Bluff beneficial
Alpharetta, GA 30022
NFSC FEBO # W52-686450 Investor C 7.10% .18%
Henry F Frigon 20,090.089;
Henry F. Frigon TTEE record and
U/A 03/23/90 beneficial
PO Box 18
Maysville, MO 64469
NFSC FEBO # W26-018473 Investor C 5.28% .13%
H William Coogan Jr 14,933.839;
Susan C Coogan record and
4712 Charmian Road beneficial
Richmond, VA 23226
Intermediate Bank of America NA Primary A 99.66% 96.76%
Municipal Bond Fund Attn Tony Farrer 87,916,274.555;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
176
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Warren Montouri Investor A 17.95% .42%
2440 Virginia Ave NW 385,569.792;
Washington, DC 20037-2601 record and
beneficial
Hometown Bank & Company Investor A 14.52% .34%
PO Box 2887 311,904.773;
Wilson, NC 27894-2887 record and
beneficial
VATCO Investor A 6.03% .14%
c/o The Trust Company of 129,482.949;
Virginia record and
9030 Stony Point Pkway Ste 300 beneficial
Richmond, VA 23235
NFSC FEBO # W52-000019 Investor A 5.85% .14%
Frank B Comfort 125,552.732;
4912 Cedar Drive record and
West Des Moines, IA 50266 beneficial
NFSC FEBO # W18-738263 Investor A 5.18% .12%
Edelweiss Corp 111,199.566;
Attn: Mary Tyler Labhart record and
1445 Ross @ Field Ste 1500 beneficial
Dallas, TX 75202
NFSC FEBO # W14-884685 Investor B 9.36% .03%
Win Communication Corp 28,310.447;
Attn: Bob Poole record and
6755 Jimmy Carter Blvd beneficial
Norcross, GA 30071
NFSC FEBO # W15-626244 Investor B 8.37% .03%
Robert J Evans 25,321.240;
Ollie P Evans record and
Mary Helen Schulte beneficial
255 Weatherly Club Dr
Alabaster, AL 35007
NFSC FEBO # W15-649406 Investor B 5.89% .02%
Gustave J Crispyn TTEE 17,804.347;
Joseph A Crispyn Tr record and
U/A 7/21/97 beneficial
2382 Cat Tail Pound Rd
Johns Island, SC 29455
177
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W15-649414 Investor B 5.88% .02%
Mildred M Crispyn TTEE 17,798.304;
Timothy J Crispyn Tr record and
U/A 7/21/97 beneficial
2382 Cat Tail Pond Rd
Johns Island, SC 29455
NFSC FEBO # W41-673196 Investor B 5.17% 17.20%
Ellen Aston Paull 15,625,000;
1407 N Weston Lane record and
Austin, TX 78733 beneficial
Gerhard Kleinschmidt and Investor C 33.21% .07%
Gwendolyn Kleinschmidt Jtwros 62,061.681;
101 Oak Creek Trail record and
Aledo, TX 76008 beneficial
Eugene R Allspach and Investor C 27.79% .06%
Joann M Allspach Jtwros 51,924.795;
3760 Darcus St record and
Houston, TX 77005-3704 beneficial
Charles W. Doolin Investor C 20.64% .04%
3508 Harvard Ave 38,572.130;
Dallas, TX 75205-0000 record and
beneficial
NFSC FEBO # W23-627305 Investor C 12.33% .03%
Neal S Platzer 23,043.818;
Jack W Crosby record and
Special AC beneficial
1410 Lost Ridge Cir
Seabrook, TX 77586
Florida Municipal Bank of America NA Primary A 99.87% 49.96%
Bond Fund Attn Tony Farrer 7,694,560.720;
1401 Elm Street 11th Floor record and
Dallas, TX 75202-2911 beneficial
National Financial Svs Corp Investor A 65.82% 26.42%
for the Exclusive Benefit of 4,068,852.341;
our Customers record and
Church Street Station beneficial
PO Box 3908
New York, NY 10008-3908
NFSC FEBO # W64-048550 Investor C 87.48% .01%
Thomas W Brown 2,019.621;
Rt 20 Box 2130 record and
Lake City, FL 32055 beneficial
Florida Intermediate Bank of America NA Primary A 99.92% 91.88%
Municipal Bond Fund Attn Tony Farrer 21,375,342.786;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO # W52-739600 Investor B 5.03% .10%
Sally Ann Batz TTEE 23,930.213;
of The Sally Ann Batz Living Tr record and
U/A 10/15/91 beneficial
88 NE Alice St
Jensen Beach, FL 34957
NFSC FEBO # W60-190306 Investor C 74.38% .35%
Ming J Wu and 81,352.549;
Fen Fen Wu Jtwros record and
3371 Hickory Wood Way beneficial
Tarpon Springs, FL 34689
178
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Doris R Bomstein and Sanford Investor C 8.84% .04%
Sanford Bomstein TTEES 9,672.647;
Doris R Bomstein Trust record and
U/A/D 08/20/91 beneficial
3000 S Ocean Blvd Apt 1201
Boca Raton, FL 33432
NFSC FEBO # W19-654655 Investor C 8.54% .04%
Moshe Ezratti 9,336.140;
Rosa Ezratti record and
1401 University Dr 200 beneficial
Coral Springs, FL 33071
Sanford and Doris R Bomstein Investor C 7.03% .03%
TTEES 7,688.941;
Sanford Bomstein Trust UAD record and
11/4/91 beneficial
3000 South Ocean Blvd #1201
Boca Raton, FL 33431
Georgia Intermediate Bank of America NA Primary A 99.99% 82.48%
Municipal Bond Fund Attn Tony Farrer 12,048,455.809;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
The Crumpler Investment LP Investor A 23.05% 2.73%
Crumpler Investment Mgt Co 399,157.804;
LLC/GP record and
50 Old Vermont Pl beneficial
Atlanta, GA 30328-0000
Wachovia Securities, Inc. Investor A 8.49% 1.01%
FBO 402-08416-17 147,075.290;
P.O. Box 1220 record
Charlotte, NC 28201-1220
NFSC FEBO #W14-004162 Investor A 7.69% .91%
Alice Hinton Ray 133,188.372;
P O Box 415 record and
Dacula, GA 30019 beneficial
NFSC FEBO #W14-007528 Investor A 5.39% .64%
John W Wilcox Jr 93,406.520;
2551 Potomac Ave NE record and
Atlanta, GA 30305 beneficial
NFSC FEBO # W14-009636 Investor B 34.32% 1.74%
Derst Investments LP 254,882.288;
a Partnership record and
258 Varn Drive beneficial
Savannah, GA 31405
NFSC FEBO # W14-652571 Investor C 63.88% .35%
Letty C Cagle 51,641.107;
Douglas Cagle record and
Apt 318 8592 Roswell Rd beneficial
Atlanta, GA 30350
NFSC FEBO # W14-853925 Investor C 11.81% .07%
Charles D Davidson 9,544.726;
Judith L Davidson record and
580 Glen Hampton Dr beneficial
Alpharetta, GA 30004
179
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Georgia Municipal Bank of America NA Primary A 99.97% 41.70%
Bond Fund Attn Tony Farrer 992,558.228;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO # W14-004162 Investor A 64.22% 6.05%
Alice Hinton Ray 143,972.542;
P O Box 415 record and
Dacula, GA 30019 beneficial
NFSC FEBO # W14-749877 Investor A 12.18% 1.15%
Hunter R Hughes III 27,312.209;
c/o Rogers & Hardin record and
229 Peachtree St NW beneficial
2700 Cain International Tower
Atlanta, GA 30327
NFSC FEBO # W14-725382 Investor A 11.19% 1.05%
Edd Price 25,080.278;
Lynn Price record
AAA Tank Testers
5600 Oakbrook Pkwy Suite 120
Norcross, GA 30093
Stephens Inc Investor C 100% .01%
Attn: Cindy Cole 287.975; record
111 Center Street
Little Rock, AR 72201
Maryland Bank of America NA Primary A 100% 88.69%
Intermediate Attn Tony Farrer 16,786,883.917;
Municipal Bond Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO #W13-061581 Investor A 20.53% 1.66%
Robert Gladstone 314,858.836;
Leslie Gladstone record and
2468 Belmont Rd NW beneficial
Washington, DC 20008
NFSC FEBO #W38-007404 Investor A 5.95% .48%
Vincent L. Salvatori 91,178.519;
Carol H Salvatori record and
2652 Greenbriar Rd beneficial
Annapolis, MD 21401
NFSC FEBO #W13-640379 Investor A 5.38% .44%
Carol C House 82,501.641;
Peter W House record and
4210 Leeward Pl beneficial
Bethesda, MD 20816
180
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W13-622168 Investor C 13.51% .03%
Donald J Kunkoski 6,446.650;
Eileen M. Kunkoski record and
2180 W March Ct beneficial
Frederick, MD 21702
NFSC FEBO # W13-633313 Investor C 11.45% .03%
Albert J Robertazzi 5,461.084;
Susan E Franks record and
11564 W Hill Dr beneficial
Rockville, MD 20852
NFSC FEBO # W13-680141 Investor C 8.79% .02%
James Lee Donaldson 4,195.166;
Robert W Donaldson record and
12604 Farnell Dr beneficial
Wheaton, MD 20906
NFSC FEBO # W13-661058 Investor C 7.85% .02%
Girard F Stegner 3,745.467;
Betty C Stegner record and
29 Consett Pl beneficial
Frederick, MD 21703
NFSC FEBO # W13-660124 Investor C 6.95% .02%
Jessica Udall Gil 3,316.201;
Milan D Smith Jr record and
5610 Wisconsin Av beneficial
Chevy Chase, MD 20815
NFSC FEBO # W13-697036 Investor C 6.78% .02%
Frank Baker 3,236.448;
Steven L Baker record and
Teresa L Radi beneficial
250 Wyngate Dr
Frederick, MD 21701
NFSC FEBO # W13-699381 Investor C 5.38% .01%
Kwok Luen Lee 2,568.220;
Patsy S Lee record and
2705 Hardy Av beneficial
Wheaton, MD 20902
Maryland Municipal Bank of America NA Primary A 99.98% 48.71%
Bond Fund Attn Tony Farrer 1,798,369.080;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO # W13-640379 Investor A 58.88% 2.82%
Carol C House 104,033.033;
Peter W House record and
4210 Leeward Pl beneficial
Bethesda, MD 20816
NFSC FEBO # W13-634760 Investor A 13.31% .64%
Raymond A Turetsky 23,517.554;
Bess H Turetsky record and
11220 Woodson Av beneficial
Kensington, MD 20895
181
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W13-6567097 Investor A 7.47% .36%
Dona L Lechliter 13,202.752;
Stephen C Lechliter record and
4102 Madison Street beneficial
Hyattsville, MD 20781
NFSC FEBO # W13-770442 Investor A 6.49% .31%
Richard E Ireland 11,463.769;
Mary E Ireland record and
1423 Grouse Ct beneficial
Frederick, MD 21703
NFSC FEBO # W38-028541 Investor C 98.62% .56%
Elizabeth Gregory 20,549.684;
PO Box 2327 record and
Ocean City, MD 21843 beneficial
North Carolina Bank of America NA Primary A 99.73% 91.87%
Intermediate Attn Tony Farrer 18,217,203.650;
Municipal Bond Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO #X68-061336 Investor A 10.10% .48%
Julia E Clark 95,615.783;
4600 Troy's Mtn LN record and
Durham, NC 27705 beneficial
NFSC FEBO #W16-714542 Investor A 7.18% .34%
W Frank Dowd Jr. 67,966.953;
P O Box 35430 record and
Charlotte,NC 28235 beneficial
NFSC FEBO # W26-656267 Investor A 6.30% .30%
Eileen M Friars 59,646.179;
3516 Foxcroft Road record and
Charlotte, NC 28211 beneficial
NFSC FEBO # PSA-042072 Investor A 6.25% .30%
Ron F Robine 59,191.434;
Cathy G Robine record and
18512 Square Sail Road beneficial
Cornelius, NC 28031
NFSC FEBO # W27-002879 Investor B 5.86% .18%
Jack Cartwright 35,348.838;
1040 Cantering Rd record and
High Point, NC 27262 beneficial
NFSC FEBO # W27-734004 Investor C 26.00% .01%
Barbara B Coyner 2,334.746;
513 Lake Boone Trail record and
Raleigh, NC 27608 beneficial
NFSC FEBO # W27-682217 Investor C 18.78% .01%
J Robert Stout Revocab Tr 1,686.289;
J Robert Stout record and
U/A 02/19/97 beneficial
PO Box 35343
Greensboro, NC 27425
182
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W27-747360 Investor C 12.14% .01%
Anna B Steele 1,089.840;
2041 Georgia Avenue record and
Winston Salem, NC 27104 beneficial
NFSC FEBO # W27-745472 Investor C 11.18% .01%
W Joseph Selvia 1,004.177;
Jay P Selvia record and
4041 Max Dr beneficial
Winston Salem, NC 27106
NFSC FEBO # W27-740810 Investor C 6.88% 0%
Thomas H Blount 617.550; record
Doris J Blount and beneficial
207 W 11th St
Washington, NC 27889
NFSC FEBO # W27-002720 Investor C 6.82% 0%
Roger W Simmons 612.591; record
Mary R Simmons and beneficial
150 River Hill Drive
Advance, NC 27006
North Carolina Bank of America NA Primary A 99.98% 39.75%
Municipal Bond Fund Attn Tony Farrer 1,702,978.888;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
South Carolina Bank of America NA Primary A 100% 88.09%
Intermediate Attn Tony Farrer 22,571,450.616;
Municipal Bond Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO #W15-635901 Investor A 11.31% .84%
James T Pearce 215,016.960;
P O Box 1986 record and
Greenville, SC 29602 beneficial
NFSC FEBO #W15-620629 Investor A 9.92% .74%
J C Bernard 188,517.286;
Merna D Bernard record and
110 Dolphin Point Dr beneficial
Beaufort, SC 29902
James Markham Investor A 5.08% .38%
99 Birdsong Way 96,557.940;
Hilton Head Island, SC 29926 record and
beneficial
NFSC FEBO # W15-645788 Investment B 9.54% .31%
Gustave J Crispyn 79,899.553;
Mildred M Crispyn record and
2382 Cat Tail Pond Rd beneficial
Johns Island, SC 29455
183
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W17-681547 Investor B 5.67% .19%
Jimmy Ruppe 47,497.048;
Judy Ruppe record and
1505 Cherokee Av beneficial
Gaffney, SC 29340
NFSC FEBO # W15-645583 Investor C 36.44% .44%
Berchtold Corp 112,082.887;
1950 Hanahan Rd record and
Charleston, SC 29406 beneficial
NFSC FEBO # W15-659860 Investor C 6.95% .08%
Diane Saari Mccall 21,377.772;
Mark J Mccall record and
12 Guerard Rd beneficial
Charleston, SC 29407
NFSC FEBO # W15-654680 Investor C 6.23% .07%
Edward Mccloud 19,155.748;
Elizabeth M. Robinson record and
523 Carpenter St beneficial
Charleston, SC 29412
NFSC FEBO # W15-624438 Investor C 5.98% .07%
Tracy S Harvey 18,402.911;
Susan C Harvey record and
5033 Stone Plantation Dr beneficial
Meggell, SC 29449
South Carolina Bank of America NA Primary A 100% 53.34%
Municipal Bond Fund Attn Tony Farrer 1,314,561.532;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO # W17-656208 Investor A 45.40% 2.05%
Donna R Cart 50,417.339;
1140 Partridge Rd record and
Spartanburg, SC 29302 beneficial
NFSC FEBO # W18-693910 Investor A 28.88% 1.30%
Cuppia Investments LP 32,069.220;
P O Drawer 22449 record and
Hilton Head Island, SC 29925 beneficial
Wachovia Bank NA Investment Mgr Investor A 7.94% .36%
Charles D. Erb TTEE for 8,819.040;
Charles D Erb Trust U/A Dtd record
10/4/88
PO Box 3073
M/C NC-31057
Winston-Salem, NC 27150
Tennessee Bank of America NA Primary A 100% 78.38%
Intermediate Attn Tony Farrer 4,129,466.991;
Municipal Bond Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO #W25-680427 Investor A 15.45% 2.49%
Bob G Long 131,222.706;
PO Box 266 record and
Hermitage, TN 37076 beneficial
184
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO #W25-683256 Investor A 13.76% 2.22%
Marshall T Polk III 116,836.192;
PO Box 90148 record and
Nashville, TN 37209 beneficial
SunTrust Bank Chattanooga NA Investor A 7.16% 1.15%
H Clay Evans Johnson Rev Trust 60,784.510;
U/A Dtd 5/9/85 A/C 40E55700 record and
Attn: Mutual Funds beneficial
PO Box 105870 Center 3144
Atlanta, GA 30348
NFSC FEBO #W25-684716 Investor A 6.85% 1.10%
James R. Kellam III 58,176.257;
3605 Sycamore Lane record and
Nashville, TN 37215 beneficial
Ralph S Graham TTEE Investor A 6.69% 1.08%
Ralph S Graham Rev Liv Trust 56,767.294;
U/A Dtd 08/14/1990 record and
PO Box 235 beneficial
Big Sandy, TN 38221
NFSC FEBO #W25-683388 Investor A 5.75% .93%
Glenn Huff 48,839.773;
Honor Huff record and
509 Mansion Dr beneficial
Brentwood, TN 37027
NFSC FEBO #W25-680419 Investor A 5.33% .86%
Joseph L Dilorenzo 45,251.980;
310 Watercress Drive record and
Franklin, TN 37064 beneficial
NFSC FEBO # W25-683043 Investor B 22.21% 1.22%
John O Colton 64,399.438;
6211 Jocelyn Hollow Road record and
Nashville, TN 37205 beneficial
NFSC FEBO # W25-684570 Investor B 13.60% .75%
Robert R Hayes 39,430.054;
Vira E Hayes record and
400 Bryants Lane beneficial
Woodbury, TN 37190
NFSC FEBO # W25-008028 Investor B 5.88% .32%
David A Lockmiller 17,056.616;
Carlotta E Lockmiller record and
4343 Lebanon Rd Apt#1711 beneficial
Hermitage, TN 37076
Tennessee Municipal Bank of America NA Primary A 99.95% 52.38%
Bond Fund Attn Tony Farrer 568,064.620;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
185
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W25-002658 Investor A 41.94% 2.63%
William W Pugh Jr 28,524.330;
106 Orchard Circle record and
Oak Ridge, TN 37830 beneficial
NFSC FEBO # W25-682101 Investor A 17.78% 1.11%
Allene Ellis 12,089.764;
Joyce Rose record and
2544 Bearwallow Rd beneficial
Ashland City, TN 37015
NFSC FEBO # EMP-050393 Investor A 7.55% .47%
Louise E Cole 5,131.742;
Clifford E Cole record and
1501 Gale Lane beneficial
Nashville, TN 37212
NFSC FEBO # W25-673358 Investor A 7.40% .46%
Billie L Martin 5,035.198;
227 Deer Park Circle record and
Nashville, TN 37205 beneficial
NFSC FEBO # W25-605786 Investor A 7.21% .45%
Billy Joe Davis 4,905.129;
PO Box 487 record and
Lake City, TN 37769 beneficial
NFSC FEBO # W25-682357 Investor A 6.17% .39%
Theodore J Novak 4,196.009;
3860 West Trace Creek Road record and
Waverly, TN 37185 beneficial
NFSC FEBO # W25-684350 Investor B 15.46% 6.29%
Miriam F Hildebrand 68,241.749;
884 Edmondson Pike record and
Brentwood, TN 37027 beneficial
NFSC FEBO # W25-617954 Investor C 60.81% .37%
Frank W Condurelis 4,023.391;
Jane E Condurelis record and
806 Brentview Dr beneficial
Nashville, TN 37220
NFSC FEBO # W25-009660 Investor C 34.92% .21%
Donald J Southard Sr 2,310.268;
Barbara C Southard record and
278 Joe Byrd Ln beneficial
Clinton, TN 37716
Texas Intermediate Bank of America NA Primary A 100% 97.65%
Municipal Bond Fund Attn Tony Farrer 37,413,724.971;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
NFSC FEBO # W40-678880 Investor B 15.03% .08%
James Robert Mallory 31,172.216;
Faith K Mallory record and
2400 Winton Terr E beneficial
Fort Worth, TX 76109
186
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W18-719404 Investor B 10.96% .06%
Montine T Wisdom 22,726.776;
6335 W Northwest Hwy #1318 record and
Dallas, TX 75225 beneficial
NFSC FEBO # W41-600997 Investor B 8.46% .05%
Oliver Roofing Systems 17,558.892;
PO Box 180191 record and
Austin, TX 78718 beneficial
NFSC FEBO # W40-682470 Investor B 7.72% .04%
A G Martin 16,007.825;
Nellie L Martin record and
2011 32nd St beneficial
Lubbock, TX 79411
Stephens Inc Investor C 100% 0%
Attn: Cindy Cole 253.066; record
111 Center Street
Little Rock, AR 72201
Texas Municipal Bond Bank of America NA Primary A 99.97% 54.45%
Fund Attn Tony Farrer 856,091.141;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Motco Investor A 59.83% 1.46%
P O Box 17001-Trust 22,935.780;
San Antonio, TX 78217 record and
beneficial
National Investor Services Corp Investor A 13.05% .32%
for the Exclusive Benefit of 5,002.051;
our Customers record
55 Water Street 32nd Fl
New York, NY 10041-3299
Edward D Jones & Co Investor A 7.44% .18%
FBO Adolph F Schmidt & 2,852.800;
Elvira H Schmidt FM 466 record and
EDJ# 5120611313 beneficial
P O Box 2500 Maryland Heights, MO
63043-8500
NFSC FEBO # W40-650790 Investor A 7.15% .17%
Seth W Lehmberg 2,742.706;
Rose Mary Lehmberg record and
2201 Meadow Lane beneficial
Taylor, TX 76574
Shirley A Wagner Investor A 6.69% .16%
3002 San Paula 2,565.948;
Dallas, TX 75228-0000 record and
beneficial
NFSC FEBO # W40-609048 Investor B 5.99% 2.55%
Jane M Mccarver Ex 40,050.599;
E/O A G Mccarver record and
901 W Indianna Ste A beneficial
Midland, TX 79701
187
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
NFSC FEBO # W41-617733 Investor C 96.57% .52%
Jay L Willmann 8,104.120;
Catherine B Willmann record and
2918 Kassarine Pass beneficial
Austin, TX 78704
Virginia Bank of America NA Primary A 100% 78.15%
Intermediate Attn Tony Farrer 21,010,064.166;
Municipal Bond Fund 1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Roy R Martine & Investor A 94.87% .12%
Kathleen H Martine Jtwros 32,074.758;
4009 Tottenham Court record and
Richmond, VA 23233-1771 beneficial
Dorothy Lee Walshe Investor C 12.48% .03%
5801 Mill Spring Rd 9,351.771;
Midlothian, VA 23112 record and
beneficial
NFSC FEBO # W26-644269 Investor C 5.30% .01%
Richard W Coates 3,973.958;
3012 Woodlawn Drive record and
Suffolk, VA 23434 beneficial
Virginia Municipal Bank of America NA Primary A 100% 50.59%
Bond Fund Attn Tony Farrer 1,444,119.904;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Roy R Martine & Investor A 94.96% 1.24%
Kathleen H Martine JTWROS 35,317.835;
4009 Tottenham Court record and
Richmond, VA 23233-1771 beneficial
NFSC FEBO # W26-643866 Investor A 5.10% .11%
Esmond L Dominick Jr 3,061.508;
4014 Tanglewood Trail record and
Chesapeake, VA 23325 beneficial
Stephens Inc Investor C 100% .01%
Attn: Cindy Cole 291.741; record
111 Center Street
Little Rock, AR 72201
Merrill Lynch, Pierce, Fenner Investor A 26.67% .56%
& Smith Inc for the Sole 16,000.000;
Benefit record
of its Customers
Attention Service Team
4800 Deer Lake Drive East 3rd
Floor
Jacksonville, FL 32246
Rodney M Carlson and Investor A 13.35% .28%
Joyce L Carson JTTEN 8,010.000;
3608 South Creek Ct record and
Chesapeake, VA 23325 beneficial
188
<PAGE>
Class; Amount
of Shares
Owned; Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
Rebecca C Bell Investor A 11.41% .24%
1092 Oaklawn Dr 6,844.881;
Culpeper, VA 22701 record and
beneficial
Jessie E Spells Investor A 9.97% .21%
1518 Dogwood Road 5,983.121;
St Leonard, MD 20685-2710 record and
beneficial
NFSC FEBO # W26-636398 Investor A 9.80% .21%
Creola M Shearin 5,879.172;
2205 Parkside Ave record and
Richmond, VA 23228 beneficial
NFSC FEBO #W68-011398 Investor A 8.46% .18%
Gerald H Moulton Jr and 5,075.445;
Virginia H Moulton record and
200 Liberty Street beneficial
1 World Financial Cntr
New York, NY 10281
NFSC FEBO # W13-652342 Investor A 6.13% .13%
Jeffery W Hale 3,676.356;
Diane A Hale record and
8618 Woodbine Lane beneficial
Annandale, VA 22003
Emerging Markets Fund Bank of America NA Primary A 99.60% 86.75%
Attn Tony Farrer 2,105,932.400;
1401 Elm Street 11th Floor record
Dallas, TX 75202-2911
Stephens Inc Primary B 100% 0%
Attn: Cindy Cole 1.804; record
111 Center Street
Little Rock, AR 72201
Walter J Nott Investor A 7.29% .32%
8320 Fulham Ct 7,871.049;
Richmond, VA 23227 record and
beneficial
Hi-Tech Communications Inc Investor C 67.93% .29%
401(K) Plan 7,136.720;
PO Box 1569 record and
League City, TX 77574-1569 beneficial
Stephens Inc for the Exclusive Investor C 14.70% .06%
Benefit of our Customers 1,544.754;
111 Center Street record
Little Rock, AR 72201
NFSC FEBO # W17-648345 Investor C 5.72% .02%
NFSC/FMTC IRA 600.743; record
FBO Carroll L Terrell and beneficial
6502 Woodrow Terr
Richmond, VA 23228
</TABLE>
189
<PAGE>
As of August 1999, NationsBank Corporation and its affiliates owned of
record more than 25% of the outstanding shares of the Companies acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of the Companies under the 1940 Act.
190
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those
in higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt
rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
A-1
<PAGE>
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
A-2
<PAGE>
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
A-3
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
A-4
<PAGE>
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
A-5
