As filed with the Securities and Exchange Commission
on July 30, 1999
Registration No. 33-89742; 811-8982
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 13 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 15 [X]
(Check appropriate box or boxes)
------------------------
NATIONS FUND PORTFOLIOS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [ ] on (date) pursuant
to Rule 485(b), or to Rule 485(b), or
[ ] 60 days after filing pursuant [ ] on (date) pursuant
to Rule 485(a), or to Rule 485(a).
[ ] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
<PAGE>
EXPLANATORY NOTE
The Registrant is filing this Post-Effective Amendment No. 13 to the
Registration Statement of Nations Fund Portfolios, Inc. (the "Company") for the
purpose of providing updated financial information and other non-material
changes.
<PAGE>
[GRAPHIC]
Nations Funds
Prospectus -- Primary A Shares
August 1, 1999
August 20, 1999 for
marked (*) Funds
Equity Funds
Nations Capital Income Fund
Nations Value Fund
Nations Equity Income Fund
Nations Blue Chip Fund
Nations Marsico Growth & Income Fund*
Nations Strategic Equity Fund
Nations Capital Growth Fund
Nations Disciplined Equity Fund
Nations Marsico Focused Equities Fund*
Nations Emerging Growth Fund
Nations Small Company Growth Fund
International Funds
Nations International Value Fund*
Nations International Equity Fund*
Nations International Growth Fund
Nations Emerging Markets Fund*
Index Funds
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
Balanced Funds
Nations Balanced Assets Fund
Nations Asset Allocation Fund
Fixed Income Funds
Nations Short-Term Income Fund
Nations Short-Intermediate Government Fund
Nations Intermediate Bond Fund
Nations Strategic Fixed Income Fund
Nations Government Securities Fund
Nations U.S. Government Bond Fund
Nations Diversified Income Fund
Municipal Bond Funds
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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NOT FDIC
INSURED
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MAY LOSE VALUE
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NO BANK GUARANTEE
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NATIONS FUNDS
<PAGE>
An overview of the Funds
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[GRAPHIC] Terms used in this prospectus
In this prospectus, we, us and our refer to the Nations Funds
Family (Nations Funds). Some other important terms we've used may
be new to you. These are printed in italics where they first
appear in a section and are described in Terms used in this
prospectus.
[GRAPHIC] You'll find Terms used
in this prospectus on
page 167
Your investment in these Funds is not a bank deposit and is not
insured or guaranteed by Bank of America, N. A. (Bank of America),
the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Your investment may lose money.
Affiliates of Bank of America are paid for the services they
provide to the Funds.
This booklet, which is called a prospectus, tells you about six groups of
Nations Funds -- our Equity, International, Index, Balanced, Fixed Income and
Municipal Bond Funds. Please read it carefully, because it contains
information that's designed to help you make informed investment decisions.
About the Funds
Each group of Funds has a different investment focus:
o Equity Funds invest primarily in equity securities of U.S. companies
o International Funds invest primarily in equity securities of companies
outside the United States
o Index Funds are intended to match the industry and risk characteristics of
a specific stock market index, like the S&P 500, by investing primarily
in equity securities that are included in the index
o Balanced Funds invest in a mix of equity and fixed income securities, as
well as money market instruments
o Fixed Income Funds focus on the potential to earn income by investing
primarily in fixed income securities
o Municipal Bond Funds focus on the potential to earn income that is
generally free from federal income tax by investing primarily in
municipal securities
The Funds also have different risk/return characteristics because they invest
in different kinds of securities.
Equity securities have the potential to provide you with higher returns than
many other kinds of investments, but they also tend to have the highest risk.
Foreign securities also involve special risks not associated with investing in
the U.S. stock market, which you need to be aware of before you invest.
Fixed income securities and municipal securities have the potential to
increase in value because when interest rates fall, the value of these
securities tends to rise. When interest rates rise, however, the value of
these securities tends to fall. Other things can also affect the value of
fixed income securities.
In every case, there's a risk that you'll lose money or you may not earn as
much as you expect.
2
<PAGE>
Choosing the right Funds for you
Not every Fund is right for every investor. When you're choosing a Fund to
invest in, you should consider things like your investment goals, how much
risk you can accept and how long you're planning to hold your investment.
The Equity, International and Index Funds all focus on long-term growth. They
may be suitable for you if:
o you have longer-term investment goals
o they're part of a balanced portfolio
o you want to try to protect your portfolio against a loss of buying power
that inflation can cause over time
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with equity securities, including foreign securities
o you have short-term investment goals
o you're looking for a regular stream of income
The Balanced Funds invest in a mix of equity and fixed income securities, as
well as money market instruments. They may be suitable for you if:
o you're looking for both long-term growth and income
o you want a diversified portfolio in a single mutual fund
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with equity and fixed income securities
o you have short-term investment goals
o you're looking for a regular stream of income
The Fixed Income and Municipal Bond Funds focus on the potential to earn
income. They may be suitable for you if:
o you're looking for income
o you have longer-term investment goals
The Municipal Bond Funds may be suitable if you also want to reduce taxes on
your investment income.
The Fixed Income and Municipal Bond Funds may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with fixed income securities
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page 7.
For more information
If you have any questions about the Funds, please call us at 1.800.765.2668 or
contact your investment professional.
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes more detailed information about each
Fund's investments, policies, performance and management, among other things.
Please turn to the back cover to find out how you can get a copy.
3
<PAGE>
What's inside
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[GRAPHIC] Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI)* is the investment adviser
to each of the Funds. BAAI is responsible for the overall
management and supervision of the investment management of each
Fund. BAAI and Nations Funds have engaged sub-advisers, which are
responsible for the day-to-day investment decisions for each of
the Funds.
[GRAPHIC] You'll find more about
BAAI and the sub-advisers
starting on page 131.
* BAAI's name is expected to be changed from NationsBanc Advisors,
Inc. on or about September 1, 1999.
<TABLE>
<S> <C>
[GRAPHIC] About the Funds
Equity Funds
Nations Capital Income Fund 7
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Value Fund 11
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Equity Income Fund 14
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Blue Chip Fund 17
Sub-adviser: Chicago Equity Partners Corporation
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Nations Marsico Growth & Income Fund 21
Sub-adviser: Marsico Capital Management, LLC
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Nations Strategic Equity Fund 25
Sub-adviser: Bank of America Investment Management
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Nations Capital Growth Fund 28
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Disciplined Equity Fund 31
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Marsico Focused Equities Fund 34
Sub-adviser: Marsico Capital Management, LLC
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Nations Emerging Growth Fund 38
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Small Company Growth Fund 42
Sub-adviser: TradeStreet Investment Associates, Inc.
International Funds
Nations International Value Fund 46
Sub-adviser: Brandes Investment Partners, L.P.
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Nations International Equity Fund 50
Sub-advisers: Gartmore Global Partners, INVESCO Global Asset
Management (N.A.), Inc., Putnam Investment Management, Inc.
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Nations International Growth Fund 54
Sub-adviser: Gartmore Global Partners
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Nations Emerging Markets Fund 57
Sub-adviser: Gartmore Global Partners
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Index Funds
Nations Equity Index Fund 61
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Managed Index Fund 65
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Managed SmallCap Index Fund 69
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Managed Value Index Fund 73
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Managed SmallCap Value Index Fund 77
Sub-adviser: TradeStreet Investment Associates, Inc.
Balanced Funds
Nations Balanced Assets Fund 81
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Asset Allocation Fund 85
Sub-advisers: TradeStreet Investment Associates, Inc., Chicago
Equity Partners Corporation
Fixed Income Funds
Nations Short-Term Income Fund 89
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Short-Intermediate Government Fund 93
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Intermediate Bond Fund 97
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Strategic Fixed Income Fund 101
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Government Securities Fund 105
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations U.S. Government Bond Fund 109
Sub-adviser: Boatmen's Capital Management, Inc.
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Nations Diversified Income Fund 113
Sub-adviser: TradeStreet Investment Associates, Inc.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Municipal Bond Funds
Nations Short-Term Municipal Income Fund 117
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Intermediate Municipal Bond Fund 121
Sub-adviser: TradeStreet Investment Associates, Inc.
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Nations Municipal Income Fund 125
Sub-adviser: TradeStreet Investment Associates, Inc.
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Other important information 129
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How the Funds are managed 131
[GRAPHIC] About your investment
Information for investors
Buying, selling and exchanging shares 142
Distributions and taxes 145
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Financial highlights 148
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Terms used in this prospectus 167
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Where to find more information back cover
</TABLE>
6
<PAGE>
About the Equity Funds
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[GRAPHIC] About the sub-adviser
TradeStreet Investment Associates, Inc. (TradeStreet) is this
Fund's sub-adviser. TradeStreet's Capital Income Management Team
makes the day-to-day investment decisions for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] What are convertible securities?
Convertible securities, which include convertible bonds and
convertible preferred stocks, can be exchanged for common stock at
a specified rate. The common stock it converts to is called the
"underlying" common stock.
Convertible securities typically:
o have higher income potential than the underlying common stock
o are affected less by changes in the stock market than the
underlying common stock
o have the potential to increase in value if the value of the
underlying common stock increases
Nations Capital Income Fund
[GRAPHIC] Investment objective
This Fund seeks to provide investors with a total investment return,
comprised of current income and capital appreciation, consistent with
prudent investment risk.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in convertible
securities mostly issued by U.S. issuers. The Fund may invest up to 15%
of its assets in Eurodollar convertible securities.
Most convertible securities are not investment grade. The portfolio management
team generally chooses convertible securities that are rated at least "B" by a
nationally recognized statistical rating organization (NRSRO). The team may
choose unrated securities if it believes they are of comparable quality at the
time of investment.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio management team looks for opportunities to participate in the
growth potential of the underlying common stocks, while earning income that is
generally higher than the income these stocks earn.
When identifying individual investments, the portfolio management team
evaluates a number of factors, including:
o the issuer's financial strength and revenue outlook
o earnings trends, including changes in earnings estimates
o the security's conversion feature and other characteristics
The team diversifies the Fund's assets among different sized companies, tries
to limit conversion costs and generally sells securities when they take on the
trading characteristics of the underlying common stock. The portfolio
management team also may convert securities to common shares when it believes
it's appropriate to do so.
7
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Capital Income Fund has the following risks:
o Investment strategy risk - The management team chooses convertible
securities that it believes have the potential for long-term growth.
There is a risk that the value of these investments will not rise as
high as the team expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
o Interest rate risk - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when
interest rates rise than fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations. Fixed income
securities with the lowest investment grade rating or that aren't
investment grade are more speculative in nature than securities with
higher ratings, and they tend to be more sensitive to credit risk,
particularly during a downturn in the economy.
o Convertible security features - The issuer of a convertible security may
have the option to redeem it at a specified price. If a convertible
security is redeemed, the Fund may accept the redemption, convert
the convertible security to common stock, or sell the convertible
security to a third party. Any of these transactions could affect
the Fund's ability to meet its objective.
8
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
35.32% -4.31% 38.24% 21.34% 22.71% -5.85% 24.11% 19.45% 21.96% 6.58%
</TABLE>
Year-to-date return as of June 30, 1999: 10.31%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1991: 17.59%
Worst: 3rd quarter 1990: -12.28%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the First Boston Convertible Index, a widely-used
unmanaged index that measures the performance of convertible
securities. The index is not available for investment.
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 6.58% 12.65% 17.07%
First Boston Convertible Index 6.55% 10.83% 12.30%
</TABLE>
9
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.35%
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Total annual Fund operating expenses 1.00%
Fee waivers and/or reimbursements (0.02)%
------
Total net expenses(2) 0.98%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
May 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire in May 2000 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $100 $316 $551 $1,223
</TABLE>
10
<PAGE>
About the Equity Funds
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[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Value
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is value investing?
Value investing means looking
for "undervalued" companies --
quality companies that may be currently out of favor and selling
at a reduced price, but that have good potential to increase in
value.
The management team uses fundamental analysis to help decide
whether the current stock price of a company may be lower than the
company's true value, and then looks for things that could trigger
a rise in price, like a new product line, new pricing or a change
in management. This trigger is often called a "catalyst."
Nations Value Fund
[GRAPHIC] Investment objective
This Fund seeks growth of capital by investing in companies that are
believed to be undervalued.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in common stocks
of U.S. companies. It generally invests in companies in a broad range
of industries with market capitalizations of at least $1 billion and
daily trading volumes of at least $3 million.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The management team uses fundamental analysis to identify stocks of companies
that it believes are undervalued, looking at, among other things:
o the quality of the company
o the company's projected earnings and dividends
o the stock's price-to-earnings ratio relative to other stocks in the same
industry or economic sector. The team believes that companies with lower
price-to-earnings ratios are generally more likely to provide better
opportunities for capital appreciation
o the stock's potential to provide total return
o the value of the stock relative to the overall stock market
The team also looks for a "catalyst" for improved earnings. This could be, for
example, a new product, new management or a new sales channel.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
11
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing
in this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a security when its price reaches the target set by the
team, there is a deterioration in the company's financial situation, when the
team believes other investments are more attractive, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Value Fund has the following risks:
o Investment strategy risk - The management team chooses stocks that it
believes are undervalued, with the expectation that they will rise
in value. There is a risk that the value of these investments will
not rise as high as the team expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels wll
continue.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
0.73%* 3.53% 25.86% 7.30% 16.36% -2.99% 36.09% 21.12% 26.66% 17.34%
* Return is from inception (9-19-89) to 12-31-89.
</TABLE>
Year-to-date return as of June 30, 1999: 7.03%
12
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 19.69%
Worst: 3rd quarter 1998: -12.48%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500 and the S&P/BARRA Value Index. The S&P 500 is
an unmanaged index of 500 widely held common stocks. The S&P/BARRA
Value Index is an unmanaged index of a group of stocks from the S&P 500
that have low price-to-book ratios relative to the S&P 500 as a whole.
These indexes are weighted by market capitalization and are not
available for investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 17.34% 18.90% 15.77%
S&P 500 28.58% 24.06% 17.64%
S&P/BARRA Value Index 14.68% 19.88% 15.20%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.31%
----
Total annual Fund operating expenses 0.96%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $98 $306 $531 $1,178
</TABLE>
13
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] Why invest in an equity income fund?
Equity income funds are generally considered to be a more
conservative equity investment because they invest in large,
well-established companies that pay regular dividends. These
companies tend to be less volatile than other kinds of companies.
Nations Equity Income Fund
[GRAPHIC] Investment objective
This Fund seeks current income and growth of capital by investing in
companies with above-average dividend yields.
[GRAPHIC] Principal investment strategies
The Fund normally invests in 100 to 150 companies in a broad range of
industries with market capitalizations of at least $5 billion. The Fund
tries to provide a higher yield than the S&P 500. The Fund generally
invests at least 65% of its assets in common stocks that pay dividends
and that are listed on a national exchange or are traded on an
established over-the-counter market.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The management team evaluates the overall economy, industry conditions and the
financial conditions and management of each company, using a process called
fundamental analysis, to identify stocks of companies whose earnings are
believed to have the potential to grow. When selecting investments, the
management team looks at, among other things:
o value characteristics like book value, earnings yield and cash flow
o growth characteristics like the rate of growth of a company's stock price
and earnings
o a security's potential for above-average dividend yield
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
14
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a security when its price reaches the target set by the
team, there is a deterioration in the company's financial situation, when the
team believes other investments are more attractive, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Equity Income Fund has the following risks:
o Investment strategy risk - The management team chooses stocks that it
believes have the potential for dividend growth and capital
appreciation. There is a risk that dividend payments and the value
of these investments will not rise as high as the team expects, or
will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998
14.65%* 10.20% 12.66% -0.99% 27.60% 19.93% 26.13% 3.73%
* Return is from inception (4-11-91) to 12-31-91.
</TABLE>
Year-to-date return as of June 30, 1999: 7.32%
15
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 14.21%
Worst: 3rd quarter 1998: -14.44%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 3.73% 14.67% 14.37%
S&P 500 28.58% 24.06% 19.96%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.28%
----
Total annual Fund operating expenses 0.93%
====
</TABLE>
(1)The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $95 $296 $515 $1,143
</TABLE>
16
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
The Fund does not have its own
investment adviser or sub-adviser because it's a "feeder" fund. A
feeder funds typically invests all of its assets in another fund,
which is called a "master portfolio." Master Portfolio and Fund
are sometimes used interchangeably.
BAAI is the Master Portfolio's investment adviser, and Chicago
Equity Partners Corporation (Chicago Equity) is its sub-adviser.
Chicago Equity's Equity Management Team makes the day-to-day
investment decisions for the Master Portfolio.
[GRAPHIC] You'll find more about
Chicago Equity on
page 136.
[GRAPHIC] Why invest in Nations Blue Chip Fund?
Nations Blue Chip Fund may be suitable for investors who are
looking for a "core" equity holding for their portfolio. It's
considered to be a more conservative equity investment because it
invests in a broad range of large, well-established companies.
These companies tend to be less volatile than other kinds of
companies.
Nations Blue Chip Fund
[GRAPHIC] Investment objective
This Fund seeks to achieve long-term capital appreciation through
investments in blue chip stocks.
[GRAPHIC] Principal investment strategies
The Fund invests all of its assets in Nations Blue Chip Master
Portfolio (the Master Portfolio). The Master Portfolio has the same
investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in blue chip
stocks. These are stocks of well established, nationally known companies that
have a long record of profitability and a reputation for quality management,
products and services.
The Master Portfolio primarily invests in blue chip stocks that are included
in the S&P 500, but may invest up to 15% of its assets in stocks that are not
included in the index. It usually holds approximately 100 stocks.
The Master Portfolio may also invest in securities that aren't part of its
principal investment strategies, but it won't hold more than 10% of its assets
in any one type of these securities. These securities are described in the
SAI.
The portfolio management team uses quantitative analysis to analyze
fundamental information about securities and identify value. Starting with a
universe of approximately 700 common stocks, the portfolio management team
uses a multi-factor computer model to rank securities, based on the following
criteria, among others:
o changes in actual and expected earnings
o unexpected changes in earnings
o price-to-earnings ratio
o price-to-book ratio
o price-to-cash flow
The portfolio management team tries to manage risk by matching the market
capitalization, style and industry weighting characteristics of the S&P 500.
The team focuses on selecting individual stocks to try to provide higher
returns than the S&P 500 while maintaining a level of risk similar to the
index.
The team may sell a security when there is a development in the company or its
industry that causes earnings estimates to fall, when the team believes other
investments are more attractive, or for other reasons.
17
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Blue Chip Fund has the following risks:
o Investment strategy risk - The Master Portfolio uses quantitative
analysis to select blue chip stocks that are believed to have the
potential for long-term growth. There is a risk that the value of
these investments will not rise as high as expected, or will fall.
o Stock market risk - The value of the stocks the Master Portfolio holds
can be affected by changes in U.S. or foreign economies and
financial markets, and the companies that issue the stocks, among
other things. Stock prices can rise or fall over short as well as
long periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Investing in the Master Portfolio - Other mutual funds and eligible
investors can buy shares in the Master Portfolio. For example, the
World Horizon U.S. Equity Fund, which is also managed by BAAI,
invests all of its assets in the Master Portfolio.
All investors in the Master Portfolio invest under the same terms and
conditions as the Fund and pay a proportionate share of the Master
Portfolio's expenses. Other feeder funds that invest in the Master
Portfolio may have different share prices and returns than the Fund
because different feeder funds typically have varying sales charges,
and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses
could increase. The Fund might also have to pay brokerage, tax or
other charges.
18
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC]
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1994 1995 1996 1997 1998
0.66%* 35.78% 23.76% 32.70% 27.86%
* Return is from inception (1-13-94) to 12-31-94.
Year-to-date return as of June 30, 1999: 11.24%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 23.71%
Worst: 3rd quarter 1998: -12.18%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Investor A Shares 27.86% 23.66%
S&P 500 28.58% 24.84%
</TABLE>
19
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)(2)
Management fees 0.65%
Other expenses 0.34%
------
Total annual Fund operating expenses 0.99%
Fee waivers and/or reimbursements (0.04)%
------
Total net expenses(3) 0.95%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
(3)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
May 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire in May 2000 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $97 $311 $543 $1,209
</TABLE>
20
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
The Fund does not have its own
investment adviser or sub-adviser because it's a "feeder" fund. A
feeder fund typically invests all of its assets in another fund,
which is called a "master portfolio." Master Portfolio and Fund
are sometimes used interchangeably.
BAAI is the Master Portfolio's investment adviser, and Marsico
Capital Management, LLC (Marsico Capital) is its sub-adviser.
Thomas F. Marsico is the portfolio manager and makes the
day-to-day investment decisions for the Master Portfolio.
[GRAPHIC] You'll find more about
Marsico Capital and
Mr. Marsico on page 134.
[GRAPHIC] Why invest in a growth and income fund?
Growth and income funds can invest in a mix of equity and fixed
income securities. This can help reduce volatility and provide the
Fund with the flexibility to shift among securities that offer the
potential for higher returns.
While this Fund invests in a wide range of companies and
industries, it holds fewer investments than other kinds of funds.
This means it can have greater price swings than more diversified
funds. It also means it may have relatively higher returns when
one of its investments performs well, or relatively lower returns
when an investment performs poorly.
Nations Marsico Growth & Income Fund
[GRAPHIC] Investment objective
This Fund seeks long-term growth of capital with a limited emphasis on
income.
[GRAPHIC] Principal investment strategies
The Fund invests all of its assets in Nations Marsico Growth & Income
Master Portfolio (the Master Portfolio). The Master Portfolio has the
same investment objective as the Fund.
The Master Portfolio invests primarily in equity securities of large
capitalization companies that are selected for their growth potential. It
invests at least 25% of its assets in securities that are believed to have
income potential, and generally holds 35 to 50 securities. It may hold up to
25% of its assets in foreign securities.
Marsico Capital may shift assets between growth and income securities based on
its assessment of market, financial and economic conditions. The Master
Portfolio, however, is not designed to produce a consistent level of income.
The Master Portfolio may also invest in securities that aren't part of its
principal investment strategies, but it won't hold more than 10% of its assets
in any one type of these securities. These securities are described in the
SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:
o products, markets or technologies in flux that can result in extraordinary
growth
o strong brand franchises that can take advantage of a changing global
environment
o global reach that allows the company to generate sales and earnings both in
the United States and abroad. This can give the company added growth
potential and also means the company may be less affected by changes in
local markets
o movement with, not against, the major social, economic and cultural shifts
taking place in the world
21
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition.
The process also includes a "bottom-up" analysis of a company's financial
situation, as well as individual company characteristics like commitment to
research, market franchise and quality of management.
Marsico Capital may sell a security when it believes there is a deterioration
in the company's financial situation, the security is overvalued, when there
is a negative development in the company's competitive, regulatory or economic
environment, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Marsico Growth & Income Fund has the following risks:
o Investment strategy risk - Marsico Capital uses an investment strategy
that tries to identify equities with growth or income potential.
There is a risk that the value of these investments will not rise as
high as Marsico Capital expects, or will fall.
o Stock market risk - The value of the stocks the Master Portfolio holds
can be affected by changes in U.S. or foreign economies and
financial markets, and the companies that issue the stocks, among
other things. Stock prices can rise or fall over short as well as
long periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Interest rate risk - The prices of the Master Portfolio's fixed income
securities will tend to fall when interest rates rise and to rise
when interest rates fall. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise
than fixed income securities with shorter terms.
o Credit risk - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest or repay principal
when it's due. Credit risk usually applies to most fixed income
securities, but is generally not a factor for U.S. government
obligations.
o Foreign investment risk - Because the Master Portfolio may invest up to
25% of its assets in foreign securities, it can be affected by the
risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, the implementation of the Euro,
foreign controls on investment, difficulties selling some securities
and lack of or limited financial information. Withholding taxes also
may apply to some foreign investments.
o Investing in the Master Portfolio - The Fund began investing in the
Master Portfolio in August 1999. Other mutual funds and eligible
investors can buy shares in the Master Portfolio. All investors in
the Master Portfolio invest under the same terms and conditions as
the Fund and pay a proportionate share of the Master Portfolio's
expenses. Other feeder funds that invest in the Master Portfolio may
have different share prices and returns than the Fund because feeder
funds typically have varying sales charges, and ongoing
administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses
could increase. The Fund might also have to pay brokerage, tax or
other charges.
22
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
For information about the performance of other equity funds
managed by Thomas Marsico, see How the Funds are managed.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1998
38.22%
Year-to-date return as of June 30, 1999: 14.15%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.72%
Worst: 3rd quarter 1998: -12.34%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
1 year
<S> <C>
Primary A Shares 38.22%
S&P 500 28.58%
</TABLE>
23
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)(2)
Management fees 0.75%
Other expenses 0.50%
----
Total annual Fund operating expenses 1.25%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $127 $397 $686 $1,511
</TABLE>
24
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
Bank of America Investment Management (BAIM) is this Fund's
sub-adviser. Michael E. Kenneally makes the day-to-day investment
decisions for the Fund.
[GRAPHIC] You'll find more about
BAIM and Mr. Kenneally
on page 136.
[GRAPHIC] Minimizing taxes
This Fund tries to replace -- or turn over -- no more than 25% of
its investments in a year. Managing the number of buy and sell
transactions the Fund makes can help reduce the capital gains it
distributes.
Nations Strategic Equity Fund
[GRAPHIC] Investment objective
This Fund seeks long-term, after-tax returns by investing in a
diversified portfolio of common stocks.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in common stocks
of companies that it selects from most major industry sectors. The Fund
normally holds 60 to 80 securities, which include common stocks,
preferred stocks and convertible securities like warrants and rights.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio manager identifies stocks using a disciplined analytical
process. Starting with a universe of companies with market capitalizations of
at least $1 billion, the portfolio manager assesses the investment potential
of these companies and their industries by evaluating:
o the growth prospects of the company's industry
o the company's relative competitive position in the industry
The portfolio manager believes that this analysis identifies companies with
favorable long-term growth potential, competitive advantages and sensible
business strategies.
The portfolio manager then uses quantitative analysis to decide when to
invest, evaluating each company's earnings trends and stock valuations, among
other things, to try to determine when it is reasonably valued.
The portfolio manager may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains and income
distributed to shareholders. For example, the portfolio manager:
o will focus on long-term investments to try to limit the number of buy and
sell transactions
o will try to sell securities that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
o invests primarily in securities with lower dividend yields
o may use options, instead of selling securities
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The portfolio manager may sell a security when he believes that the
profitability of the company's industry is beginning to decline, there is a
meaningful deterioration in the company's competitive position, the company's
management fails to execute its business strategy, when the manager considers
the security's price to be overvalued, or for other reasons.
25
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing
in this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC] Risks and other things to consider
Nations Strategic Equity Fund has the following risks:
o Investment strategy risk - The portfolio manager chooses stocks that are
believed have the potential for long-term growth. There is a risk
that the value of these investments will not rise as expected, or
will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Convertible security features - The issuer of a convertible security may
have the option to redeem it at a specified price. If a convertible
security is redeemed, the Fund may accept the redemption, convert
the convertible security to common stock, or sell the convertible
security to a third party. Any of these transactions could affect
the Fund's ability to meet its objective.
[GRAPHIC] A look at the Fund's performance
The Fund has been in operation for less than a full calendar year, so
no performance information has been included in this prospectus.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.44%
----
Total annual Fund operating expenses 1.09%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
26
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $111 $347 $601 $1,329
</TABLE>
27
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Core Growth
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is a growth fund?
Growth funds invest in companies that have the potential for
significant increases in revenue or earnings. These are typically
companies that are developing or applying new technologies,
products or services in growing industry sectors.
Nations Capital Growth Fund
[GRAPHIC] Investment objective
This Fund seeks growth of capital by investing in companies that are
believed to have superior earnings growth potential.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in common stocks
of companies that have one or more of the following characteristics:
o above-average earnings growth compared with the S&P 500
o established operating histories, strong balance sheets and favorable
financial performance
o above-average return on equity compared with the S&P 500
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
When identifying investments, the management team starts with a universe of
companies from the Wilshire 5000 Equity Index, an index that measures the
performance of the equity securities of over 7,000 companies headquartered in
the United States. The index is weighted by market capitalization and is not
available for investment. The team then identifies a group of companies with
market capitalizations of more than $1 billion that it believes have strong
growth potential -- around 750 companies. The team then chooses investments
from this group based on intensive financial research, visits to companies and
market conditions, looking for companies:
o whose earnings growth is projected to be higher than average
o that develop or apply new technologies, new and improved methods of
distribution, or new services
o that may benefit from changing consumer demands and lifestyles
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a security when its price reaches the target set by the
team, the company's growth prospects are deteriorating, when the team believes
other investments are more attractive, or for other reasons.
28
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] Risks and other things to consider
Nations Capital Growth Fund has the following risks:
o Investment strategy risk - The management team chooses stocks that it
believes have superior growth potential and are selling at
reasonable prices, with the expectation that they will rise in
value. There is a risk that the value of these investments will not
rise as high as the team expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
7.80%* 7.85% -1.24% 28.72% 18.61% 30.52% 30.14%
* Return is from inception (9-30-92) to 12-31-92.
Year-to-date return as of June 30, 1999: 10.71%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 28.39%
Worst: 3rd quarter 1998: -14.94%
</TABLE>
29
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 30.14% 20.69% 19.07%
S&P 500 28.58% 24.06% 21.62%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.33%
----
Total annual Fund operating expenses 0.98%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $100 $312 $542 $1,201
</TABLE>
30
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] Why use a computer modeling system?
The management team uses a computer modeling system as a key
component in managing this Fund. The system ranks stocks based on
the relative size and rate of growth of a company's earnings
(earnings momentum), and on the value of its stock compared with
others in the same industry. This helps the team choose stocks
that have the potential to generate attractive returns.
Nations Disciplined Equity Fund
[GRAPHIC] Investment objective
This Fund seeks growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in common stocks
of large and medium-sized U.S. companies. These companies typically
have a market capitalization of $1 billion or more.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The management team uses a computer modeling system to help construct a
portfolio of 40 to 60 securities diversified across industry sectors. Each
security selected for investment by the Fund is in the top third of the
securities ranked by the team's quantitative model for earnings momentum and
in the top third of securities ranked by the model on a valuation basis.
When selecting investments, the team looks for securities it believes are
attractively priced with increasing earnings. It uses quantitative analysis,
which is an analysis of a company's financial information, to:
o identify companies with improving profit potential and increasing earnings
o identify companies with favorable price-to-earnings ratios
o identify companies with positive earnings trends. In general, these
companies also tend to experience favorable trends in their stock prices
o rank the attractiveness of equity securities based on a "multi-factor"
valuation model, a computer modeling system that takes into account value
measures like book value, earnings yield and cash flow to measure a
stock's intrinsic worth compared with its market price. The model also
considers growth measures like price momentum and the size and rate of
earnings growth to compare a stock with others in the same industry
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains it
distributes to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
31
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
The team may sell a security when its earnings momentum begins to deteriorate,
when there is a development in the company that causes earnings estimates to
fall, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Disciplined Equity Fund has the following risks:
o Investment strategy risk - The team uses a quantitative approach to
select investments it believes are attractively valued and whose
earnings per share are likely to increase. There is a risk that the
value of these investments will not rise as high as the team
expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
33.11%* 29.81% -6.35% 27.53% 22.08% 29.92% 25.83%
* Return is from inception (10-1-92) to 12-31-92.
Year-to-date return as of June 30, 1999: 11.51%
32
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 24.61%
Worst: 3rd quarter 1998: -15.28%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 25.83% 18.97% 25.42%
S&P 500 28.58% 24.06% 21.62%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.34%
----
Total annual Fund operating expenses 0.99%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $101 $315 $547 $1,213
</TABLE>
33
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
The Fund does not have its own
investment adviser or sub-adviser because it's a "feeder" fund. A
feeder fund typically invests all of its assets in another fund,
which is called a "master portfolio." Master Portfolio and Fund
are sometimes used interchangeably.
BAAI is the Master Portfolio's investment adviser, and Marsico
Capital Management, LLC (Marsico Capital) is its sub-adviser.
Thomas F. Marsico is the portfolio manager and makes the
day-to-day investment decisions for the Master Portfolio.
[GRAPHIC] You'll find more about
Marsico Capital and
Mr. Marsico on page 134.
[GRAPHIC] What is a focused fund?
A focused fund invests in a small number of companies with
earnings that are believed to have the potential to grow
significantly. This Fund focuses on large, established and well-
known U.S. companies.
Because a focused fund holds fewer investments than other kinds of
funds, it can have greater price swings than more diversified
funds. It may earn relatively higher returns when one of its
investments performs well, or relatively lower returns when an
investment performs poorly.
Nations Marsico Focused Equities Fund
[GRAPHIC] Investment objective
This Fund seeks long-term growth of capital.
[GRAPHIC] Principal investment strategies
The Fund invests all of its assets in Nations Marsico Focused Equities
Master Portfolio (the Master Portfolio). The Master Portfolio has the
same investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in common
stocks of large companies. The Master Portfolio, which is non-diversified,
generally holds a core position of 20 to 30 common stocks. It may invest up to
25% of its assets in foreign securities.
The Master Portfolio may also invest in securities that aren't part of its
principal investment strategies, but it won't hold more than 10% of its assets
in any one type of these securities. These securities are described in the
SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:
o products, markets or technologies in flux that can result in extraordinary
growth
o strong brand franchises that can take advantage of a changing global
environment
o global reach that allows the company to generate sales and earnings both in
the United States and abroad. This can give the company added growth
potential and also means the company may be less affected by changes in
local markets
o movement with, not against, the major social, economic and cultural shifts
taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition.
The process also includes a "bottom-up" analysis of a company's financial
situation, as well as individual company characteristics like commitment to
research, market franchise and quality of management.
Marsico Capital may sell a security when it believes there is a deterioration
in the company's financial situation, the security is overvalued, when there
is a negative development in the company's competitive, regulatory or economic
environment, or for other reasons.
34
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Marsico Focused Equities Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the Master
Portfolio's investments will not rise as high as Marsico Capital
expects, or will fall.
o Holding fewer investments - This Master Portfolio is considered to be
non-diversified because it may hold fewer investments than other
kinds of equity funds. This increases the risk that its value could
go down significantly if even only one of its investments performs
poorly. The value of this Portfolio will tend to have greater price
swings than the value of more diversified equity funds. The Master
Portfolio may become a diversified fund by limiting the investments
in which more than 5% of its total assets are invested.
o Stock market risk - The value of the stocks the Master Portfolio holds
can be affected by changes in U.S. or foreign economies and
financial markets, and the companies that issue the stocks, among
other things. Stock prices can rise or fall over short as well as
long periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Foreign investment risk - Because the Master Portfolio may invest up to
25% of its assets in foreign securities, it can be affected by the
risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, the implementation of the Euro,
foreign controls on investment, difficulties selling some securities
and lack of or limited financial information. Withholding taxes also
may apply to some foreign investments.
o Investing in the Master Portfolio - The Fund began investing in the
Master Portfolio in August 1999. Other mutual funds and eligible
investors can buy shares in the Master Portfolio. All investors in
the Master Portfolio invest under the same terms and conditions as
the Fund and pay a proportionate share of the Master Portfolio's
expenses. Other feeder funds that invest in the Master Portfolio may
have different share prices and returns than the Fund because
different feeder funds typically have varying sales charges, and
ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses
could increase. The Fund might also have to pay brokerage, tax or
other charges.
35
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
For information about the performance of other equity funds
managed by Thomas Marsico, see How the Funds are managed.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1998
49.64%
Year-to-date return as of June 30, 1999: 15.56%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 22.35%
Worst: 3rd quarter 1998: -9.08%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The S&P 500 is not available
for investment.
<TABLE>
<CAPTION>
1 year
<S> <C>
Primary A Shares 49.64%
S&P 500 28.58%
</TABLE>
36
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)(2)
Management fees 0.75%
Other expenses 0.31%
----
Total annual Fund operating expenses 1.06%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $108 $337 $585 $1,294
</TABLE>
37
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Strategic
Growth Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is an emerging growth fund?
An emerging growth fund invests in emerging growth companies.
These are typically medium-sized and smaller companies whose
earnings are expected to grow or to continue growing. These
companies may be expanding in existing markets, entering into new
markets, developing new products or increasing their profit
margins by gaining market share or streamlining their operations.
These companies can have better potential for rapid earnings than
larger companies. They may, however, have a harder time securing
financing and may be more sensitive to a setback in sales than
larger, more established companies.
Nations Emerging Growth Fund
[GRAPHIC] Investment objective
This Fund seeks capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in companies
chosen from a universe of emerging growth companies. The Fund generally
holds 75 to 130 securities, which include common stocks, preferred
stocks and convertible securities like warrants, rights and convertible
debt.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The team identifies stocks using a disciplined process based on the
fundamental analysis of the overall economy, industry conditions, and the
financial position and management of each company. It starts with a universe
of nearly 1,500 companies with market capitalizations between $750 million and
$7 billion. The team then analyzes each company's financial information using
quantitative analysis. It looks at:
o earnings growth trends
o earnings momentum
o earnings estimate trends
o relative price performance
o valuation
The team then conducts a rigorous qualitative analysis of each company being
considered for investment. This involves, among other things:
o gaining an in-depth understanding of the company's business
o evaluating the company's growth potential, risks and competitive strengths
o discussing its growth strategy with company management
o validating the growth strategy with external research
The team will only invest in a company it has chosen when its stock price is
believed to be attractive relative to its forecasted growth.
38
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a security when its price reaches the target set by the
team, the company's growth prospects are deteriorating, when the team believes
other investments are more attractive, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Emerging Growth Fund has the following risks:
o Investment strategy risk - The team chooses stocks that it believes have
the potential for superior long-term growth. There is a risk that
the value of these investments will not rise as high as the team
expects, or will fall.
o Emerging company risk - Stocks of emerging companies tend to have
greater price swings than stocks of larger companies because they
trade less frequently and in lower volumes. These securities may
have a higher potential for gains but also carry more risk.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
39
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
3.42%* 12.00% 0.65% 30.00% 18.63% 20.66% 3.47%
* Return is from inception (12-4-92) to 12-31-92.
Year-to-date return as of June 30, 1999: 13.82%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 31.92%
Worst: 3rd quarter 1998: -26.07%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P MidCap 400, an unmanaged index of 400 domestic
stocks chosen for market size, liquidity and industry representation.
The index is weighted by market value, and is not available for
investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 3.47% 14.15% 14.24%
S&P MidCap 400 28.58% 24.06% 21.53%
</TABLE>
40
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.35%
----
Total annual Fund operating expenses 1.00%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $102 $318 $552 $1,225
</TABLE>
41
<PAGE>
About the Equity Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Strategic
Growth Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] Why invest in a small company growth fund?
A small company growth fund invests in smaller companies with
promising products or that are operating in a dynamic field. These
companies can have stronger potential for rapid earnings growth
than larger companies. They may, however, have a harder time
securing financing and may be more sensitive to a setback than
larger, more established companies.
The portfolio management team looks for companies whose earnings
are growing quickly, and whose share prices are reasonably valued.
Nations Small Company Growth Fund
[GRAPHIC] Investment objective
This Fund seeks long-term capital growth by investing primarily in
equity securities.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in companies with
a market capitalization of $1 billion or less. The Fund usually holds
75 to 130 securities, which include common stocks, preferred stocks and
convertible securities like warrants, rights and convertible debt.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The team identifies stocks using a disciplined process based on the
fundamental analysis of the overall economy, industry conditions, and the
financial position and management of each company. It starts with a universe
of nearly 1,500 companies with market capitalizations between $750 million and
$7 billion. The team then analyzes each company's financial information using
quantitative analysis. It looks at:
o earnings growth trends
o earnings momentum
o earnings estimate trends
o relative price performance
o valuation
The team then conducts a rigorous qualitative analysis of each company being
considered for investment. This involves, among other things:
o gaining an in-depth understanding of the company's business
o evaluating the company's growth potential, risks and competitive strengths
o discussing its growth strategy with company management
o validating the growth strategy with external research
The team will only invest in a company when its stock price is attractive
relative to its forecasted growth.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
42
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
The team may sell a security when its price reaches the target set by the
team, the company's growth prospects are deteriorating, when the team believes
other investments are more attractive, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Small Company Growth Fund has the following risks:
o Investment strategy risk - The team chooses stocks that it believes have
the potential for long-term growth. There is a risk that the value
of these investments will not rise as high as the team expects, or
will fall.
o Small company risk - Stocks of smaller companies tend to have greater
price swings than stocks of larger companies because they trade less
frequently and in lower volumes. These securities may have a higher
potential for gains but also carry more risk.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
- -1.25%* 20.59% 19.84% 1.53%
* Return is from inception (12-12-95) to 12-31-95.
Year-to-date return as of June 30, 1999: 4.86%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 23.45%
Worst: 3rd quarter 1998: -25.76%
</TABLE>
43
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Russell 2000, an unmanaged index of 2,000 of the
smallest stocks representing approximately 11% of the U.S. equity
market. The index is weighted by market capitalization, and is not
available for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares 1.53% 12.92%
Russell 2000 -2.55% 12.19%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.90%
Other expenses 0.34%
------
Total annual Fund operating expenses 1.24%
Fee waivers and/or reimbursements (0.09)%
------
Total net expenses(2) 1.15%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
44
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples.
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $117 $385 $672 $1,492
</TABLE>
45
<PAGE>
About the International Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
Brandes Investment Partners, L.P.
(Brandes) is this Fund's sub-adviser. Brandes's Large Cap
Investment Committee makes the day-to-day investment decisions for
the Fund.
[GRAPHIC] You'll find more about
Brandes on page 137.
[GRAPHIC] What is the Graham and Dodd
approach to investing?
Benjamin Graham is widely regarded as the founder of this classic
value approach to investing and a pioneer in modern security
analysis. In his 1934 book, Security Analysis, co-written by David
Dodd, Graham introduced the idea that stocks should be chosen by
identifying the "true" long-term -- or intrinsic -- value of a
company based on measurable data.
The team follows this approach, looking at each stock as though
it's a business that's for sale. By buying stocks at what it
believes are favorable prices, the Fund looks for the potential
for appreciation over the business cycle, and for a margin of
safety against price declines.
Nations International Value Fund
[GRAPHIC] Investment objective
This Fund seeks long-term capital appreciation by investing primarily
in equity securities of foreign issuers, including emerging markets
countries.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in foreign
companies anywhere in the world that have a market capitalization of
more than $1 billion at the time of investment. The Fund typically
invests in at least three countries other than the United States at any
one time.
The Fund primarily invests in common stocks, preferred stocks and convertible
securities, either directly or indirectly through closed-end investment
companies and depositary receipts.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Fund. The team invests in a company when
its current price appears to be below its true long-term -- or
intrinsic -- value.
The team uses fundamental analysis to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management
record, as well as its industry and its position in the industry. This
analysis includes a review of company reports, filings with the SEC, computer
databases, industry publications, general and business publications, brokerage
firm research reports and other information sources, as well as interviews
with company management.
The team may sell a security when its price reaches the target set by the
team, there is a deterioration in the company's financial situation, when the
team believes other investments are more attractive, or for other reasons.
46
<PAGE>
[GRAPHIC] Limits on investments
To help manage risk, the Fund has certain limits on its
investments. These limits apply at the time an investment is made:
o The Fund will normally invest no more than 5% of its assets in a single
security.
o It may not invest more than the higher of:
o 20% of its assets in a single country or industry, or
o 150% of the weighting of a single country or industry in the MSCI EAFE
Index (to a maximum of 25% of its assets in a single
industry, other than U.S. government securities).
o It generally may not invest more than 20% of its assets in emerging
markets or developing countries.
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on page
129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations International Value Fund has the following risks:
o Investment strategy risk - The management team chooses stocks it
believes are undervalued or out of favor with the expectation that
these stocks will eventually rise in value. There is a risk that the
value of these investments will not rise as high or as quickly as
the manager expects, or will fall.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and
lack of or limited financial information. Withholding taxes may also
apply to some foreign investments.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
o Changing to a feeder fund - Unlike traditional mutual funds, which
invest in individual securities, a "feeder fund" invests all of its
assets in another fund, called a "master portfolio." Other feeder
funds generally also invest in a master portfolio. The master
portfolio invests in individual securities and has the same
investment objective, investment strategies and principal risks as
the feeder funds. This structure can help reduce a feeder fund's
expenses because its assets are combined with those of other feeder
funds. If a master portfolio doesn't attract other feeder funds,
however, a feeder fund's expenses could be higher than those of a
traditional mutual fund.
This Fund may become a feeder fund if the Board of Trustees decides
this would be in the best interests of shareholders. Management
currently intends to propose that the Fund change to a feeder fund
within the next year, but only if other feeder funds are likely to
also invest in the master portfolio. We don't require shareholder
approval to make the change, but we'll notify you if it happens.
If the Fund becomes a feeder fund, it would have the additional risks
of investing in a master portfolio. These are described on page 00.
47
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
For information about the performance of other international funds
managed by Brandes, see How the Funds are managed.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
- -0.54%* 15.35% 21.01% 11.60%
*Return is from inception (12-27-95) to 12-31-95.
Year-to-date return as of June 30, 1999: 22.27%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.38%
Worst: 3rd quarter 1998: -16.57%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's annual total return for each period,
compared with the MSCI EAFE Index (Morgan Stanley Capital International
Europe, Australia and Far East Index), an index of over 1,000 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares 11.60% 15.65%
MSCI EAFE Index 20.33% 9.31%
</TABLE>
48
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.90%
Other expenses 0.50%
------
Total annual Fund operating expenses 1.40%
Fee waivers and/or reimbursements (0.10)%
------
Total net expenses(2) 1.30%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples.
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $132 $433 $756 $1,671
</TABLE>
49
<PAGE>
About the International Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-advisers
The Fund does not have its own investment adviser or sub-adviser
because it's a "feeder" fund. A feeder fund typically invests all
of its assets in another fund, which is called a "master
portfolio." Master Portfolio and Fund are sometimes used
interchangeably.
BAAI is the Master Portfolio's investment adviser. The Master
Portfolio is a "multi-manager" fund, which means that it's managed
by more than one sub-adviser. Gartmore Global Partners (Gartmore),
INVESCO Global Asset Management (N.A.), Inc. (INVESCO) and Putnam
Investment Management Inc. (Putnam) each manage approximately
one-third of the assets of the Master Portfolio. Six portfolio
managers from Gartmore, INVESCO's International Equity Portfolio
Management Team and Putnam's Core International Equity Group make
the day-to-day investment decisions for their portion of the
Master Portfolio.
[GRAPHIC] You'll find more about
Gartmore, INVESCO and
Putnam starting on
page 138.
[GRAPHIC] Why invest in an
international equity fund?
International equity funds invest in a diversified portfolio of
companies located in markets throughout the world. These companies
can offer investment opportunities that are not available in the
United States. Investing internationally also involves special
risks not associated with investing in the U.S. stock market.
Nations International Equity Fund
[GRAPHIC] Investment objective
This Fund seeks long-term capital growth by investing primarily in
equity securities of non-United States companies in Europe, Australia,
the Far East and other regions, including developing countries.
[GRAPHIC] Principal investment strategies
The Fund invests all of its assets in Nations International Equity
Master Portfolio (the Master Portfolio). The Master Portfolio has the
same investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in
established companies located in at least three countries other than the
United States. The investment managers select countries, including emerging
market or developing countries, and companies they believe have the potential
for growth.
The Master Portfolio primarily invests in equity securities which may include
equity interests in foreign investment funds or trusts, convertible
securities, real estate investment trust securities and depositary receipts.
The Master Portfolio may also invest in securities that aren't part of its
principal investment strategies, but it won't hold more than 10% of its assets
in any one type of these securities. These securities are described in the
SAI.
The Master Portfolio may 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.
The Master Portfolio is a "multi-manager" fund. It has three different
investment managers. Each is responsible for managing approximately one-third
of the Master Portfolio's assets. The managers all have different, but
complementary, investment styles:
o Gartmore combines "top down," allocation among regions around the world
with a stock selection process that focuses on investing in securities
when growth is likely to be higher, or sustained longer, than other
investors expect.
o INVESCO uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for sustainable growth.
o Putnam is a "core manager," focusing on stable, long-term investments,
rather than growth or value stocks. It combines "bottom up" stock
selection with "top down" country allocation.
The multi-manager strategy is based on the belief that having more than one
manager may result in better performance and more stable returns over time.
A manager may sell a security when its price reaches the target set by the
manager, when the company's growth prospects are deteriorating, when the
manager believes other investments are more attractive, or for other reasons.
50
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on page
129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations International Equity Fund has the following risks:
o Investment strategy risk - The managers choose stocks they believe have
the potential for long-term growth. There is a risk that the value
of these investments will not rise as high as expected, or will
fall. There is also a risk that the Fund's multi-manager strategy
may not result in better performance or more stable returns.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and
lack of or limited financial information. Withholding taxes may also
apply to some foreign investments.
o Stock market risk - The value of the stocks the Master Portfolio holds
can be affected by changes in U.S. or foreign economies and
financial markets, and the companies that issue the stocks, among
other things. Stock prices can rise or fall over short as well as
long periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
o Futures risk - This Master Portfolio may use futures contracts to
convert currencies and to hedge against changes in foreign currency
exchange rates. There is a risk that this could result in losses,
reduce returns, increase transaction costs or increase the Fund's
volatility.
o Investing in the Master Portfolio - The Fund began investing in the
Master Portfolio in August 1999. Other mutual funds and eligible
investors can buy shares in the Master Portfolio. All investors in
the Master Portfolio invest under the same terms and conditions as
the Fund and pay a proportionate share of the Master Portfolio's
expenses. Other feeder funds that invest in the Master Portfolio may
have different share prices and returns than the Fund because
different feeder funds typically have varying sales charges, and
ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses
could increase. The Fund might also have to pay brokerage, tax or
other charges.
51
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1991 1992 1993 1994 1995 1996 1997 1998
4.16%* -8.57% 27.21% 2.60% 8.45% 8.47% 1.27% 16.46%
* Return is from inception (12-2-91) to 12-31-91.
Year-to-date return as of June 30, 1999: 4.17%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 17.70%
Worst: 3rd quarter 1998: -13.94%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the MSCI EAFE Index (Morgan Stanley Capital International
Europe, Australasia and Far East Index), an index of over 1,100 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 16.46% 7.32% 8.00%
MSCI EAFE Index 20.33% 9.50% 9.82%
</TABLE>
52
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)92)
Management fees 0.80%
Other expenses 0.34%
----
Total annual Fund operating expenses(3) 1.14%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2) These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
(3)The Fund's investment adviser and/or some of its other service
providers have agreed to limit total annual Fund operating expenses
to 1.15% for Primary A Shares until May 2000. There is no guarantee
that this limitation will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $116 $362 $628 $1,386
</TABLE>
53
<PAGE>
About the International Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
Gartmore is this Fund's sub-adviser. Brian O'Neill, the principal
senior investment manager of the Gartmore Global Portfolio Team,
makes the day-to-day investment decisions for the Fund.
[GRAPHIC] You'll find more about
Gartmore on page 138.
[GRAPHIC] What is an international
growth fund?
International growth funds invest in companies around the world
that have the potential for significant increases in revenue or
earnings. These are typically companies that are developing or
applying new technologies, products or services in strong industry
sectors.
The portfolio manager for this Fund looks for companies with
earnings growth that is expected to be higher than other investors
believe, and then sells these investments when growth may be lower
than others expect.
Nations International Growth Fund
[GRAPHIC] Investment objective
This Fund seeks long-term capital growth by investing primarily in
equity securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in Europe
and the Pacific Basin.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in foreign
companies listed on major exchanges in Europe and the Pacific Basin.
These companies can be of any size.
The Fund invests in common stocks, preferred stocks and convertible
securities, such as warrants, rights and convertible debt.
The Fund may invest up to 35% of its assets in securities of issuers located
in developing countries in the Asia and Pacific regions, Africa, Latin America
and Eastern Europe.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The Fund will generally hold 50 to 80 securities invested in approximately 10
industry sectors within 15 to 20 stock markets.
The portfolio manager uses a "bottom-up" approach to selecting securities,
looking for companies with:
o high quality and sustainable earnings
o high growth potential over a two-year investment horizon
o quality management teams
o the ability to finance growth internally
o strong financial results
Throughout the investment process, the portfolio manager balances the Fund's
emphasis on growth companies with a sensitivity to securities prices.
The portfolio manager may sell a security when its price reaches the target
set by the portfolio manager, when there is a deterioration in the growth
prospects of the company or its industry, when the portfolio manager believes
other investments are more attractive, or for other reasons.
54
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] Risks and other things to consider
Nations International Growth Fund has the following risks:
o Investment strategy risk - The portfolio manager chooses stocks believed
to have the potential for high growth. There is a risk that the
value of these investments will not rise as high as the portfolio
manager expects, or will fall.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and
lack of or limited financial information. Withholding taxes may also
apply to some foreign investments.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
15.50%* -0.02% 14.00% 11.18% 2.04% 20.19%
* Return is from inception (7-26-93) to 12-31-93.
Year-to-date return as of June 30, 1999: 3.14%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 21.00%
Worst: 3rd quarter 1998: -14.55%
</TABLE>
55
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the MSCI EAFE Index (Morgan Stanley Capital International
Europe, Australasia and Far East Index), an index of over 1,100 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 20.19% 9.22% 11.37%
MSCI EAFE Index 20.33% 9.50% 9.54%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses91)
(Expenses that are deducted from the Fund's assets)
Management fees 0.80%
Other expenses 0.42%
----
Total annual Fund operating expenses 1.22%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time
periods indicated and then sell all of your shares at the
end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $124 $387 $670 $1,477
</TABLE>
56
<PAGE>
About the International Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
Gartmore is this Fund's sub-adviser. Christopher Palmer, a senior
investment manager on the Gartmore Emerging Markets Team, makes
the day-to-day investment decisions for the Fund.
[GRAPHIC] You'll find more about
Gartmore on page 138.
[GRAPHIC] What's an emerging market?
This Fund considers a country to
be an emerging market if:
o the International Finance Corporation has defined it as an emerging
market,
o it has a low-to-middle income economy according to the World Bank, or
o it's listed as developing in World Bank publications.
There are over 25 countries that currently qualify as emerging
markets, including Argentina, Brazil, Chile, China, the Czech
Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia,
Singapore, South Africa, Thailand, Taiwan and Turkey.
Nations Emerging Markets Fund
[GRAPHIC] Investment objective
This Fund seeks long-term capital growth by investing primarily in
equity securities of companies in emerging market countries, such as
those in Latin America, Eastern Europe, the Pacific Basin, the Far East
and India.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in companies in
emerging markets or developing countries. The Fund intends to invest in
securities of companies in at least three of these countries at any one
time.
The Fund normally invests in common stocks, preferred stocks, convertible
securities, equity interests in foreign investment funds or trusts, and
depositary receipts.
The Fund may 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.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio manager looks for emerging markets that are believed to have the
potential for strong economic growth, and tries to avoid emerging markets that
might be politically or economically risky.
The manager starts with approximately 800 companies in the most promising
markets, and:
o uses fundamental research to select 80 to 100 stocks in 15 or more
countries, looking at earnings growth, financial resources,
marketability, and other factors
o visits companies to confirm the corporate and industry factors that led to
a stock's selection as a potential investment
o regularly reviews the Fund's investments to determine whether companies are
meeting expected return targets and whether their fundamental financial
health has changed
The portfolio manager may sell a security when its price reaches the target
set by the portfolio manager, when there is a deterioration in the growth
prospects of the company or its industry, when the portfolio manager believes
other investments are more attractive, or for other reasons.
57
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Emerging Markets Fund has the following risks:
o Investment strategy risk - The portfolio manager invests in securities
of companies in emerging markets, which have high growth potential,
but can be more volatile than securities in more developed markets.
There is a risk that the value of these investments will not rise as
high as the portfolio manager expects, or will fall.
o Foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and
lack of or limited financial information. Withholding taxes may also
apply to some foreign investments.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
o Futures risk - This Fund may use futures contracts to convert currencies
and to hedge against changes in foreign currency exchange rates.
There is a risk that this could result in losses, reduce returns,
increase transaction costs or increase the Fund's volatility.
o Changing to a feeder fund - Unlike traditional mutual funds, which
invest in individual securities, a "feeder fund" invests all of its
assets in another fund, called a "master portfolio." Other feeder
funds generally also invest in a master portfolio. The master
portfolio invests in individual securities and has the same
investment objective, investment strategies and principal risks as
the feeder funds. This structure can help reduce a feeder fund's
expenses because its assets are combined with those of other feeder
funds. If a master portfolio doesn't attract other feeder funds,
however, a feeder fund's expenses could be higher than those of a
traditional mutual fund.
This Fund may become a feeder fund if the Board of Trustees decides
this would be in the best interests of shareholders. Management
currently intends to propose that the Fund change to a feeder fund
within the next year, but only if other feeder funds are likely to
also invest in the master portfolio. We don't require shareholder
approval to make the change, but we'll notify you if it happens.
If the Fund becomes a feeder fund, it would have the additional risks
of investing in a master portfolio. These are described on page 00.
58
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
- -2.18%* 8.73% -2.99% -25.58%
* Return is from inception (6-30-95) to 12-31-95.
Year-to-date return as of June 30, 1999: 38.73%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 15.86%
Worst: 3rd quarter 1998: -24.17%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the IFC Investables Index, an unmanaged index that tracks
more than 1,400 stocks in 25 emerging markets in Asia, Latin America,
Eastern Europe, Africa and the Middle East. The index is weighted by
market capitalization.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares -25.58% -7.26%
IFC Investables -22.02% -8.01%
</TABLE>
59
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC]
What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 1.00%
Other expenses 0.99%
----
Total annual Fund operating expenses(2) 1.99%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser has agreed to voluntarily limit total
annual Fund operating expenses to 1.90% for Primary A Shares. There
is no guarantee that this limitation will continue. This limit is
not reflected in the table above.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $202 $624 $1,073 $2,317
</TABLE>
60
<PAGE>
About the Index Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] What is an index fund?
Index funds use a "passive" or "indexing" investment approach,
which attempts to duplicate the performance of a specific market
index.
Correlation measures how closely a fund's returns match those of
an index. A perfect correlation of 1.0 means that the net asset
value of the fund increases or decreases in exact proportion to
changes in the index.
Nations Equity Index Fund
[GRAPHIC] Investment objective
This Fund seeks investment results that (before fees and expenses)
correspond to the total return of the Standard & Poor's 500 Composite
Stock Price Index (S&P 500).
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in common stocks
that are included in the S&P 500. The S&P 500 is an unmanaged index of
500 widely held common stocks, and is not available for investment.
The Fund may buy stock index futures and financial futures as substitutes for
the underlying securities in the S&P 500.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Different common stocks have different weightings in the S&P 500, depending on
the amount of stock outstanding and the stock's current price. In trying to
match the performance of the S&P 500, the management team will try to allocate
the Fund's portfolio among common stocks in approximately the same weightings
as the S&P 500, beginning with the most heavily weighted stocks that make up a
larger portion of the value of the S&P 500. The Fund may buy shares of Bank of
America Corporation, which is currently included in the S&P 500, subject to
certain restrictions.
The team generally will try to match the composition of the S&P 500 as closely
as possible. The team starts with the stocks that make up a larger portion of
the value of the S&P 500. It may not always invest in stocks that make up the
smaller percentages because it may be more difficult and costly to make
relatively small transactions. The team may remove a stock from the Fund's
holdings or not invest in a stock if it believes that the stock is not liquid
enough, or for other reasons. The team can substitute stocks that are not
included in the S&P 500, if it believes these stocks have similar
characteristics.
The Fund tries to achieve a correlation of 0.95 with the S&P 500 on an annual
basis (before fees and expenses). The Fund's ability to track the S&P 500 is
affected by transaction costs and other expenses, changes in the composition
of the S&P 500, changes in the number of shares issued by the companies
represented in the S&P 500, and by the timing and amount of shareholder
purchases and redemptions, among other things.
Equity mutual funds, like other investors in equity securities, incur
transaction costs, such as brokerage costs, when they buy and sell securities.
The management team tries to minimize these costs for the Fund by using
program trades and crossing networks.
The team may sell a stock when its percentage weighting in the index is
reduced, when the stock is removed from the index, or for other reasons.
61
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] Risks and other things to consider
Nations Equity Index Fund has the following risks:
o Investment strategy risk - This Fund tries to match (before fees and
expenses) the returns of the S&P 500, and is not actively managed.
There is no assurance that the returns of the Fund will match the
returns of the S&P 500. The value of the Fund will rise and fall
with the performance of the S&P 500.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Futures risk - This Fund may use futures contracts as a substitute for
the securities included in the index. There is a risk that this
could result in losses, reduce returns, or increase transaction
costs or increase the Fund's volatility.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
0.72%* 0.99% 37.02% 22.63% 32.70% 28.39%
* Return is from inception (12-15-93) to 12-31-93.
Year-to-date return as of June 30, 1999: 12.16%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 21.13%
Worst: 3rd quarter 1998: -9.84%
</TABLE>
62
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 28.39% 23.66% 23.61%
S&P 500 28.58% 24.06% 23.92%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 0.33%
------
Total annual Fund operating expenses 0.73%
Fee waivers and/or reimbursements (0.38)%
------
Total net expenses(2) 0.35%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
63
<PAGE>
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $36 $195 $368 $871
</TABLE>
64
<PAGE>
About the Index Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is a managed index fund?
A managed index fund combines the benefits of traditional index
funds -- relatively low costs and low portfolio turnover -- with
active management.
With a managed index fund, the portfolio manager starts with the
stocks of a specific market index -- in this case, the S&P
500 -- and then tries to achieve higher returns than the index by
emphasizing stocks in the index that are expected to generate the
highest returns.
There is no assurance that active management will result in a
higher return than the index.
Nations Managed Index Fund
[GRAPHIC] Investment objective
This Fund seeks, over the long term, to provide a total return that
(before fees and expenses) exceeds the total return of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500).
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in common stocks
that are included in the S&P 500. The S&P 500 is an unmanaged index of
500 widely held common stocks, and is not available for investment.
The management team tries to maintain a portfolio that matches the industry
and risk characteristics of the S&P 500. The team will, from time to time,
vary the number and percentages of the Fund's holdings to try to provide
higher returns than the S&P 500 and to reduce the risk of underperforming the
index over time. The Fund usually holds 300 to 400 of the stocks included in
the index. The Fund may invest in financial futures traded on U.S. exchanges.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
When selecting investments for the Fund, the management team starts with the
stocks included in the S&P 500. It uses quantitative analysis, which is an
analysis of a company's financial information, to:
o rank the attractiveness of each stock based on a "multi-factor" valuation
model, which takes into account value measures like book value, earnings
yield and cash flow to measure a stock's intrinsic worth versus its
market price. The model also considers growth measures like price
momentum and the size and rate of earnings growth when comparing a stock
with others in the same industry
o measure the rate of earnings growth of each stock. Each stock is assigned a
ranking from 1 to 10 (best to worst). The team will hold a slightly
higher percentage of an attractively ranked stock than the index and hold
a lower percentage -- or none -- of a less attractively ranked stock
The management team tries to control costs when it buys and sells securities
for the Fund by using computerized systems called crossing networks that allow
it to try to make trades at better prices and reduced commission rates.
65
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
The management team uses various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may try to sell shares of a security with the highest cost for tax purposes
first, before selling other shares of the same security. The management
team will only use this strategy when it is in the best interest of the
Fund to do so and may sell other shares when appropriate
o may offset capital gains by selling securities to realize a capital loss.
This may reduce capital gains distributions
o will try to keep portfolio turnover low, which helps to defer the
realization of capital gains
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies may
also be affected by changes in tax laws and regulations, or by court
decisions.
The team may sell a stock when it believes other stocks in the index are more
attractive investments, when the stock is removed from the index, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Managed Index Fund has the following risks:
o Investment strategy risk - The team chooses stocks that it believes have
the potential for higher growth than the S&P 500. There is a risk
that the value of these investments will not rise as high as the
team expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Futures risk - This Fund may use futures contracts periodically to
manage liquidity. There is a risk that this could result in losses,
reduce returns, increase transaction costs or increase the Fund's
volatility.
66
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1996 1997 1998
17.00%* 33.46% 26.64%
* Return is from inception (7-31-96) to 12-31-96.
Year-to-date return as of June 30, 1999: 10.43%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.98%
Worst: 3rd quarter 1998: -10.62%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, an unmanaged index of 500 widely held common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares 26.64% 32.55%
S&P 500 28.58% 33.32%
</TABLE>
67
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 0.35%
------
Total annual Fund operating expenses 0.75%
Fee waivers and/or reimbursements (0.25)%
------
Total net expenses(2) 0.50%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $51 $215 $392 $907
</TABLE>
68
<PAGE>
About the Index Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is the S&P SmallCap 600?
The S&P SmallCap 600 is designed to be a benchmark of the
performance of small capitalization stocks. It is an unmanaged
index of 600 common stocks, weighted by market capitalization, and
is not available for investment.
Nations Managed SmallCap Index Fund
[GRAPHIC] Investment objective
This Fund seeks, over the long term, to provide a total return that
(before fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index (S&P SmallCap 600).
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in common stocks
that are included in the S&P SmallCap 600.
The management team tries to maintain a portfolio that matches the industry
and risk characteristics of the S&P SmallCap 600. The team will, from time to
time, vary the number and percentages of the Fund's holdings to try to provide
higher returns than the S&P SmallCap 600 while reducing the risk of under-
performing the index over time. The Fund usually holds 400 to 500 of the
stocks included in the index. The Fund may invest in financial futures traded
on U.S. exchanges.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
When selecting investments for the Fund, the management team starts with the
stocks included in the S&P SmallCap 600. It uses quantitative analysis, which
is an analysis of a company's financial information, to:
o rank the attractiveness of each stock based on a "multi-factor" valuation
model, which takes into account value measures like book value, earnings
yield and cash flow to measure a stock's intrinsic worth versus its
market price. The model also considers momentum measures like price
momentum and the size and rate of earnings growth to compare a stock with
others in the same industry
o measure the rate of earnings growth of each stock. Each stock is assigned a
ranking from 1 to 10 (best to worst). The team will hold a slightly
higher percentage of an attractively ranked stock than the index and hold
a lower percentage -- or none -- of a less attractively ranked stock
The management team tries to control costs when it buys and sells securities
for the Fund by using computerized systems called crossing networks that allow
it to try to make trades at better prices and reduced commission rates.
69
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
The management team uses various strategies, consistent with the Funds
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may try to sell shares of a security with the highest cost for tax purposes
first, before selling other shares of the same security. The management
team will only use this strategy when it is in the best interest of the
Fund to do so and may sell other shares when appropriate
o may offset capital gains by selling securities to realize a capital loss.
This may reduce capital gains distributions
o will try to keep portfolio turnover low, which helps to defer the
realization of capital gains
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a stock when it believes other stocks in the index are more
attractive investments, when the stock is removed from the index, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Managed SmallCap Index Fund has the following risks:
o Investment strategy risk - The team chooses stocks from the S&P SmallCap
600 that it believes have the potential for higher growth. There is
a risk that the value of these investments will not rise as high as
the team expects, or will fall. Smaller companies also tend to have
greater price swings than stocks of larger companies for many
reasons, for example, because they trade less frequently and in
lower volumes.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Futures risk - This Fund may use futures contracts to manage liquidity.
There is a risk that this could result in losses, reduce returns,
increase transaction costs or increase the Fund's volatility.
70
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand of the risks investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1996 1997 1998
3.17%* 27.97% -1.65%
* Return is from inception (10-15-96) to 12-31-96.
Year-to-date return as of June 30, 1999: 2.71%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1997: 17.64%
Worst: 3rd quarter 1998: -20.83%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P SmallCap 600, an unmanaged index of 600 common
stocks, weighted by market capitalization. The index is not available
for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares -1.65% 12.54%
S&P SmallCap 600 -1.31% 12.75%
</TABLE>
71
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 0.44%
------
Total annual Fund operating expenses 0.84%
Fee waivers and/or reimbursements (0.34)%
------
Total net expenses(2) 0.50%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $51 $234 $433 $1,006
</TABLE>
72
<PAGE>
About the Index Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] What is the S&P/BARRA Value Index?
The S&P/BARRA Value Index is designed to be a benchmark of the
performance of value stocks. It is an unmanaged index of a group
of stocks included in the S&P 500 that have low price-to-book
ratios relative to the S&P 500 as a whole. The index is weighted
by market capitalization, and is not available for investment.
Nations Managed Value Index Fund
[GRAPHIC] Investment objective
This Fund seeks, over the long term, to provide a total return that
(before fees and expenses) exceeds the total return of the S&P
500/BARRA Value Index (the S&P/BARRA Value Index).
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in common stocks
that are included in the S&P/BARRA Value Index.
The management team tries to maintain a portfolio that matches the industry
and risk characteristics of the S&P/BARRA Value Index. The team will, from
time to time, vary the number and percentages of the Fund's holdings to try to
provide higher returns than the S&P/BARRA Value Index while reducing the risk
of underperforming the index over time. The Fund usually holds 100 to 200
stocks. The Fund may invest in financial futures traded on U.S. exchanges.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
When selecting investments for the Fund, the management team starts with the
stocks included in the S&P/BARRA Value Index. It uses quantitative analysis,
which is an analysis of a company's financial information, to:
o rank the attractiveness of each stock based on a "multi-factor" valuation
model, which takes into account value measures like book value, earnings
yield and cash flow to measure a stock's intrinsic worth versus its
market price. The model also considers momentum measures like price
momentum and the size and rate of earnings growth to compare a stock with
others in the same industry
o measure the rate of earnings growth of each stock. Each stock is assigned a
ranking from 1 to 10 (best to worst). The team will hold a slightly
higher percentage of an attractively ranked stock than the index and hold
a lower percentage -- or none -- of a less attractively ranked stock
The management team tries to control costs when it buys and sells securities
for the Fund by using computerized systems called crossing networks that allow
it to try to make trades at better prices and reduced commission rates.
73
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
The management team uses various strategies, consistent with the Fund's
objective, to try to reduce the amount of capital gains distributed to
shareholders. For example, the team:
o may try to sell shares of a security with the highest cost for tax purposes
first, before selling other shares of the same security. The management
team will only use this strategy when it is in the best interest of the
Fund to do so and may sell other shares when appropriate
o may offset capital gains by selling securities to realize a capital loss.
This may reduce capital gains distributions
o will try to keep portfolio turnover low, which helps to defer the
realization of capital gains
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a stock when it believes other stocks in the index are more
attractive investments, when the stock is removed from the index, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Managed Value Index Fund has the following risks:
o Investment strategy risk - The team chooses stocks from the S&P/
BARRA Value Index that it believes have the potential for higher
growth. There is a risk that the value of these investments will not
rise as high as the team expects, or will fall.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Futures risk - This Fund may use futures contracts to manage liquidity.
There is a risk that this could result in losses, reduce returns,
increase transaction costs or increase the Fund's volatility.
74
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1997 1998
2.71%* 13.71%
* Return is from inception (11-24-97) to 12-31-97.
Year-to-date return as of June 30, 1999: 11.29%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 17.06%
Worst: 3rd quarter 1998: -12.56%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P/BARRA Value Index, an unmanaged index of a group
of stocks included in the S&P 500 that have low price-to-book ratios
relative to the S&P 500 as a whole. The index is weighted by market
capitalization, and is not available for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares 13.71% 15.13%
S&P/BARRA Value Index 14.68% 15.80%
</TABLE>
75
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 1.61%
------
Total annual Fund operating expenses 2.01%
Fee waivers and/or reimbursements (1.51)%
------
Total net expenses(2) 0.50%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $51 $484 $943 $2,216
</TABLE>
76
<PAGE>
About the Index Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Structured
Products Management Team makes the day-to-day investment decisions
for the Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] What is the S&P/BARRA SmallCap Value Index?
The S&P/BARRA SmallCap Value Index is designed to be a benchmark
of the performance of value stocks of small capitalization
companies. It is an unmanaged index of a group of stocks included
in the S&P SmallCap 600 that have low price-to-book ratios
relative to the S&P SmallCap 600 as a whole. The index is weighted
by market capitalization, and is not available for investment.
Nations Managed SmallCap Value Index Fund
[GRAPHIC] Investment objective
This Fund seeks, over the long term, to provide a total return that
(before fees and expenses) exceeds the total return of the S&P SmallCap
600/BARRA Value Index (the S&P/BARRA SmallCap Value Index).
[GRAPHIC] Investment strategies
The Fund normally invests at least 80% of its assets in common stocks
that are included in the S&P/BARRA SmallCap Value Index.
The management team tries to maintain a portfolio that matches the industry
and risk characteristics of the S&P/BARRA SmallCap Value Index. The team will,
from time to time, vary the number and percentages of the Fund's holdings to
try to provide higher returns than the S&P/BARRA SmallCap Value Index while
reducing the risk of underperforming the index over time. The Fund usually
holds 200 to 300 stocks. The Fund may invest in financial futures traded on
U.S. exchanges.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
When selecting investments for the Fund, the management team starts with the
stocks included in the S&P/BARRA SmallCap Value Index. It uses quantitative
analysis, which is an analysis of a company's financial information, to:
o rank the attractiveness of each stock based on a "multi-factor" valuation
model, which takes into account value measures like book value, earnings
yield and cash flow to measure a stock's intrinsic worth versus its
market price. The model also considers momentum measures like price
momentum and the size and rate of earnings growth to compare a stock with
others in the same industry
o measure the rate of earnings growth of each stock. Each stock is assigned a
ranking from 1 to 10 (best to worst). The team will hold a slightly
higher percentage of an attractively ranked stock than the index and hold
a lower percentage -- or none -- of a less attractively ranked stock
The management team tries to control costs when it buys and sells securities
for the Fund by using computerized systems called crossing networks that allow
it to try to make trades at better prices and reduced commission rates.
77
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
The management team uses various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may try to sell shares of a security with the highest cost for tax purposes
first, before selling other shares of the same security. The management
team will only use this strategy when it is in the best interest of the
Fund to do so and may sell other shares when appropriate
o may offset capital gains by selling securities to realize a capital loss.
This may reduce capital gains distributions
o will try to keep portfolio turnover low, which helps to defer the
realization of capital gains
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies may
also be affected by changes in tax laws and regulations, or by court
decisions.
The team may sell a stock when it believes other stocks in the index are more
attractive investments, when the stock is removed from the index, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Managed SmallCap Value Index Fund has the following risks:
o Investment strategy risk - The team chooses stocks from the S&P/
BARRA SmallCap Value Index that it believes have the potential for
higher growth. There is a risk that the value of these investments
will not rise as high as the team expects, or will fall. Smaller
companies also tend to have greater price swings than stocks of
larger companies for many reasons, including because they trade less
frequently and in lower volumes.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Futures risk - This Fund may use futures contracts to manage liquidity.
There is a risk that this could result in losses, reduce returns,
increase transaction costs or increase the Fund's volatility.
78
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1997 1998
4.13%* -2.90%
*Return is from inception (11-24-97) to 12-31-97.
Year-to-date return as of June 30, 1999: 8.89%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 12.36%
Worst: 3rd quarter 1998: -20.02%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P/BARRA SmallCap Value Index, an unmanaged index of
a group of stocks included in the S&P SmallCap 600 that have low
price-to-book ratios relative to the S&P SmallCap 600 as a whole. The
index is weighted by market capitalization and is not available for
investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares -2.90% 1.01%
S&P/BARRA SmallCap Value Index -5.06% -2.14%
</TABLE>
79
<PAGE>
[GRAPHIC]
There are two kinds of fees -- annual sales charges you pay
directly, and fund operating expenses that are deducted from a
fund's assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 3.18%
------
Total annual Fund operating expenses 3.58%
Fee waivers and/or reimbursements (3.08)%
------
Total net expenses(2) 0.50%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31,
2000 and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $51 $810 $1,591 $3,641
</TABLE>
80
<PAGE>
About the Balanced Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Value
Management Team makes the day-to-day investment decisions for the
equity portion of the Fund. Its Fixed Income Management Team makes
the day-to-day investment decisions for the fixed income and money
market portions of the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] What is a balanced fund?
A balanced fund invests in a mix of equity and fixed income
securities, and money market instruments.
Each of these "asset classes"
has different risk/return characteristics. Combining them in one
fund can help reduce risk and increase returns because at least
one asset class should have the potential to be a stronger
performer regardless of market conditions.
Balanced funds like this one can provide a diversified asset mix
for you in a single investment.
Nations Balanced Assets Fund
[GRAPHIC] Investment objective
This Fund seeks total return by investing in equity and fixed income
securities.
[GRAPHIC] Principal investment strategies
The Fund invests in a mix of equity and fixed income securities, as
well as money market instruments.
Equity securities the Fund invests in are primarily common stock of
established companies believed to be financially strong.
Fixed income securities normally make up at least 25% of the Fund's assets.
Fixed income securities the Fund invests in are primarily bonds, notes and
mortgage-backed and asset-backed securities issued by U.S. companies and
government entities.
Money market instruments the Fund invests in are primarily cash equivalents,
including U.S. government obligations, commercial paper and other short-term,
interest-bearing instruments.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The management team uses asset allocation as its primary investment approach.
The team allocates assets among the three asset classes based on its
assessment of the expected risks and returns of each class. The team
evaluates:
o current economic and financial market conditions, including trends in
interest rates, in the United States and abroad
o earnings and dividend prospects for common stocks
o the overall stability of financial markets
The team may change the Fund's asset allocation to try to increase returns and
reduce risk.
The team identifies individual investments using the following process:
o For the equity portion of the Fund, the team evaluates the overall economy,
industry conditions, and the financial condition and management of each
company, using a process called fundamental analysis.
o For the fixed income portion of the Fund, the team looks for securities
rated investment grade at the time of investment. The team may choose
unrated securities if it believes they are of comparable quality to
investment grade securities at the time of investment.
81
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
o For the money market portion of the Fund, the team chooses high-quality
securities primarily to provide liquidity.
The management team may use various tax strategies, consistent with the Fund's
investment objective, to try to reduce the amount of capital gains distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a capital loss
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
The team may sell a security when the Fund's asset allocation changes, there
is a deterioration in the issuer's financial situation, when the team believes
other investments are more attractive, or for other reasons.
[GRAPHIC] Risks and other things to consider
Nations Balanced Assets Fund has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy to
try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns the team expects, or
will fall in value.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Interest rate risk - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when
interest rates rise than fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Prepayment and extension risk - The value of the Fund's mortgage-
backed securities can fall if the owners of the underlying mortgages
pay off their mortgages sooner than expected, which could happen when
interest rates fall, or later than expected, which could happen when
interest rates rise. If the underlying mortgages are paid off sooner
than expected, the Fund may have to reinvest this money in
mortgage-backed securities that have lower yields.
82
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
3.84%* 9.94% -3.12% 26.33% 14.68% 21.69% 8.30%
* Return is from inception (9-30-92) to 12-31-92.
Year-to-date return as of June 30, 1999: 3.82%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 11.27%
Worst: 3rd quarter 1998: -8.95%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500, the S&P/BARRA Value Index, and the Lehman
Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely
held common stocks, weighted by market capitalization. The S&P/BARRA
Value Index is an unmanaged index of a group of stocks from the S&P 500
that have low price-to-book ratios relative to the S&P 500 as a whole.
It is weighted by market capitalization. The Lehman Aggregate Bond
Index is an index of fixed income securities issued by the U.S.
government and its agencies, and by corporations. These indexes are not
available for investment.
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Primary A Shares 8.30% 13.09% 12.70%
S&P 500 28.58% 24.06% 21.62%
S&P 500/BARRA Value Index 14.68% 19.88% 19.51%
Lehman Aggregate Bond Index 8.69% 7.27% 7.41%
</TABLE>
83
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.37%
----
Total annual Fund operating expenses 1.02%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $104 $325 $563 $1,248
</TABLE>
84
<PAGE>
About the Balanced Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-advisers
This Fund is managed by two sub-advisers: TradeStreet and Chicago
Equity. Chicago Equity's Equity Management Team makes the
day-to-day investment decisions for the equity portion of the
Fund. TradeStreet's Fixed Income Management Team makes the
day-to-day investment decisions for the fixed income and money
market portions of the Fund.
[GRAPHIC] You'll find more about
TradeStreet and Chicago
Equity, starting on
page 133.
[GRAPHIC] What is an asset
allocation fund?
This asset allocation fund invests in a mix of equity and fixed
income securities, and cash equivalents.
Each of these "asset classes" has different risk/return
characteris-tics. The portfolio management team changes the mix
based on its assessment of the expected risks and returns of each
class.
Asset allocation funds like this one can provide a diversified
asset mix for you in a single investment.
Nations Asset Allocation Fund
[GRAPHIC] Investment objective
This Fund seeks to obtain long-term growth from capital appreciation,
and dividend and interest income.
[GRAPHIC] Principal investment strategies
The Fund invests in a mix of equity and fixed income securities, as
well as cash equivalents, including U.S. government obligations,
commercial paper and other short-term, interest-bearing instruments.
The equity securities the Fund invests in are primarily common stock of blue
chip companies. These companies are well established, nationally known
companies that have a long record of profitability and a reputation for
quality management, products and services.
The fixed income securities the Fund invests in are primarily investment grade
bonds and notes. The Fund normally invests at least 25% of its assets in
senior securities. The Fund may also invest up to 35% of its assets in
mortgage-backed and asset-backed securities.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio management team uses asset allocation as its principal
investment approach. The team actively allocates assets among the three asset
classes based on its assessment of the expected risks and returns of each
class.
For the equity portion of the Fund, the portfolio management team uses
quantitative analysis to analyze fundamental information about securities and
identify value. Starting with a universe of approximately 700 common stocks,
the team uses a multi-factor computer model to rank securities, based on the
following criteria, among others:
o changes in actual and expected earnings
o unexpected changes in earnings
o price-to-earnings ratio
o price-to-book ratio
o price-to-cash flow
The portfolio management team tries to manage risk by matching the market
capitalization, style and industry weighting characteristics of the S&P 500.
The team focuses on selecting individual stocks to try to provide higher
returns than the S&P 500 while maintaining a level of risk similar to the
index.
The team may sell a security when the Fund's asset allocation changes, there
is a deterioration in the issuer's financial situation, when the team believes
other investments are more attractive, or for other reasons.
85
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Asset Allocation Fund has the following risks:
o Investment strategy risk - The team uses an asset allocation strategy to
try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns the team expects, or
will fall in value.
o Stock market risk - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other
things. Stock prices can rise or fall over short as well as long
periods. In general, stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. As of the
date of this prospectus, the stock markets, as measured by the S&P
500 and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will
continue.
o Interest rate risk - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when
interest rates rise than fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Prepayment and extension risk - The value of the Fund's mortgage-
backed securities can fall if the owners of the underlying mortgages
pay off their mortgages sooner than expected, which could happen when
interest rates fall, or later than expected, which could happen when
interest rates rise. If the underlying mortgages are paid off sooner
than expected, the Fund may have to reinvest this money in
mortgage-backed securities that have lower yields.
86
<PAGE>
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1994 1995 1996 1997 1998
- -1.38%* 26.90% 15.66% 21.38% 21.09%
* Return is from inception (1-18-94) to 12-31-94.
Year-to-date return as of June 30, 1999: 5.81%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1998: 12.77%
Worst: 3rd quarter 1998: -4.34%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P
500 is an unmanaged index of 500 widely held common stocks, weighted by
market capitalization. The Lehman Aggregate Bond Index is an index of
fixed income securities issued by the U.S. government and its agencies,
and by corporations. These indexes are not available for investment.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Investor A Shares 21.09% 23.66%
S&P 500 28.58% 23.67%
Lehman Aggregate Bond Index 8.69% 7.11%
</TABLE>
87
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC]
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.65%
Other expenses 0.38%
------
Total annual Fund operating expenses 1.03%
Fee waivers and/or reimbursements (0.08)%
------
Total net expenses(2) 0.95%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
May 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire in May 2000 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $97 $320 $561 $1,252
</TABLE>
88
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Fixed Income
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] Corporate fixed-income
securities
This Fund focuses on fixed income securities issued by
corporations. Corporate fixed income securities have the potential
to pay higher income than U.S. Treasury securities with similar
maturities.
[GRAPHIC] Duration
Duration is a measure used to estimate how much a Fund's portfolio
will fluctuate in response to a change in interest rates.
Nations Short-Term Income Fund
[GRAPHIC] Investment objective
This Fund seeks high current income consistent with minimal
fluctuations of principal.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its total assets in
investment grade fixed income securities. The portfolio management team
may choose unrated securities if it believes they are of comparable
quality to investment grade securities at the time of investment.
The Fund may invest in:
o corporate debt securities, including bonds, notes and debentures
o mortgage-related securities issued by governments
o asset-backed securities
o U.S. government obligations
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be five years or
less, and its duration will be three years or less.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets among U.S. government obligations, including securities
issued by government agencies, mortgage-backed securities and U.S Treasury
securities; asset-backed securities and corporate securities, based on how
they have performed in the past, and on how they are expected to perform
under current market conditions. The team may change the allocations when
market conditions change
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team may invest in
securities with lower credit ratings if it believes that the potential for a
higher yield is substantial compared with the risk involved, and that the
credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
89
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC]
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] Risks and other things to consider
Nations Short-Term Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
1992 1993 1994 1995 1996 1997 1998
- -0.59%* 7.55% -0.27% 11.27% 4.89% 6.03% 6.30%
*Return is from inception (9-30-92) to 12-31-92.
[GRAPHIC] Year-to-date return as of June 30, 1999: 1.50%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 3.49%
Worst: 3rd quarter 1994: -0.94%
</TABLE>
90
<PAGE>
[GRAPHIC]
There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Merrill Lynch 1-3 Year Treasury Index, an index of
U.S. Treasury bonds with maturities of one to three years. All
dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 6.30% 5.58% 5.56%
Merrill Lynch 1-3 Year Treasury Index 7.00% 5.99% 5.68%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.30%
Other expenses 0.32%
------
Total annual Fund operating expenses 0.62%
Fee waivers and/or reimbursements (0.10)%
------
Total net expenses(2) 0.52%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
91
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $53 $188 $336 $765
</TABLE>
92
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Fixed Income
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] U.S. government securities
This Fund invests almost all of its assets in securities that are
U.S. government issued or guaranteed. This means the Fund is
generally not subject to credit risk, but it could earn less
income than funds that invest in other kinds of fixed income
securities.
[GRAPHIC] Duration
Duration is a measure used to estimate how much a Fund's portfolio
will fluctuate in response to a change in interest rates.
Nations Short-Intermediate Government Fund
[GRAPHIC] Investment objective
This Fund seeks high current income consistent with modest fluctuation
of principal.
[GRAPHIC] Principal investment strategies
The Fund invests most of its assets in U.S. government obligations and
repurchase agreements relating to these obligations. It may invest in
mortgage-related securities issued or backed by the U.S. by governments
or corporations.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be five years or
less, and its duration will be four years or less.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets primarily among U.S. government obligations, including
securities issued by government agencies, mortgage-backed securities and U.S
Treasury securities, based on how they have performed in the past, and on
how they are expected to perform under current market conditions. The team
may change the allocations when market conditions change
o selects securities using structure analysis, which evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
93
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] Risks and other things to consider
Nations Short-Intermediate Government Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, should generally not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
94
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1991 1992 1993 1994 1995 1996 1997 1998
9.25%* 5.78% 8.02% -2.41% 12.44% 3.19% 7.25% 6.60%
*Return is from inception (8-1-91) to 12-31-91.
[GRAPHIC] Year-to-date return as of June 30, 1999: -0.84%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 4th quarter 1991: 4.77%
Worst: 3rd quarter 1994: -1.74%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Intermediate Government Bond Index, an index
of U.S. government agency and U.S. Treasury securities. All dividends
are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 6.60% 5.30% 6.69%
Lehman Intermediate Government Bond Index 8.49% 6.45% 7.57%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.30%
Other expenses 0.30%
----
Total annual Fund operating expenses(2) 0.60%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to limit total annual operating expenses to
0.60% for Primary A Shares until May 2000. There is no guarantee that
this limitation will continue after this date.
95
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire May 2000 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $61 $192 $335 $750
</TABLE>
96
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
The Fund does not have its own
investment adviser or sub-adviser because it's a "feeder" fund. A
feeder fund invests all of its assets in another fund, which is
called a "master portfolio." Master Portfolio and Fund are
sometimes used interchangeably.
BAAI is the Master Portfolio's investment adviser, and TradeStreet
is its sub-adviser. TradeStreet's Fixed Income Management Team
makes the day-to-day investment decisions for the Master
Portfolio.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] Intermediate-term securities
The portfolio management team focuses on fixed income securities
with intermediate terms. While these securities generally won't
earn as much income as securities with longer terms, they tend to
be less sensitive to changes in interest rates.
[GRAPHIC]
Duration is a measure used to estimate how much a Fund's portfolio
will fluctuate in response to a change in interest rates.
Nations Intermediate Bond Fund
[GRAPHIC] Investment objective
This Fund seeks to obtain interest income and capital appreciation.
[GRAPHIC] Principal investment strategies
The Fund invests all of its assets in Nations Intermediate Bond Master
Portfolio (the Master Portfolio). The Master Portfolio has the same
investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in
intermediate and longer term fixed income securities that are investment
grade. The Master Portfolio can invest up to 35% of its assets in
mortgage-backed securities, including collateralized mortgage obligations
(CMOs), that are backed by the U.S government or one of its agencies or
instrumentalities.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Master Portfolio's average dollar-weighted maturity will be
between three and six years. Its duration generally will be the same as the
Lehman Brothers Intermediate/Corporate Bond Index.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets among U.S. corporate securities and mortgage-backed
securities, based on how they have performed in the past, and on how they
are expected to perform under current market conditions. The team may change
the allocations when market conditions change
o selects securities using structure analysis, which evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
97
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Intermediate Bond Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses for the Master
Portfolio will not rise as high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income securities,
but is generally not a factor for U.S. government obligations.
o Derivatives risk - The Master Portfolio may invest in derivatives. There
is a risk that these investments could result in losses, reduce returns,
increase transaction costs or increase the Master Portfolio's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
o Investing in the Master Portfolio - Other mutual funds and eligible
investors can buy shares in the Master Portfolio. For example, the World
Horizon U.S. Bond Fund, which is also managed by BAAI, invests all of its
assets in the Master Portfolio.
All investors in the Master Portfolio invest under the same terms and
conditions as the Fund and pay a proportionate share of the Master
Portfolio's expenses. Other feeder funds that invest in the Master
Portfolio may have different share prices and returns than the Fund
because different feeder funds typically have varying sales charges, and
ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if
it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses could
increase. The Fund might also have to pay brokerage, tax or other
charges.
98
<PAGE>
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
1994 1995 1996 1997 1998
- -2.02%* 14.54% 3.14% 6.54% 7.32%
*Return is from inception (1-24-94) to 12-31-94.
[GRAPHIC] Year-to-date return as of June 30, 1999: -0.91%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 3rd quarter 1995: 4.50%
Worst: 1st quarter 1996: 1.06%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Intermediate Government Bond Index, an index
of U.S. government and agency securities and U.S. Treasury securities.
All dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Investor A Shares 7.32% 5.84%
Lehman Intermediate
Government Bond Index 8.49% 6.35%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)(2)
Management fees 0.40%
Other expenses 0.56%
------
Total annual Fund operating expenses 0.96%
Fee waivers and/or reimbursements (0.15)%
------
Total net expenses(3) 0.81%
======
</TABLE>
99
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
(3)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
May 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire in May 2000 and are
not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $83 $291 $516 $1,164
</TABLE>
100
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Fixed Income
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] More investment opportunities
This Fund can invest in a wide range of fixed income securities as
long as they're investment grade. This allows the portfolio
management team to focus on securities that offer the potential
for higher returns.
Nations Strategic Fixed Income Fund
[GRAPHIC] Investment objective
This Fund seeks total return by investing in investment grade fixed
income securities.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in investment
grade fixed income securities. The portfolio management team may choose
unrated securities if it believes they are of comparable quality to
investment grade securities at the time of investment.
The Fund may invest in:
o corporate debt securities, including bonds, notes and debentures
o U.S. government obligations
o foreign debt securities denominated in U.S. dollars
o mortgage-related securities issued by governments
o asset-backed securities
o municipal securities
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be 10 years or less
and will never be more than 15 years.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets primarily among U.S. government obligations, including
securities issued by government agencies, mortgage-backed securities and U.S
Treasury securities; and corporate securities, based on how they have
performed in the past, and on how they are expected to perform under current
market conditions. The team may change the allocations when market
conditions change
101
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team may invest in
securities with lower credit ratings if it believes that the potential for a
higher yield is substantial compared with the risk involved, and that the
credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Strategic Fixed Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
102
<PAGE>
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
1.51%* 10.78% -3.32% 17.28% 2.12% 8.48% 7.16%
*Return is from inception (10-30-92) to 12-31-92.
Year-to-date return as of June 30, 1999: -1.50%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 5.95%
Worst: 3rd quarter 1994: -2.81%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Aggregate Bond Index, an index made up of the
Lehman Government/Corporate Index, the Asset-Backed Securities Index
and the Mortgage-Backed Securities Index. These indexes include U.S.
government agency and U.S. Treasury securities, corporate bonds and
mortgage-backed securities. All dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 7.16% 6.12% 6.95%
Lehman Aggregate Bond Index 8.69% 7.27% 7.75%
</TABLE>
103
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 0.30%
----
Total annual Fund operating expenses 0.70%
====
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $72 $224 $390 $871
</TABLE>
104
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Fixed Income
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] Mortgage-backed securities
This Fund invests in mortgage- backed securities. Mortgage-backed
securities tend to pay higher income than U.S. Treasury bonds and
other government-backed bonds with similar maturities but also have
specific risks associated with them. They pay a monthly amount that
includes a portion of the principal on the underlying mortgages, as
well as interest.
Nations Government Securities Fund
[GRAPHIC] Investment objective
This Fund seeks high current income consistent with moderate
fluctuation of principal.
[GRAPHIC] Principal investment strategies
The Fund invests at least 65% of its assets in intermediate-term U.S.
government obligations.
The Fund may invest in:
o mortgage-related securities issued by governments or corporations
o asset-backed securities or municipal securities rated investment grade at
the time of investment, or unrated if the portfolio management team believes
they are of comparable quality to investment grade securities at the time of
investment
o corporate debt securities, including bonds, notes and debentures rated
investment grade at the time of investment, or unrated if the portfolio
management team believes they are of comparable quality to investment grade
securities at the time of investment
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be between five and
30 years.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets primarily among U.S. government obligations, including
securities issued by government agencies, mortgage-backed securities and U.S
Treasury securities, based on how they have performed in the past, and on
how they are expected to perform under current market conditions. The team
may change the allocations when market conditions change
o selects securities using structure analysis, which evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
105
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] Risks and other things to consider
Nations Government Securities Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1991 1992 1993 1994 1995 1996 1997 1998
11.78%* 5.41% 7.67% -5.11% 15.28% 2.53% 8.55% 8.43%
*Return is from inception (4-11-91) to 12-31-91.
[GRAPHIC] Year-to-date return as of June 30, 1999: -2.77%
106
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 3rd quarter 1991: 5.23%
Worst: 3rd quarter 1994: -3.01%
</TABLE>
Average annual total return as of December 31, 1998 The table shows the
Fund's average annual total return for each period, compared with the
Lehman Intermediate Treasury Index and the Salomon Brothers Mortgage
Index. The Lehman Intermediate Treasury Index is an index of U.S.
Treasury securities with maturities of three to 10 years. All dividends
are reinvested. The Salomon Brothers Mortgage Index is an index of
30-year and 15-year GNMA, FNMA and FHLMC securities, and FNMA and FHLMC
balloon mortgages.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 8.43% 5.71% 6.90%
Lehman Intermediate Treasury Index 8.62% 6.45% 7.61%
Salomon Brothers Mortgage Index 6.98% 7.23% 8.98%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.50%
Other expenses 0.36%
------
Total annual Fund operating expenses 0.86%
Fee waivers and/or reimbursements (0.10)%
------
Total net expenses(2) 0.76%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to limit total annual operating expenses to
0.85% for Primary A Shares until May 2000. The figure shown here is
after waivers and/or reimbursements. There is no guarantee that these
waivers and/or reimbursements will continue after this date.
107
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund o your
investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire May 2000 and
are not reflected in the 3, 5 and 10 year examples.
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $78 $264 $467 $1,052
</TABLE>
108
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
Boatmen's Capital Management, Inc. (Boatmen's) is this Fund's
sub-adviser. Boatmen's Fixed Income Committee makes the day-to-day
investment decisions for the Fund.
[GRAPHIC] You'll find more about Boatmen's on page 141.
[GRAPHIC] Longer-term securities
This Fund invests in securities with terms of more than five
years. These securities offer the potential for higher income than
securities with shorter terms, but they are also more sensitive to
changes in interest rates.
[GRAPHIC] Duration
Duration is a measure used to estimate how much a Fund's portfolio
will fluctuate in response to a change in interest rates.
Nations U.S. Government Bond Fund
[GRAPHIC] Investment objective
This Fund seeks total return and preservation of capital by investing
in U.S. government securities and repurchase agreements collateralized
by such securities.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in U.S. government
securities and repurchase agreements secured by these securities.
The Fund may also invest in:
o zero coupon bonds
o corporate debt securities rated investment grade at the time of investment,
or unrated if the portfolio management team believes they are of comparable
quality to investment grade securities at the time of investment
o foreign debt securities denominated in U.S. dollars.
o dollar roll transactions
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be between five and
30 years.
When selecting individual investments, the portfolio management team uses a
disciplined, prudent approach, based on its analysis of economic trends. The
team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o emphasizes securities with a longer duration when it believes that the
economy is in a period of stable inflation
o emphasizes securities with a shorter duration when it expects a period of
rising inflation
o uses a variety of other techniques to help manage risk
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
109
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] Risks and other things to consider
Nations U.S. Government Bond Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1994 1995 1996 1997 1998
3.70%* 20.75% 1.80% 8.43% 8.38%
*Return is from inception (11-7-94) to 12-31-94.
[GRAPHIC] Year-to-date return as of June 30, 1999: -3.17%
110
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 7.36%
Worst: 1st quarter 1996: -2.80%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Government Bond Index, an index of government
bonds with an average maturity of approximately nine years. All
dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year inception
<S> <C> <C>
Primary A Shares 8.38% 10.23%
Lehman Government Bond Index 9.85% 9.69%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.50%
Other expenses 0.39%
------
Total annual Fund operating expenses 0.89%
Fee waivers and/or reimbursements (0.10)%
------
Total net expenses(2) 0.79%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
111
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $81 $274 $483 $1,087
</TABLE>
112
<PAGE>
About the Fixed Income Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Fixed Income
Management Team makes the day-to-day investment decisions for the
Fund.
[GRAPHIC] You'll find more about TradeStreet on page 133.
[GRAPHIC] High yield bonds
Although this Fund invests primarily in investment grade
securities, it can invest up to 35% of its assets in high yield
bonds. High yield bonds offer the potential for higher income than
other kinds of bonds with similar maturities, but they also have
higher credit risk.
The Fund tries to manage this risk by holding a large part of its
assets in investment grade debt securities. This allows the Fund
to maintain an average quality well within the investment grade
category.
Nations Diversified Income Fund
[GRAPHIC] Investment objective
This Fund seeks total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 65% of its assets in investment
grade debt securities.
The Fund may invest in:
o corporate debt securities
o U.S. government obligations
o foreign debt securities denominated in U.S. dollars or foreign
currencies
o mortgage-related securities issued by governments and non-government
issuers
The Fund may invest up to 35% of its assets in lower-quality fixed income
securities ("junk bonds" or "high yield bonds") rated "B" or better by Moody's
or S&P. The portfolio management team may choose unrated securities if it
believes they are of comparable quality at the time of investment.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be more than five
years.
When selecting individual investments, the portfolio management team:
o looks at a fixed income security's potential to generate both income and
price appreciation
o allocates assets primarily among U.S. government obligations and U.S.
corporate securities, including high yield corporate bonds. The allocation
is structured to provide the potential for the best return, based on how
they have performed in the past, and on how they are expected to perform
under current market conditions. The team may change the allocations when
market conditions change
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team may invest in
securities with lower credit ratings if it believes that the potential for a
higher yield is substantial compared with the risk involved, and that the
credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
113
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Diversified Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations. Fixed income
securities with the lowest investment grade rating or that aren't
investment grade are more speculative in nature than securities with
higher ratings, and they tend to be more sensitive to credit risk,
particularly during a downturn in the economy.
o Derivatives risk - This Fund may invest in derivatives. There is a risk
that these investments could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Prepayment and extension risk - The value of the Fund's mortgage- backed
securities can fall if the owners of the underlying mortgages pay off
their mortgages sooner than expected, which could happen when interest
rates fall, or later than expected, which could happen when interest
rates rise. If the underlying mortgages are paid off sooner than
expected, the Fund may have to reinvest this money in mortgage-backed
securities that have lower yields.
114
<PAGE>
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1992 1993 1994 1995 1996 1997 1998
2.25%* 15.68% -2.52% 20.91% 2.46% 8.59% 7.53%
*Return is from inception (10-30-92) to 12-31-92.
[GRAPHIC] Year-to-date return as of June 30, 1999: -2.06%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 7.48%
Worst: 1st quarter 1996: -3.18%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Government/Corporate Bond Index, an index of
U.S. government, U.S. Treasury and agency securities, and corporate and
Yankee bonds. All dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 7.53% 7.12% 8.65%
Lehman Government/Corporate Bond Index 9.47% 7.30% 7.98%
</TABLE>
115
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.50%
Other expenses 0.32%
------
Total annual Fund operating expenses 0.82%
Fee waivers and/or reimbursements (0.10)%
------
Total net expenses(2) 0.72%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as necessary, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to limit total annual operating expenses to
0.72% for Primary A Shares until May 2000. The figure shown here is
after waivers and/or reimbursements. There is no guarantee that these
waivers and/or reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire May 2000 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $74 $252 $445 $1,004
</TABLE>
116
<PAGE>
About the Municipal Bond Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Municipal
Fixed Income Management Team makes the day-to-day investment
decisions for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] Lowest risk, lowest
income potential
This Fund has the lowest risk of the Nations Funds Municipal Bond
Funds because it has a duration of less than three years. Duration
is a measure used to estimate how much a Fund's portfolio will
fluctuate in response to a change in interest rates.
This means the Fund's value tends to change less when interest
rates change, but it could also earn less income than funds with
longer durations.
Nations Short-Term Municipal Income Fund
[GRAPHIC] Investment objective
This Fund seeks high current income exempt from federal income tax
consistent with minimal fluctuation of principal.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in investment
grade municipal securities, which pay interest that is generally free
from federal income tax.
The Fund may invest up to 20% of its assets in:
o short-term debt securities that are taxable, like commercial paper
o debt securities issued by certain trusts, partnerships or other special
purpose issuers, like industrial revenue bonds
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be less than three
years, and its duration will be between 1.25 and 2.75 years.
When selecting individual investments, the portfolio management team looks at
a security's potential to generate both income and price appreciation. The
portfolio management team:
o allocates assets among revenue bonds, general obligation bonds, insured
bonds and pre-refunded bonds (bonds that are repaid before their maturity
date), based on how they have performed in the past, and on how they are
expected to perform under current market conditions. The team may change the
allocations when market conditions change
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team may invest in
securities with lower credit ratings if it believes that the potential for a
higher yield is substantial compared with the risk involved, and that the
credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
The team also considers other factors. It reviews public policy issues that
may affect the municipal bond market. Securities with different coupon rates
may also represent good investment opportunities based on supply and demand
conditions for bonds.
117
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
[GRAPHIC] Risks and other things to consider
Nations Short-Term Municipal Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Holding cash - The Fund may hold cash while it's waiting to make an
investment, as a temporary defensive strategy, or if the portfolio
management team believes that attractive tax-exempt investments are not
available. Any uninvested cash the Fund holds does not earn income.
o Tax considerations - Most of the distributions paid by the Fund come from
interest on municipal securities, and are generally free from federal
income tax, but may be subject to the federal alternative minimum tax,
and other state and local taxes. Any portion of a distribution that comes
from income paid by other kinds of securities or from realized capital
gains is generally subject to federal, state and local taxes.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
118
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
1.07%* 0.46% 8.26% 4.18% 4.73% 4.74%
*Return is from inception (10-7-93) to 12-31-93.
[GRAPHIC] Year-to-date return as of June 30, 1999: 1.24%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1995: 2.90%
Worst: 1st quarter 1994: -0.91%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman 3-Year Municipal Bond Index, a broad-based,
unmanaged index of investment grade bonds with maturities of two to
four years. All dividends are reinvested.
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Primary A Shares 4.74% 4.44% 4.45%
Lehman 3-Year
Municipal Bond Index 5.21% 4.90% 4.89%
</TABLE>
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.30%
Other expenses 0.42%
------
Total annual Fund operating expenses 0.72%
Fee waivers and/or reimbursements (0.32)%
------
Total net expenses(2) 0.40%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
119
<PAGE>
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $41 $198 $369 $864
</TABLE>
120
<PAGE>
About the Municipal Bond Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Municipal
Fixed Income Management Team makes the day-to-day investment
decisions for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] Moderate risk, moderate
income potential
This Fund has relatively moderate risk compared with the other two
Nations Funds Municipal Bond Funds because it has a duration of
between three and six years. Duration is a measure used to
estimate how much a Fund's share price will fluctuate in response
to a change in interest rates.
The Fund's value will tend to change more when interest rates
change than the value of Nations Short-Term Municipal Income Fund,
but it could also earn more income.
Its value will change less when interest rates change than the
value of Nations Municipal Income Fund, but it could also earn
less income.
Nations Intermediate Municipal Bond Fund
[GRAPHIC] Investment objective
This Fund seeks high current income exempt from federal income tax
consistent with moderate fluctuation of principal.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in investment
grade municipal securities, which pay interest that is generally free
from federal income tax.
The Fund may invest up to 20% of its assets in:
o short-term debt securities that are taxable, like commercial paper
o debt securities issued by certain trusts, partnerships or other special
purpose issuers, like industrial revenue bonds
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be between three
and 10 years, and its duration will be between three and six years.
When selecting individual investments, the portfolio management team looks at
a security's potential to generate both income and price appreciation. The
portfolio management team:
o allocates assets among revenue bonds, general obligation bonds, insured
bonds and pre-refunded bonds (bonds that are repaid before their maturity
date), based on how they have performed in the past, and on how they are
expected to perform under current market conditions. The team may change the
allocations when market conditions change
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team will invest
in securities with lower credit ratings if it believes that the potential
for a higher yield is substantial compared with the risk involved, and that
the credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
The team also considers other factors. It reviews public policy issues that
may affect the municipal bond market. Securities with different coupon rates
may also represent good investment opportunities based on supply and demand
conditions for bonds
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
121
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund starting on
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Intermediate Municipal Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Holding cash - The Fund may hold cash while it's waiting to make an
investment, as a temporary defensive strategy, or if the portfolio
management team believes that attractive tax-exempt investments are not
available. Any uninvested cash the Fund holds does not earn income.
o Tax considerations - Most of the distributions paid by the Fund come from
interest on municipal securities, and are generally free from federal
income tax, but may be subject to the federal alternative minimum tax,
and other state and local taxes. Any portion of a distribution that comes
from income paid by other kinds of securities or from realized capital
gains is generally subject to federal, state and local taxes.
122
<PAGE>
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
4.35%* -4.54% 14.76% 4.04% 7.36% 5.45%
*Return is from inception (7-30-93) to 12-31-93.
Year-to-date return as of June 30, 1999: -0.96%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1995: 6.00%
Worst: 1st quarter 1994: -4.02%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman 7-Year Municipal Bond Index, a broad-based,
unmanaged index of investment grade bonds with maturities of seven to
eight years. All dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 5.45% 5.23% 5.64%
Lehman 7-Year
Municipal Bond Index 8.49% 6.45% 6.14%
</TABLE>
123
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.40%
Other expenses 0.30%
------
Total annual Fund operating expenses 0.70%
Fee waivers and/or reimbursements (0.20)%
------
Total net expenses(2) 0.50%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $51 $204 $370 $852
</TABLE>
124
<PAGE>
About the Municipal Bond Funds
- --------------------------------------------------------------------------------
[GRAPHIC] About the sub-adviser
TradeStreet is this Fund's sub-adviser. TradeStreet's Municipal
Fixed Income Management Team makes the day-to-day investment
decisions for the Fund.
[GRAPHIC] You'll find more about
TradeStreet on page 133.
[GRAPHIC] Highest risk, highest
income potential
This Fund has the relatively highest risk of the three Nations
Funds Municipal Bond Funds because it has a duration of more than
six years. Duration is a measure used to estimate how much a
fund's portfolio will fluctuate in response to a change in
interest rates.
This means the Fund's value tends to change more when interest
rates change, but it could also earn more income than the two
Funds with shorter durations.
Nations Municipal Income Fund
[GRAPHIC] Investment objective
This Fund seeks high current income exempt from federal income tax with
the potential for principal fluctuation associated with investments in
long-term municipal securities.
[GRAPHIC] Principal investment strategies
The Fund normally invests at least 80% of its assets in investment
grade municipal securities, which pay interest that is generally free
from federal income tax.
The Fund may invest up to 20% of its assets in:
o short-term debt securities that are taxable, like commercial paper
o debt securities issued by certain trusts, partnerships or other
special purpose issuers, like industrial revenue bonds
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
Normally, the Fund's average dollar-weighted maturity will be more than seven
years, and its duration will be more than six years.
When selecting individual investments, the portfolio management team looks at
a security's potential to generate both income and price appreciation. The
portfolio management team:
o allocates assets among revenue bonds, general obligation bonds, insured
bonds and pre-refunded bonds (bonds that are repaid before their maturity
date), based on how they have performed in the past, and on how they are
expected to perform under current market conditions. The team may change the
allocations when market conditions change
o selects securities using credit and structure analysis. Credit analysis
evaluates the creditworthiness of individual issuers. The team will invest
in securities with lower credit ratings if it believes that the potential
for a higher yield is substantial compared with the risk involved, and that
the credit quality is stable or improving. Structure analysis evaluates the
characteristics of a security, including its call features, coupons, and
expected timing of cash flows
The team also considers other factors. It reviews public policy issues that
may affect the municipal bond market. Securities with different coupon rates
may also represent good investment opportunities based on supply and demand
conditions for bonds
o tries to maintain a duration that is similar to the duration of the Fund's
benchmark. This can help manage interest rate risk
o tries to manage risk by diversifying the Fund's investments in securities of
many different issuers
The team may sell a security when it believes the security is overvalued,
there is a deterioration in the security's credit rating or in the issuer's
financial situation, when other investments are more attractive, or for other
reasons.
125
<PAGE>
[GRAPHIC] You'll find more about
other risks of investing in
this Fund on starting
page 129 and in the SAI.
[GRAPHIC] Risks and other things to consider
Nations Municipal Income Fund has the following risks:
o Investment strategy risk - There is a risk that the value of the
investments that the portfolio management team chooses will not rise as
high as the team expects, or will fall.
o Interest rate risk - The prices of fixed income securities will tend to
fall when interest rates rise. In general, fixed income securities with
longer terms tend to fall more in value when interest rates rise than
fixed income securities with shorter terms.
o Credit risk - The Fund could lose money if the issuer of a fixed income
security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for U.S. government obligations.
o Changing distribution levels - The level of monthly income distributions
paid by the Fund depends on the amount of income paid by the securities
the Fund holds. It is not guaranteed and will change. Changes in the
value of the securities, however, generally should not affect the amount
of income they pay.
o Holding cash - The Fund may hold cash while it's waiting to make an
investment, as a temporary defensive strategy, or if the portfolio
management team believes that attractive tax-exempt investments are not
available. Any uninvested cash the Fund holds does not earn income.
o Tax considerations - Most of the distributions paid by the Fund come from
interest on municipal securities, and are generally free from federal
income tax, but may be subject to state and local taxes, and the federal
alternative minimum tax. Any portion of a distribution that comes from
income paid by other kinds of securities or from realized capital gains
is generally subject to federal, state and local taxes.
126
<PAGE>
[GRAPHIC] Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings, and Fund
expenses.
Call us at 1.800.765.2668 or contact your investment professional
for the Fund's current yield.
[GRAPHIC] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year
The bar chart shows you how the performance of the Fund's Primary A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[BAR CHART APPEARS HERE]
1991 1992 1993 1994 1995 1996 1997 1998
10.84%* 8.32% 13.51% -7.44% 19.51% 4.71% 9.56% 6.00%
*Return is from inception (2-1-91) to 12-31-91.
[GRAPHIC] Year-to-date return as of June 30, 1999: -1.43%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1995: 8.01%
Worst: 1st quarter 1994: -6.61%
</TABLE>
Average annual total return as of December 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the Lehman Municipal Bond Index, a broad-based, unmanaged
index of 8,000 investment grade bonds with long-term maturities. All
dividends are reinvested.
<TABLE>
<CAPTION>
Since
1 year 5 years inception
<S> <C> <C> <C>
Primary A Shares 6.00% 6.11% 7.96%
Lehman Muncipal
Bond Index 6.48% 6.22% 7.92%
</TABLE>
127
<PAGE>
[GRAPHIC] There are two kinds of fees -- sales charges you pay directly, and
annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[GRAPHIC] This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
[GRAPHIC] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees Primary A
(Fees paid directly from your investment) Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.50%
Other expenses 0.32%
------
Total annual Fund operating expenses 0.82%
Fee waivers and/or reimbursements (0.22)%
------
Total net expenses(2) 0.60%
======
</TABLE>
(1)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund for the time periods
indicated and then sell all of your shares at the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements included in above expire July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Primary A Shares $61 $240 $433 $993
</TABLE>
128
<PAGE>
[GRAPHIC] Other important information
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page 7. The following are
some other risks and information you should consider before you invest:
o Changing investment objectives and policies - The investment objective
and certain investment policies of any Fund can be changed without
shareholder approval. Other investment policies may be changed only with
shareholder approval.
o Holding other kinds of investments - The Funds may hold investments that
aren't part of their principal investment strategies. Please refer to the
SAI for more information. The portfolio managers or management team can
also choose not to invest in specific securities described in this
prospectus and in the SAI.
o Foreign investment risk - Funds that invest in foreign securities may be
affected by changes in currency exchange rates and the costs of
converting currencies; the implementation of the Euro; foreign government
controls on foreign investment, repatriation of capital, and currency and
exchange; foreign taxes; inadequate supervision and regulation of some
foreign markets; difficulty selling some investments which may increase
volatility; different settlement practices or delayed settlements in some
markets; difficulty getting complete or accurate information about
foreign companies; less strict accounting, auditing and financial
reporting standards than those in the U.S.; political, economic or social
instability; and difficulty enforcing legal rights outside the U.S.
o Emerging markets risk - Securities issued by companies in developing or
emerging market countries, like those in Eastern Europe, the Middle East,
Asia or Africa, may be more sensitive to the risks of foreign investing.
In particular, these countries may experience instability resulting from
rapid social, political and economic development. Many of these countries
are dependent on international trade, which makes them sensitive to world
commodity prices and economic downturns in other countries. Some emerging
countries have a higher risk of currency devaluation, and some countries
may experience long periods of high inflation or rapid changes in
inflation rates.
o Investing defensively - A Fund may temporarily hold investments that are
not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn or
because of political or other conditions. A Fund may not achieve its
investment objective while it is investing defensively.
129
<PAGE>
o Portfolio turnover - A Fund that replaces -- or turns over -- more than
100% of its investments in a year is considered to trade frequently.
Frequent trading can result in larger distributions of short-term capital
gains to shareholders. These gains are taxable at higher rates than
long-term capital gains. Frequent trading can also mean higher brokerage
and other transaction costs, which could reduce the Fund's returns. The
Funds generally buy securities for capital appreciation, investment
income, or both, and don't engage in short- term trading. The annual
portfolio turnover rate for Nations Strategic Equity Fund and the Managed
Index Funds is expected to be no more than 25%. You'll find the portfolio
turnover rate for each Fund in Financial highlights.
o Preparing for the year 2000 - The year 2000 is an issue for
organizations, companies and entities around the world that rely on
computer systems to process date-related information. Computer systems
that cannot read a four-digit year may not be able to calculate and
process information on or after January 1, 2000.
All of the Funds' primary service providers have confirmed that they have
been working to make the necessary changes to their systems, and that
they expect them to be adapted in time. There is no guarantee, however,
that their computer systems will be ready by the year 2000. If their
computer systems are not ready in time, there could be a negative effect
on Fund operations.
A Fund's performance could also be affected if securities it holds
decrease in value because of year 2000 issues. Funds that invest in
foreign securities may be at greater risk because the computer systems of
foreign issuers, governments or other entities may not be ready for the
year 2000.
130
<PAGE>
[GRAPHIC] Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
[GRAPHIC] How the Funds are managed
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds family, including the Equity, Balanced and Fixed Income Funds
described in this prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation. Nations Funds
pay BAAI an annual fee for its investment advisory services. The fee is
calculated daily based on the average net assets of each Fund and is paid
monthly. BAAI uses part of this money to pay investment sub-advisers for the
services they provide to each Fund.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds
until May 2000 or July 31, 2000. You'll find a discussion of any waiver and/or
reimbursement in the Fund descriptions. There is no assurance that BAAI will
continue to waive and/or reimburse any fees and/or expenses after these dates.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Funds' last fiscal year,
after waivers and/or reimbursements:
131
<PAGE>
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum Actual fee
advisory paid last
fee1 fiscal year
<S> <C> <C>
Nations Capital Income Fund 0.65% 0.45%
Nations Value Fund 0.65% 0.75%
Nations Equity Income Fund 0.65% 0.64%
Nations Blue Chip Fund(2) 0.65% 0.50%
Nations Marsico Growth & Income Fund(2) 0.75% 0.85%
Nations Strategic Equity Fund 0.65% 0.75%
Nations Capital Growth Fund 0.65% 0.75%
Nations Disciplined Equity Fund 0.65% 0.75%
Nations Marsico Focused Equities Fund(2) 0.75% 0.85%
Nations Emerging Growth Fund 0.65% 0.75%
Nations Small Company Growth Fund 0.90% 0.73%
Nations International Value Fund 0.90% 0.91%
Nations International Equity Fund(2) 0.80% 0.90%
Nations International Growth Fund 0.80% 0.81%
Nations Emerging Markets Fund 1.00% 0.90%
Nations Equity Index Fund 0.40% 0.14%
Nations Managed Index Fund 0.40% 0.27%
Nations Managed SmallCap Index Fund 0.40% 0.18%
Nations Managed Value Index Fund 0.40% 0.00%
Nations Managed SmallCap Value Index Fund 0.40% 0.00%
Nations Balanced Assets Fund 0.65% 0.75%
Nations Asset Allocation Fund 0.65% 0.40%
Nations Short-Term Income Fund 0.30% 0.30%
Nations Short-Intermediate Government Fund 0.30% 0.40%
Nations Intermediate Bond Fund(2) 0.40% 0.21%
Nations Strategic Fixed Income Fund 0.40% 0.50%
Nations Government Securities Fund 0.50% 0.50%
Nations U.S. Government Bond Fund 0.50% 0.32%
Nations Diversified Income Fund 0.50% 0.50%
Nations Short-Term Municipal Income Fund 0.30% 0.12%
Nations Intermediate Municipal Bond Fund 0.40% 0.34%
Nations Municipal Income Fund 0.50% 0.42%
</TABLE>
(1)These fees are the current contract levels, which in most cases have been
reduced from the contract levels that were in effect during the last fiscal
year.
(2)These funds don't have their own investment adviser because they invest in
the Nations Blue Chip Master Portfolio, Nations Marsico Growth & Income
master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations
International Equity Master Portfolio, and the Nations Intermediate Bond
Master Portfolio, respectively. BAAI is the investment adviser to these
Master Portfolios.
132
<PAGE>
[GRAPHIC] TradeStreet Investment
Associates, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Investment sub-advisers
Nations Funds and BAAI have engaged investment sub-advisers to provide day-
to-day portfolio management for the Funds. These sub-advisers function under
the supervision of BAAI and the Boards of Directors/Trustees of Nations Funds.
TradeStreet Investment Associates, Inc.
TradeStreet is a registered investment adviser and a wholly-owned subsidiary
of Bank of America. Its management expertise covers all major domestic asset
classes, including equity and fixed income securities, and money market
instruments.
Currently managing more than $90 billion, TradeStreet has over 200
institutional clients and is sub-adviser to more than 50 mutual funds in the
Nations Funds family. TradeStreet takes a team approach to investment
management. Each team has access to the latest technology and analytical
resources.
TradeStreet is the investment sub-adviser to the Funds shown in the table
below. The table also tells you which internal TradeStreet asset management
team is responsible for making the day-to-day investment decisions for each
Fund.
<TABLE>
<CAPTION>
Fund TradeStreet Team
<S> <C>
Nations Capital Income Fund Value Management Team
Nations Value Fund Value Management Team
Nations Equity Income Fund Structured Products Management Team
Nations Capital Growth Fund Core Growth Management Team
Nations Disciplined Equity Fund Structured Products Management Team
Nations Emerging Growth Fund Strategic Growth Management Team
Nations Small Company Growth Fund Strategic Growth Management Team
Nations Equity Index Fund Structured Products Management Team
Nations Managed Index Fund Structured Products Management Team
Nations Managed SmallCap Index Fund Structured Products Management Team
Nations Managed Value Index Fund Structured Products Management Team
Nations Managed SmallCap Value Index Fund Structured Products Management Team
Nations Balanced Assets Fund Value Management Team
Nations Asset Allocation Fund Value Management Team for the equity
portion of the Fund
Fixed Income Management Team
for the fixed income and money market
portions of the Fund
Nations Short-Term Income Fund Fixed Income Management Team
Nations Short-Intermediate Government Fund Fixed Income Management Team
Nations Intermediate Bond Fund(1) Fixed Income Management Team
Nations Strategic Fixed Income Fund Fixed Income Management Team
Nations Government Securities Fund Fixed Income Management Team
Nations Diversified Income Fund Fixed Income Management Team
Nations Short-Term Municipal Income Fund Municipal Fixed Income Management Team
Nations Intermediate Municipal Bond Fund Municipal Fixed Income Management Team
Nations Municipal Income Fund Municipal Fixed Income Management Team
</TABLE>
(1)Nations Intermediate Bond Fund doesn't have its own investment sub-adviser
because it invests in Nations Intermediate Bond Master Portfolio.
TradeStreet is the investment sub-adviser to the Master Portfolio.
133
<PAGE>
[GRAPHIC] Marsico Capital
Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado 80202
Marsico Capital Management, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas
F. Marsico in September 1997. It is a registered investment adviser,
specializing in large capitalization stocks, and currently has $6.5 billion in
assets under management.
Marsico Management Holdings, LLC, a wholly-owned subsidiary of Bank of America
Corporation, indirectly owns 50% of the equity of Marsico Capital.
Marsico Capital is the investment sub-adviser to:
o Nations Marsico Focused Equities Master Portfolio
o Nations Marsico Growth & Income Master Portfolio
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment
decisions for these Master Portfolios. Mr. Marsico was an executive vice
president and portfolio manager at Janus Capital Corporation from 1988 until
he formed Marsico Capital in September 1997. He has more than 20 years of
experience as a securities analyst and portfolio manager.
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<PAGE>
Performance of other equity funds managed by Thomas Marsico
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
have been in operation since December 31, 1997, so they have a relatively
short performance history. The tables below are designed to show you how
similar equity funds managed by Thomas Marsico performed in the past.
The Janus Twenty Fund has an investment objective, policies and strategies
that are substantially similar to Nations Marsico Focused Equities Fund. Mr.
Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11,
1997. He had full discretionary authority for selecting investments for that
Fund, which had approximately $6 billion in net assets on August 11, 1997.
The table below shows the returns for the Janus Twenty Fund compared with the
S&P 500 for the periods ending August 7, 1997. The returns reflect deductions
of fees and expenses, and assume all dividends and distributions have been
reinvested.
Average annual total returns as of August 7, 1997
<TABLE>
<CAPTION>
Janus Twenty
Fund (%) S&P 500 (%)
<S> <C> <C>
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of Mr. Marsico's management
(January 31, 1988 to August 7, 1997) 23.38 18.20
</TABLE>
This information is designed to show the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in
the future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Janus Growth and Income Fund has an investment objective, policies and
strategies that are substantially similar to Nations Marsico Growth & Income
Fund. Mr. Marsico managed the Janus Growth and Income Fund from its inception
on May 31, 1991 through August 11, 1997. He had full discretionary authority
for selecting investments for that Fund, which had approximately $1.7 billion
in net assets on August 11, 1997.
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<PAGE>
[GRAPHIC] Bank of America
Investment Management
100 North Broadway
St. Louis, Missouri 63102
[GRAPHIC] Chicago Equity Partners
Corporation
231 South LaSalle
Chicago, Illinois 60697
The table below shows the returns for the Janus Growth and Income Fund
compared with the S&P 500 for the period ending August 7, 1997. The returns
reflect deductions of fees and expenses, and assume all dividends and
distributions have been reinvested.
Average annual total returns as of August 7, 1997
<TABLE>
<CAPTION>
Janus
Growth and
Income Fund (%) S&P 500 (%)
<S> <C> <C>
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of Mr. Marsico's management
(May 31, 1991 to August 7, 1997) 21.19 18.59
</TABLE>
This information is designed to show the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in
the future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
Bank of America Investment Management
BAIM, a division of Bank of America, is the investment sub-adviser to Nations
Strategic Equity Fund.
The Fund is managed by Michael E. Kenneally, president and chief investment
officer of BAIM since 1997. He has managed the Fund since its inception on
October 2, 1998. Before joining BAIM, Mr. Kenneally was managing director at
Boatmen's Trust Company, in charge of fundamental and quantitative research,
small-capitalization, passive and international equity investment. He holds a
bachelor's degree in economics and an MBA in finance from the University of
Missouri.
Chicago Equity Partners Corporation
Chicago Equity is a registered investment adviser and a wholly-owned
subsidiary of Bank of America. Chicago Equity is the investment sub-adviser to
Nations Blue Chip Master Portfolio, and is one of two sub-advisers to Nations
Asset Allocation Fund.
Chicago Equity's Equity Management Team is responsible for making the day-
to-day investment decisions for Nations Blue Chip Master Portfolio and for the
equity portion of Nations Asset Allocation Fund.
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<PAGE>
[GRAPHIC] Brandes Investment
Partners, L.P.
12750 High Bluff Drive
San Diego, California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 37 investment
professionals who manage more than $20 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Fund.
Brandes' Large Cap Investment Committee is responsible for making the day-
to-day investment decisions for the Fund.
Performance of other international equity funds and accounts managed by Brandes
Nations International Value Fund has been in operation since December 27,
1995. The table below is designed to show you how a similar composite of
international equity accounts managed by Brandes performed over a longer
period in the past.
The Brandes composite's investment objective, policies and strategies are
substantially similar to Nations International Value Fund.
The table below shows the returns for the Brandes composite compared with the
MSCI EAFE Index for the periods ending December 31, 1998. The returns reflect
deductions of fees and expenses, and assume all dividends and distributions
have been reinvested.
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
one year 15.03% 20.33%
three years 17.12% 9.00%
five years 12.13% 9.19%
since inception (6/30/90) 18.10% 6.97%
</TABLE>
Average annual total returns as of December 31, 1998
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
1998 15.03% 20.33%
1997 20.00% 1.78%
1996 16.34% 6.05%
1995 13.75% 11.21%
1994 (2.98)% 7.78%
1993 40.86% 32.56%
1992 6.28% (12.17)%
1991 40.17% 12.13%
</TABLE>
137
<PAGE>
[GRAPHIC] Gartmore Global Partners
One Bank of America Plaza
Charlotte, North Carolina 28255
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Fund has performed or will perform in
the future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Brandes composite includes Brandes International Equity Fund (since 1995)
and international equity accounts managed by Brandes. The accounts don't pay
the same expenses that mutual funds pay and aren't subject to the
diversification rules, tax restrictions and investment limits under the 1940
Act or Subchapter M of the Internal Revenue Code. Returns could have been
lower if the composite had been subject to these expenses and regulations. The
aggregate returns of the accounts in the composite may not reflect the returns
of any particular account of Brandes.
Gartmore Global Partners
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $1 billion in assets.
Gartmore is a joint venture structured as a 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, a UK holding company for a leading UK-based international fund
management group of companies.
Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to:
o Nations International Equity Master Portfolio
Gartmore is the investment sub-adviser to:
o Nations International Growth Fund
o Nations Emerging Markets Fund
Nations International Equity Master Portfolio is co-managed by six portfolio
managers:
Christopher Palmer has been responsible since May 1999 for investments in
developing countries, and has been the principal portfolio manager of Nations
Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a
senior investment manager on the Gartmore Emerging Markets Team. Before he
joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment
bank, in its Mexico City and Hong Kong offices, and managed global
derivatives, credit and counterparty credit risk as vice president in the
Institutional Credit Department of Bear Stearns & Co. He graduated from
Colgate University in 1986 with a BA Honors degree in History and completed an
MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA
designation by the Association of Investment Management and Research in 1993.
138
<PAGE>
SEOK TEOH has been responsible since June 1998 for investments in Asia. Ms.
Teoh has been with Gartmore since 1990 as the London based manager of its Far
East Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms.
Teoh is native to Singapore and is fluent in Mandarin and Cantonese. She
received an Economics degree from the University of Durham.
JOHN STEWART has shared responsibility with Nick Reid for investments in Japan
since August 1999. He is also senior investment manager for the Gartmore
Japanese Equities Team and is responsible for managing specialist
institutional portfolios and providing input to the global asset allocation
team in London. Mr. Stewart joined Gartmore in 1992, after starting his career
at the London office of Prudential Portfolio Managers. He graduated from
Loughborough University in 1991 with a BS Honors degree in Banking and
Finance. Mr. Stewart is also a member of the Institute of Investment
Management and Research, and the Chartered Institute of Bankers.
NICK REID has shared responsibility with John Stewart for investments in Japan
since August 1999. He has been investment manager for the Gartmore Japanese
Equities Team since he joined Gartmore in 1994 and has specific responsibility
for managing retail funds. Before he joined Gartmore, Mr. Reid was an United
Kingdom Smaller Companies Analyst with Panmure Gordon and a fund manager
covering Japanese and other Asian markets with Refuge Assurance. He graduated
from Cambridge University in 1989 with an honors degree in History. Mr. Reid
is also an associate member of the Institute of Investment Management and
Research.
STEPHEN JONES has been responsible for investments in Europe since 1998. He is
also head of Gartmore European Equities. Mr. Jones joined Gartmore in 1994 and
was appointed head of the European equity team in 1995. He began his career at
The Prudential in 1984, and became a European equities investment manager in
1987, focusing on France, Belgium and Switzerland. He graduated from
Manchester University in 1984 with an honors degree in Economics.
STEPHEN WATSON has been responsible since June 1998 for allocating assets
among the various regions, and for determining investments in regions not
covered by the other portfolio managers. He was the sole portfolio manager
from February 1995 to June 1998. Mr. Watson joined Gartmore in 1993 as a
global fund manager, and is the chief investment officer of Gartmore Global
Partners and a member of Gartmore's global policy group. Before joining
Gartmore, he was a director and global fund manager with James Capel Fund
Managers, London, as well as client service manager for international clients.
He was in Capel-Cure Myers' portfolio management division from 1980 to 1987,
and began his career in 1976 with Samuel Motagu. He is a member of the
Securities Institute.
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<PAGE>
Nations International Growth Fund is managed by Brian O'Neill, the principal
senior investment manager of the Gartmore Global Portfolio Team at Gartmore
Global Partners. He has managed the Fund since 1997. Before joining Gartmore
in 1981, Mr. O'Neill was a fund manager in global equities at Antony Gibbs &
Sons and an investment analyst at Royal Insurance. He graduated from Glasgow
University in 1969 with a MA Honors degree in Political Economy.
Nations Emerging Markets Fund is managed by Christopher Palmer, a senior
investment manager on the Gartmore Emerging Markets Team. He has managed the
Fund since August 1999. He also co-manages Nations International Equity Master
Portfolio.
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<PAGE>
[GRAPHIC] INVESCO Global Asset
Management (N.A), Inc.
1315 Peachtree Street, N.E.
Atlanta, Georgia 30309
[GRAPHIC] Putnam Investment
Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
[GRAPHIC] Boatmen's Capital
Management, Inc.
100 North Broadway
St. Louis, Missouri 63102
[GRAPHIC] Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
[GRAPHIC] First Data Investor
Services Group, Inc.
101 Federal Street
Boston, Massachusetts 02110
INVESCO Global Asset Management (N.A), Inc.
INVESCO is 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, which is also
located in London.
INVESCO is one of three investment sub-advisers to Nations International
Equity Master Portfolio. INVESCO's International Equity Portfolio Management
Team is responsible for making the day-to-day investment decisions for its
portion of the Fund.
Putnam Investment Management, Inc.
Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Fund.
Boatmen's Capital Management, Inc.
Boatmen's is a wholly-owned subsidiary of Bank of America. Boatmen's is the
investment sub-adviser to Nations U.S. Government Bond Fund. Boatmen's Fixed
Income Committee is responsible for making the day-to-day investment decisions
for the Fund.
Other service providers
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee for their services, plus certain out-of-pocket expenses. The fee
is calculated as an annual percentage of the average daily net assets of the
Funds and is paid monthly, as follows:
<TABLE>
<S> <C>
Domestic Equity Funds 0.23%
International Funds 0.22%
Fixed Income Funds 0.22%
</TABLE>
First Data Investor Services Group, Inc. (First Data) is the transfer agent
for the Funds' shares. Its responsibilities include processing purchases,
sales and exchanges, calculating and paying distributions, keeping shareholder
records, preparing account statements and providing customer service.
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<PAGE>
About your investment
- --------------------------------------------------------------------------------
[GRAPHIC] When you sell shares of a mutual fund, the fund is effectively
"buying" them back from you. This is called a redemption.
[GRAPHIC]
A business day is any day that the New York Stock Exchange (NYSE)
is open. A business day ends at the close of regular trading on
the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes
early, the business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
[GRAPHIC] Buying, selling and exchanging shares
This prospectus offers Primary A Shares of the Funds. Here are some general
rules about this class of shares:
o Primary A Shares are available to certain financial institutions and
intermediaries for their own accounts, and for certain client accounts for
which they act as a fiduciary, agent or custodian. These include:
o Bank of America and certain of its affiliates
o certain other financial institutions and intermediaries, including
financial planners and investment advisers
o institutional investors
o charitable foundations
o endowments
o other Funds in Nations Funds Family
o The minimum initial investment is $250,000. Financial institutions or
intermediaries can total the investments they make on behalf of their
clients to meet the minimum initial investment amount.
o There is no minimum amount for additional investments.
o There are no sales charges for buying, selling or exchanging these shares.
You'll find more information about buying, selling and exchanging Primary A
Shares on the pages that follow. You should also ask your financial
institution or intermediary about its limits, fees and policies for buying,
selling and exchanging shares, which may be different from those described
here, and about its related programs or services.
The Funds also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. Please contact your
investment professional, or call us at 1.800.765.2668 if you have any
questions or you need help placing an order.
How shares are priced
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the net asset value
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class.
142
<PAGE>
Valuing securities in a Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, we'll base the price of a security on its
fair market value. We use the amortized cost method, which approximates market
value, to value short-term investments maturing in 60 days or less.
International markets may be open on days when U.S. markets are closed. The
value of foreign securities owned by a Fund could change on days when Fund
shares may not be bought or sold.
How orders are processed
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, First Data or their agents before the end of a business
day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will
receive that day's net asset value per share. Orders received after the end of
a business day will receive the next business day's net asset value per share.
The business day that applies to your order is also called the trade date. We
may refuse any order to buy or exchange shares. If this happens, we'll return
any money we've received.
[GRAPHIC] Buying shares
Here are some general rules for buying shares:
o Investors buy Primary A Shares at net asset value per share.
o If we don't receive payment within three business days of receiving
an order, we'll refuse the order. We'll return any payment received
for orders that we refuse.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for ensuring that we receive
payment on time.
o Shares purchased are recorded on the books of the Fund. We don't
issue certificates.
o Financial institutions and intermediaries are responsible for
recording the beneficial ownership of the shares of their clients,
and for reporting this ownership on account statements they send to
their clients.
[GRAPHIC] Selling shares
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire within
three business days after Stephens, First Data or their agents
receive the order.
o If shares were paid for with a check that wasn't certified, we'll
hold the sale proceeds when those shares are sold for at least 15
days after the trade date of the purchase, or until the check has
cleared.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for depositing the sale
proceeds to their accounts on time.
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<PAGE>
[GRAPHIC] You should make sure you understand the investment objectives and
policies of the Fund you're exchanging into. Please read its
prospectus carefully.
o Under certain circumstances allowed under the Investment Company Act
of 1940 (1940 Act), we can pay investors in securities or other
property when they sell shares, or delay payment of the sale
proceeds for up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information about these restrictions, please contact your retirement
plan administrator.
We may sell shares:
o if the value of an investor's account falls below $500. We'll
provide 60 days notice in writing if we're going to do this
o if a financial institution or intermediary tells us to sell the
shares for a client under arrangements it has made with its clients
o under certain other circumstances allowed under the 1940 Act
[GRAPHIC] Exchanging shares
Investors can sell shares of a Fund to buy shares of another Nations
Fund. This is called an exchange, and may be appropriate if investment
goals or tolerance for risk change.
Here's how exchanges work:
o Investors can exchange Primary A Shares of a Fund for Primary A
Shares of any other Nations Fund. In some cases, the only Money
Market Fund option is Trust Class Shares of Nations Reserves Money
Market Funds.
o The rules for buying shares of a Fund, including any minimum
investment requirements, apply to exchanges into that Fund.
o Exchanges can only be made into a Fund that is legally sold in the
investor's state of residence.
o Exchanges can generally only be made into a Fund that is accepting
investments.
o We may limit the number of exchanges that can be made within a
specified period of time.
o We may change or cancel the right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
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[GRAPHIC] The power of compounding
Reinvesting your distributions buys you more shares of a
Fund -- which lets you take advantage of the potential for
compound growth.
Putting the money you earn back into your investment means it, in
turn, may earn even more money. Over time, the power of
compounding has the potential to significantly increase the value
of your investment. There is no assurance, however, that you'll
earn more money if you reinvest your distributions.
[GRAPHIC] Distributions and taxes
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and
dividends paid on common stocks.
o A fund can also have capital gain if the value of its investments
increases. If a fund sells an investment at a gain, the gain is
realized. If a fund continues to hold the investment, any gain is
unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gain to
their shareholders so the Funds won't have to pay any income tax. When a Fund
makes this kind of a payment, it's split equally among all shares, and is
called a distribution.
All of the Funds distribute any net realized capital gain at least once a
year. The frequency of distributions of net investment income varies by Fund:
<TABLE>
<CAPTION>
Frequency of
Fund income distributions
<S> <C>
Nations Capital Income Fund quarterly
Nations Value Fund monthly
Nations Equity Income Fund monthly
Nations Blue Chip Fund quarterly
Nations Marsico Growth & Income Fund quarterly
Nations Strategic Equity Fund monthly
Nations Capital Growth Fund monthly
Nations Disciplined Equity Fund monthly
Nations Marsico Focused Equities Fund quarterly
Nations Emerging Growth Fund quarterly
Nations Small Company Growth Fund monthly
Nations International Value Fund annually
Nations International Equity Fund quarterly
Nations International Growth Fund annually
Nations Emerging Markets Fund quarterly
Nations Equity Index Fund quarterly
Nations Managed Index Fund monthly
Nations Managed SmallCap Index Fund quarterly
Nations Managed Value Index Fund quarterly
Nations Managed SmallCap Value Index Fund quarterly
Nations Balanced Assets Fund quarterly
Nations Asset Allocation Fund quarterly
Nations Short-Term Income Fund monthly
Nations Short-Intermediate Government Fund monthly
Nations Intermediate Bond Fund monthly
Nations Strategic Fixed Income Fund monthly
Nations Government Securities Fund monthly
Nations U.S. Government Bond Fund monthly
Nations Diversified Income Fund monthly
Nations Short-Term Municipal Income Fund monthly
Nations Intermediate Municipal Bond Fund monthly
Nations Municipal Income Fund monthly
</TABLE>
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<PAGE>
A distribution is paid based on the number of shares you hold on the record
date, which is usually the day before the distribution is declared. Shares of
the Equity, International, Index and Balanced Funds are eligible to receive
distributions from the trade date of the purchase, as long as it's at least
one day before a distribution is declared, up to the day before the shares are
sold. Shares of the Fixed Income and Municipal Bond Funds are eligible to
receive distributions from the trade date of the purchase up to and including
the day before the shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made,
the net asset value per share of the share class is reduced by the amount of
the distribution.
We'll automatically reinvest distributions in additional shares of the same
Fund unless you tell us you want to receive your distributions in cash. You
can do this by writing to us at the address on the back cover, or by calling
us at 1.800.765.2668.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll pay any distribution that applies to those shares in
cash within five business days after the sale was made.
If you buy shares of a Fund shortly before it makes a distribution, you will,
in effect, receive part of your purchase back in the distribution, which is
subject to tax. Similarly, if you buy shares of a Fund that holds securities
with unrealized capital gain, you will, in effect, receive part of your
purchase back if and when the Fund sells those securities and realizes and
distributes the gain. This distribution is also subject to tax. Some Funds
have built up, or have the potential to build up, high levels of unrealized
capital gain.
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[GRAPHIC] This information is a summary of how federal income taxes may
affect your investment in the Funds. It is not intended as a
substitute for careful tax planning. You should consult with your
own tax advisor about your situation, including any foreign, state
and local taxes that may apply.
[GRAPHIC] For more information about
taxes, please see the SAI.
How taxes affect your investment
Distributions that come from net investment income, net foreign currency gain
and any excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income.
Distributions that come from net capital gain (generally the excess of net
long-term capital gain over net short-term capital loss) generally are taxable
to you as net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
Municipal Bond Funds
Distributions that come from a Municipal Bond Fund's tax-exempt interest
income are generally free from federal income tax, but may be subject to state
or local tax. All or a portion of these distributions may also be subject to
the federal alternative minimum tax.
Any distributions that come from taxable income or realized capital gain are
generally subject to tax. Distributions that come from taxable income and any
net short-term capital gain (generally the excess of net short-term capital
gain over net long-term capital loss) generally are taxable to you as ordinary
income. Distributions of net capital gain (generally the excess of net
long-term capital gain over net short-term capital loss) generally are taxable
to you as net capital gain. Corporate shareholders will not be able to deduct
any distributions from these Funds when determining their taxable income.
Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts deemed to be paid for "in
kind" redemptions and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
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<PAGE>
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax on distributions
paid to foreign shareholders.
Foreign taxes
Mutual funds that maintain most of their portfolio in foreign
securities -- like the International Funds -- have special tax considerations.
You'll generally be required to:
o include in your gross income your proportional amount of foreign taxes paid
by the fund
o treat this amount as foreign taxes you paid directly
o either deduct this amount when calculating your income, or subject to
certain conditions and limitations, claim this amount as a foreign tax
credit against your federal income tax liability
In general, each year you can claim up to $300 ($600 if you're filing jointly)
of foreign taxes paid (or deemed paid) by you as a foreign tax credit against
your federal income tax liability.
Taxation of redemptions and exchanges
Your redemptions (including redemptions "in kind") and exchanges of Fund
shares will usually result in a taxable capital gain or loss to you, depending
on the amount you receive for your shares (or are deemed to receive in the
case of exchanges) and the amount you paid (or are deemed to have paid) for
them.
[GRAPHIC] Financial highlights
The financial highlights table is designed to help you understand how the
Funds have performed for the past five years. Certain information reflects
financial results for a single Fund share. Financial highlights for Primary A
Shares of Capital Income Fund, Blue Chip Fund, Asset Allocation Fund and
Intermediate Bond Fund are not provided because this class of shares had not
yet commenced operations during the periods indicated. The total investment
return line indicates how much an investment in the Fund would have earned,
assuming all dividends and distributions had been reinvested.
This information, except as noted below, has been audited by
PricewaterhouseCoopers LLP. The independent accountant's report and Nations
Funds financial statements are incorporated by reference into the SAI. Please
see the back cover to find out how you can get a copy.
The financial highlights of Nations International Value Fund, formerly Emerald
International Equity Fund, for the period ended May 15, 1998 and the year
ended November 30, 1997 have been audited by KPMG Peat Marwick LLP.
The financial highlights of Nations Small Company Growth Fund, Nations U.S.
Government Bond Fund and Nations International Growth Fund for the periods
ended May 16, 1997 were audited by other independent accountants.
148
<PAGE>
<TABLE>
<CAPTION>
Nations Value Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 19.92 $ 17.87
Net investment income 0.13 0.20
Net realized and unrealized gain/(loss) on
investments 0.64 5.98
Net increase/(decrease) in net asset value from
operations 0.77 6.18
Distributions:
Dividends from net investment income ( 0.14) ( 0.19)
Distributions from net realized capital gains ( 2.39) ( 3.94)
Total dividends and distributions ( 2.53) ( 4.13)
Net asset value, end of period $ 18.16 $ 19.92
Total return++ 4.15% 38.53%
==================================================== ========= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,939,704 $2,248,460
Ratio of operating expenses to average net assets 0.94%(b)(c) 0.95%(b)
Ratio of net investment income to average net
assets 0.76% 1.04%
Portfolio turnover rate 38% 79%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.94%(b) 0.95%(b)
<CAPTION>
Primary A Shares Year ended Period ended Year ended Year ended
03/31/97 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.60 $ 16.21 $ 12.98 $ 13.74
Net investment income 0.26 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on
investments 2.69 1.06 3.91 ( 0.23)
Net increase/(decrease) in net asset value from
operations 2.95 1.13 4.18 0.01
Distributions:
Dividends from net investment income ( 0.26) ( 0.12) ( 0.28) ( 0.23)
Distributions from net realized capital gains ( 1.42) ( 0.62) ( 0.67) ( 0.54)
Total dividends and distributions ( 1.68) ( 0.74) ( 0.95) ( 0.77)
Net asset value, end of period $ 17.87 $ 16.60 $ 16.21 $ 12.98
Total return++ 18.07% 7.20% 34.53% ( 0.08)%
==================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,200,853 $998,957 $956,669 $799,743
Ratio of operating expenses to average net assets 0.97%(b) 0.96%+ 0.94% 0.93%
Ratio of net investment income to average net
assets 1.51% 1.30%+ 1.90% 1.85%
Portfolio turnover rate 47% 12% 63% 75%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.97%(b) 0.96%+ 0.94% 0.93%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
<TABLE>
<CAPTION>
Nations Equity Income Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.94 $ 12.30
Net investment income 0.23 0.29
Net realized and unrealized gain/(loss) on investments ( 1.45) 3.79
Net increase/(decrease) in net asset value from
operations ( 1.22) 4.08
Distributions:
Dividends from net investment income ( 0.23) ( 0.28)
Distributions from net realized capital gains ( 1.13) ( 2.16)
Total dividends and distributions ( 1.36) ( 2.44)
Net asset value, end of period $ 11.36 $ 13.94
Total return++ ( 9.40)% 37.21%
========================================================= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $575,076 $915,630
Ratio of operating expenses to average net assets 0.80%(b)(c) 0.86%(b)
Ratio of net investment income to average net assets 1.92% 2.22%
Portfolio turnover rate 69% 74%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80%(b) 0.86%(b)
<CAPTION>
Primary A Shares Year ended Period ended Year ended Year ended
03/31/97 03/31/96(a) 05/31/95 5/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.14 $ 11.81 $ 11.43 $ 12.06
Net investment income 0.43 0.30 0.42 0.38
Net realized and unrealized gain/(loss) on investments 1.55 1.77 1.11 0.22
Net increase/(decrease) in net asset value from
operations 1.98 2.07 1.53 0.60
Distributions:
Dividends from net investment income ( 0.41) ( 0.37) ( 0.42) ( 0.42)
Distributions from net realized capital gains ( 2.41) ( 0.37) ( 0.73) ( 0.81)
Total dividends and distributions ( 2.82) ( 0.74) ( 1.15) ( 1.23)
Net asset value, end of period $ 12.30 $ 13.14 $ 11.81 $ 11.43
Total return++ 15.62% 17.98% 14.79% 5.00%
========================================================= ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $200,772 $283,142 $283,082 $225,740
Ratio of operating expenses to average net assets 0.91%(b) 0.90%+ 0.92% 0.94%
Ratio of net investment income to average net assets 3.09% 2.84%+ 3.75% 3.41%
Portfolio turnover rate 102% 59% 158% 116%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.91%(b) 0.90%+ 0.93% 0.95%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expenses
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
149
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<CAPTION>
Nations Marsico Growth & Income
Fund For a Share outstanding throughout the period
Year ended Period ended
Primary A Shares 3/31/99# 03/31/98*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.03 $ 10.00
Income from investment operations:
Net investment income 0.00 0.01
Net realized and unrealized gain on investments 2.89 2.02
Net increase in net asset value from operations 2.89 2.03
Distributions:
Dividends from net investment income 0.00 0.00
Distributions from net realized capital gains ( 0.01) 0.00
Total dividends and distributions ( 0.01) 0.00
Net asset value, end of period $ 14.91 $ 12.03
Total return++ 24.05% 20.30%
==================================================== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $52,229 $2,517
Ratio of operating expenses to average net assets 1.25%(a) 1.09%+(a)
Ratio of net investment income/(loss) to average
net assets 0.05% 0.38%+
Portfolio turnover rate 150% 22%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.25%(a) 1.97%+(a)
</TABLE>
* Nations Marsico Growth & Income Fund Primary A
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
<TABLE>
<CAPTION>
Nations Strategic Equity Fund For a Share outstanding throughout the period
Period ended
Primary A Shares 03/31/99*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.00
Net realized and unrealized gain on investments 3.87
Net increase in net asset value from operations 3.87
Distributions:
Dividends from net investment income ( 0.00)(b)
Distributions from net realized capital gains ( 0.01)
Total dividends and distributions ( 0.01)
Net asset value, end of period $ 13.86
Total return++ 38.65%
==================================================== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $266,823
Ratio of operating expenses to average net assets 1.07%+(a)
Ratio of net investment loss to average net assets ( 0.03)%+
Portfolio turnover rate 34%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.07%+(a)
</TABLE>
* Strategic Equity Primary A Shares commenced
operations on October 2, 1998.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of fees reduced by credits allowed by
the custodian on the operating expense ratio, with
and without waivers and/or expense reimbursements,
was less than 0.01%.
(b) Amount represents less than $0.01 per share.
150
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<TABLE>
<CAPTION>
Nations Capital Growth Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.30 $ 11.70
Net investment income/(loss) ( 0.00) 0.02
Net realized and unrealized gain on investments 1.59 5.27
Net increase in net asset value from operations 1.59 5.29
Distributions:
Dividends from net investment income -- ( 0.01)
Distributions from net realized capital gains ( 2.84) ( 3.68)
Total dividends and distributions ( 2.84) ( 3.69)
Net asset value, end of period $ 12.05 $ 13.30
Total return++ 14.99% 53.89%
================================================== ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $737,620 $872,150
Ratio of operating expenses to average net
assets 0.96%(c) 0.95%(c)(d)
Ratio of net investment income/(loss) to average
net assets ( 0.04)% 0.13%
Portfolio turnover rate 39% 113%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.96%(c) 0.95%(c)
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97# 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Net investment income/(loss) 0.05 0.02 0.09 0.09
Net realized and unrealized gain on investments 1.66 0.38 3.28 0.14
Net increase in net asset value from operations 1.71 0.40 3.37 0.23
Distributions:
Dividends from net investment income ( 0.05) ( 0.02) ( 0.10) ( 0.08)
Distributions from net realized capital gains ( 3.39) ( 1.19) ( 0.26) ( 0.00)(b)
Total dividends and distributions ( 3.44) ( 1.21) ( 0.36) ( 0.08)
Net asset value, end of period $ 11.70 $ 13.43 $ 14.24 $ 11.23
Total return++ 11.88% 3.14% 30.96% 2.14%
================================================== ======== ======== ======== =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $533,168 $839,300 $867,361 $717,914
Ratio of operating expenses to average net
assets 0.96%(d) 0.96%+ 0.98% 0.90%
Ratio of net investment income/(loss) to average
net assets 0.39% 0.38%+ 0.71% 0.85%
Portfolio turnover rate 75% 25% 80% 56%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.96% 0.96%+ 0.98% 0.91%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating
expense ratio was less than 0.01%.
151
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<CAPTION>
Nations Disciplined Equity Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99 03/31/98##
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 22.17 $ 18.47
Net investment income/(loss) 0.02 0.08
Net realized and unrealized gain/(loss) on
investments 3.22 7.88
Net increase/(decrease) in net asset value from
operations 3.24 7.96
Distributions:
Dividends from net investment income ( 0.01)+++ ( 0.03)
Distributions from net realized capital gains ( 2.04) ( 4.23)
Return of capital -- --
Total dividends and distributions ( 2.05) ( 4.26)
Net asset value, end of period $ 23.36 $ 22.17
Total return++ 15.74% 48.65%
================================================== ========= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $412,176 $132,504
Ratio of operating expenses to average net
assets 0.97%(c)(d) 0.98%(c)(d)
Ratio of net investment income/(loss) to average
net assets 0.12% 0.37%
Portfolio turnover rate 72% 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.97%(d) 0.98%(d)
<CAPTION>
Year Period Year Period Period
Primary A Shares ended ended ended ended ended
03/31/97 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.19 $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.14 0.05 0.10 0.01 ( 0.05)
Net realized and unrealized gain/(loss) on
investments 2.79 0.35 3.96 ( 0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 2.93 0.40 4.06 ( 0.22) 2.61
Distributions:
Dividends from net investment income ( 0.14) ( 0.04) ( 0.08) ( 0.01) --
Distributions from net realized capital gains ( 1.51) ( 0.23) -- -- ( 2.95)
Return of capital -- -- -- ( 0.00)(b) --
Total dividends and distributions ( 1.65) ( 0.27) ( 0.08) ( 0.01) ( 2.95)
Net asset value, end of period $ 18.47 $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 17.00% 2.44% 31.13% ( 1.62)% 18.79%
================================================== ======== ======== ======== ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $100,260 $116,469 $109,939 $9,947 $8,079
Ratio of operating expenses to average net
assets 1.04%(c) 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average
net assets 0.70% 0.82%+ 0.85% 0.12%+ ( 0.60)%+
Portfolio turnover rate 120% 47% 124% 177% 475%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.02%+ 1.30% 1.56%+ 1.53%+
</TABLE>
* The period for Nations Disciplined Equity Fund
Primary A Shares reflects operations from April 30,
1994 through November 30, 1994. The financial
information for the fiscal periods through April 29,
1994 is based on the financial information for The
Capitol Mutual Funds Special Equity Portfolio Class
A Shares, which were reorganized into Primary A
Shares of Nations Disciplined Equity Fund (then
named Nations Special Equity Fund) as of the close
of business on April 29, 1994.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
+++ Amount includes distributions in excess of net
investment income of less than $0.01 per share.
# The amount shown at this caption for each share
outstanding throughout the period may not accord
with the change in the aggregate gains and losses in
the portfolio securities for the period because of
the timing of purchases and withdrawals of shares in
relation to the fluctuating market value of the
portfolio.
## Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(d) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
152
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<TABLE>
<CAPTION>
Nations Marsico Focused Equities
Fund For a Share outstanding throughout the period
Year ended Period ended
Primary A Shares 3/31/99# 03/31/98*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.13 $ 10.00
Net investment income/(loss) ( 0.01) ( 0.01)
Net realized and unrealized gains on investments 4.58 2.14
Net increase in net asset value from operations 4.57 2.13
Distributions:
Dividends from net investment income 0.00 0.00
Distributions from net realized capital gains ( 0.01) 0.00
Total dividends and distributions ( 0.01) 0.00
Net asset value, end of period $ 16.69 $ 12.13
Total return++ 37.73% 21.30%
==================================================== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $105,458 $8,808
Ratio of operating expenses to average net assets 1.06%(a) 1.52%+(a)
Ratio of net investment income/(loss) to average
net assets 0.05% ( 0.30)%+
Portfolio turnover rate 177% 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.06%(a) 1.52%+(a)
</TABLE>
* Nations Marsico Focused Equities Fund Primary A
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charge.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
<TABLE>
<CAPTION>
Nations Emerging Growth Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.56 $ 12.86
Net investment income/(loss) ( 0.04) ( 0.06)
Net realized and unrealized gain/(loss) on
investments ( 0.94) 5.55
Net increase/(decrease) in net asset value from
operations ( 0.98) 5.49
Distributions:
Distributions from net realized capital gains ( 2.27) ( 1.79)
Total dividends and distributions ( 2.27) ( 1.79)
Net asset value, end of period $ 13.31 $ 16.56
Total return++ ( 7.21)% 45.09%
=================================================== ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $177,861 $318,584
Ratio of operating expenses to average net assets 0.98%(c)(d) 0.98%(c)
Ratio of operating expenses to average net assets
including interest expense N/A 0.99%
Ratio of net investment income/(loss) to average
net assets ( 0.29)% ( 0.42)%
Portfolio turnover rate 43% 76%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.98%(c) 0.98%(c)
<CAPTION>
Primary A Shares Year ended Period ended Year ended Year ended
03/31/97# 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.04 $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) ( 0.04) 0.00 (b) 0.01 ( 0.03)
Net realized and unrealized gain/(loss) on
investments 0.20 1.26 3.26 0.71
Net increase/(decrease) in net asset value from
operations 0.16 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains ( 1.34) ( 1.50) ( 0.40) ( 0.14)
Total dividends and distributions ( 1.34) ( 1.50) ( 0.40) ( 0.14)
Net asset value, end of period $ 12.86 $ 14.04 $ 14.28 $ 11.41
Total return++ 0.48% 9.87% 29.95% 6.26%
=================================================== ======== ========= ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $267,319 $295,764 $269,484 $182,459
Ratio of operating expenses to average net assets 0.98%(c) 0.99%+ 0.98% 1.01%
Ratio of operating expenses to average net assets
including interest expense N/A N/A N/A N/A
Ratio of net investment income/(loss) to average
net assets ( 0.26)% ( 0.06)%+ 0.08% ( 0.29)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.98%(c) 0.99%+ 0.98% 1.01%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating
expense ratio was less than 0.01%.
153
<PAGE>
<TABLE>
<CAPTION>
Nations Small Company Growth
Fund For a Share outstanding throughout each period
Primary A Shares Year ended Period ended Period ended Period ended
3/31/99# 03/31/98* 5/16/97* 08/31/96*(a)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 15.79 $ 12.07 $ 10.65 $ 10.00
Net investment income/(loss) ( 0.05) 0.01 0.04 0.09
Net realized and unrealized gain on investments ( 3.11) 4.43 1.47 0.64
Net increase in net asset value from operations ( 3.16) 4.44 1.51 0.73
Distributions:
Dividends from net investment income -- ( 0.01) ( 0.04) ( 0.08)
Distributions from net realized capital gains ( 1.13) ( 0.71) ( 0.05) --
Total dividends and distributions ( 1.13) ( 0.72) ( 0.09) ( 0.08)
Net asset value at the end of the period $ 11.50 $ 15.79 $ 12.07 $ 10.65
Total return ++ (21.05)% 37.27% 14.21% 7.37%
==================================================== ======== ======= ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $327,981 $235,427 $109,450 $70,483
Ratio of operating expenses to average net assets 0.95%(b) 0.95%+(b) 0.98%+ 1.00%+
Ratio of net investment income/(loss) to average
net assets ( 0.42)% 0.05%+ 0.54%+ 1.06%+
Portfolio turnover rate 87% 59% 48% 31%
Ratio of operating expenses to average net assets
(without waivers and/or expense
reimbursements) 1.22%(b) 1.26%+(b) 1.41%+ 1.54%+
</TABLE>
* The financial information for the fiscal periods
prior to May 23, 1997 reflect the financial
information for the Pilot Small Capitalization
Equity Fund's Pilot Shares, which were reorganized
into the Primary A Shares of Nations Small Company
Growth Fund as of May 23, 1997. Prior to May 23,
1997, the investment adviser to Nations Small
Company Growth Fund was Boatman's Trust Company.
Effective May 23, 1997, the investment adviser to
Nations Small Company Growth Fund was TradeStreet
Investment Associates, Inc.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charge.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Represents the period from December 12, 1995
(commencement of operations) to August 31, 1996.
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
154
<PAGE>
<TABLE>
<CAPTION>
Nations International Value Fund For a Share outstanding throughout each period
Period ended Period ended Year ended Period ended
Primary A Shares* 3/31/99# 05/15/98 11/30/97 11/30/96**
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.53 $ 13.17 $ 11.29 $ 10.00
Income from investment operations:
Net investment income 0.16 0.09 0.09 0.06
Net realized and unrealized gains on securities 0.28 2.56 1.91 1.29
Total income from investment operations 0.44 2.65 2.00 1.35
Less dividends and distributions:
Dividends from net investment income ( 0.18) -- ( 0.09) ( 0.06)
Distributions in excess of net investment income -- -- ( 0.01) --
Distributions from net realized gains on securities ( 1.34) ( 0.29) ( 0.02) --
Total dividends and distributions ( 1.52) ( 0.29) ( 0.12) ( 0.06)
Net asset value, end of period $ 14.45 $ 15.53 $ 13.17 $ 11.29
Total return++ 1.48% 20.54% 17.75% 13.47%
====================================================== ======== ======== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $142,546 $119,412 $54,277 $17,528
Ratio of operating expenses to average net assets 1.30%+ 1.25%+ 1.21% 0.00%+
Ratio of net investment income to average net
assets 1.36%+ 2.06%+ 0.89% 0.00%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.39%+ 1.26%+ 1.21% 3.46%+
Portfolio turnover rate 44% 88% 29% 50%
</TABLE>
* Primary A Shares of Nations International Value
Fund were formerly Institutional Shares of the
Emerald International Equity Fund prior to May 22,
1998.
** For the period December 27, 1995 (commencement of
operations) through November 30, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
<TABLE>
<CAPTION>
Nations International Equity Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.81 $ 13.13
Net investment income/(loss) 0.11 0.11
Net realized and unrealized gain/(loss) on
investments 0.39 1.95
Net increase/(decrease) in net asset value from
operations 0.50 2.06
Distributions:
Dividends from net investment income ( 0.12) ( 0.17)
Distributions in excess of net investment income -- ( 0.05)
Distributions from net realized capital gains ( 1.07) ( 0.16)
Distributions in excess of net realized capital
gains -- --
Total dividends and distributions ( 1.19) ( 0.38)
Net asset value, end of period $ 14.12 $ 14.81
Total return++ 3.68% 16.06%
================================================== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $743,861 $885,329
Ratio of operating expenses to average net
assets 1.13% 1.14%
Ratio of net investment income/(loss) to average
net assets 0.79% 0.76%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.13% 1.14%
Portfolio turnover rate 146% 64%
<CAPTION>
Primary A Shares Year ended Period ended Year ended Year ended
03/31/97# 03/31/96(a)# 05/31/95# 05/31/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Net investment income/(loss) 0.08 0.07 0.14 0.09
Net realized and unrealized gain/(loss) on
investments 0.11 1.80 ( 0.20) 1.44
Net increase/(decrease) in net asset value from
operations 0.19 1.87 ( 0.06) 1.53
Distributions:
Dividends from net investment income ( 0.11) ( 0.06) ( 0.03) ( 0.05)
Distributions in excess of net investment income ( 0.00)** ( 0.04) -- --
Distributions from net realized capital gains ( 0.42) ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized capital
gains ( 0.03) -- ( 0.10) --
Total dividends and distributions ( 0.56) ( 0.12) ( 0.25) ( 0.07)
Net asset value, end of period $ 13.13 $ 13.50 $ 11.75 $ 12.06
Total return++ 1.32% 16.01% ( 0.46)% 14.37%
================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $976,855 $849,731 $572,940 $401,559
Ratio of operating expenses to average net
assets 1.16% 1.17%+ 1.03% 1.17%
Ratio of net investment income/(loss) to average
net assets 0.62% 0.65%+ 1.17% 0.75%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.16% 1.18%+ 1.04% 1.18%
Portfolio turnover rate 36% 26% 92% 39%
</TABLE>
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
155
<PAGE>
<TABLE>
<CAPTION>
Nations International Growth
Fund For a Share outstanding throughout each period
Year ended Period ended
Primary A Shares* 3/31/99# 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 19.42 $ 18.43
Net investment income/(loss) 0.05 0.03
Net realized and unrealized gain/(loss) on
investments 0.87 1.30
Net increase/(decrease) in net asset value from
operations 0.92 1.33
Dividends from net investment income -- --
Distributions from net realized capital gains ( 4.81) ( 0.34)
Total dividends and distributions ( 4.81) ( 0.34)
Net asset value at the end of the period $ 15.53 $ 19.42
Total return++ 6.16% 7.39%
==================================================== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $182,316 $401,105
Ratio of operating expenses to average net assets 1.12% 1.15%+
Ratio of operating expenses to average net assets
including interest expense 1.14% --
Ratio of operating expenses to average net assets
without waivers 1.21% 1.17%+
Ratio of net investment income to average net
assets 0.24% 0.21%+
Portfolio turnover rate 21% 11%
<CAPTION>
Period ended Year ended Year ended Year ended
Primary A Shares* 05/16/97 08/31/96 08/31/95# 08/31/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 17.05 $ 16.24 $ 16.34 $ 14.14
Net investment income/(loss) 0.05 0.18 0.13 0.11
Net realized and unrealized gain/(loss) on
investments 1.84 1.48 0.17 2.24
Net increase/(decrease) in net asset value from
operations 1.89 1.66 0.30 2.35
Dividends from net investment income ( 0.17) ( 0.46) ( 0.11) --
Distributions from net realized capital gains ( 0.34) ( 0.39) ( 0.29) ( 0.15)
Total dividends and distributions ( 0.51) ( 0.85) ( 0.40) ( 0.15)
Net asset value at the end of the period $ 18.43 $ 17.05 $ 16.24 $ 16.34
Total return++ 11.28% 10.64% 2.08% 16.75%
==================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $701,033 $579,019 $363,212 $307,561
Ratio of operating expenses to average net assets 1.18%+ 1.08% 1.18% 1.12%
Ratio of operating expenses to average net assets
including interest expense -- -- -- --
Ratio of operating expenses to average net assets
without waivers 1.18%+ 1.08% 1.18% 1.12%
Ratio of net investment income to average net
assets 0.47%+ 0.69% 0.82% 0.75%
Portfolio turnover rate 34% 22% 36% 35%
</TABLE>
* The financial information for fiscal periods
through May 23, 1997 reflect the financial
information for Pilot International Equity Funds'
Pilot Shares, which were reorganized into the
Primary A Shares of Nations International Growth
Fund as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share investment income/(loss) has been
calculated using the monthly average share method.
156
<PAGE>
<TABLE>
<CAPTION>
Nations Emerging Markets Fund For a Share outstanding throughout each period
Year ended Year ended Year ended Period ended
Primary A Shares 3/31/99# 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.60 $ 11.41 $ 10.34 $ 10.00
Net investment income/(loss) 0.14 0.04 0.01 ( 0.03)
Net realized and unrealized gain/(loss) on
investments ( 2.53) ( 0.76) 1.21 0.37
Net increase/(decrease) in net asset value from
operations ( 2.39) ( 0.72) 1.22 0.34
Distributions:
Dividends from net investment income ( 0.07) ( 0.09) ( 0.02) --
Distributions in excess of net investment income -- -- ( 0.07) 0.00**
Distributions from net realized capital gains -- -- ( 0.06) --
Total dividends and distributions ( 0.07) ( 0.09) ( 0.15) 0.00**
Net asset value, end of period $ 8.14 $ 10.60 $ 11.41 $ 10.34
Total return++ (22.60)% ( 6.39)% 11.97% 3.42%
=================================================== ======= ======= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $21,689 $73,797 $76,483 $47,560
Ratio of operating expenses to average net assets 1.78%(b)(c) 1.57% 1.74% 2.13%+
Ratio of net investment income/(loss) to average
net assets 1.66% 0.36% 0.13% ( 0.38)%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.98%(c) 1.57% 1.74% 2.13%+
Portfolio turnover rate 71% 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Primary A Shares
commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
157
<PAGE>
<TABLE>
<CAPTION>
Nations Equity Index Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99 03/31/98#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 22.41 $ 15.89
Net investment income 0.26 0.27
Net realized and unrealized gain/(loss) on
investments 3.63 7.11
Net increase in net asset value from operations 3.89 7.38
Distributions:
Dividends from net investment income ( 0.25) ( 0.27)
Distributions from net realized capital gains ( 0.99) ( 0.59)
Total dividends and distributions ( 1.24) ( 0.86)
Net asset value, end of period $ 25.06 $ 22.41
Total return++ 18.26% 47.38%
==================================================== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $933,313 $656,523
Ratio of operating expenses to average net assets 0.35%(b) 0.35%(b)
Ratio of operating expenses to average net assets
including interest expense -- 0.36%
Ratio of net investment income to average net
assets 1.17% 1.39%
Portfolio turnover rate 4% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.71%(b) 0.66%(b)
<CAPTION>
Primary A Shares Year ended Period ended Year ended Period ended
03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.58 $ 12.91 $ 9.84 $ 10.00
Net investment income 0.26 0.08 0.28 0.24
Net realized and unrealized gain/(loss) on
investments 2.36 0.86 3.20 ( 0.21)
Net increase in net asset value from operations 2.62 0.94 3.48 0.03
Distributions:
Dividends from net investment income ( 0.26) ( 0.13) ( 0.28) ( 0.19)
Distributions from net realized capital gains ( 0.05) ( 0.14) ( 0.13) --
Total dividends and distributions ( 0.31) ( 0.27) ( 0.41) ( 0.19)
Net asset value, end of period $ 15.89 $ 13.58 $ 12.91 $ 9.84
Total return++ 19.41% 7.33% 36.35% 0.29%
==================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $567,039 $192,388 $145,021 $123,147
Ratio of operating expenses to average net assets 0.35%(b) 0.35%+ 0.37% 0.35%+
Ratio of operating expenses to average net assets
including interest expense -- 0.35%+ 0.38% --
Ratio of net investment income to average net
assets 1.91% 1.99%+ 2.44% 2.64%+
Portfolio turnover rate 5% 2% 18% 14%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.70%(b) 0.73%+ 0.78% 0.79%+
</TABLE>
* Nations Equity Index Fund Primary A Shares
commenced operations on December 15, 1993.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
<TABLE>
<CAPTION>
Nations Managed Index Fund For a Share outstanding throughout the period
Year ended Year ended Period ended
Primary A Shares 3/31/99# 03/31/98 03/31/97*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.14 $ 11.89 $ 10.00
Net investment income 0.18 0.15 0.15
Net realized and unrealized gain on investments 2.40 5.42 1.87
Net increase in net asset value from operations 2.58 5.57 2.02
Distributions:
Dividends from net investment income ( 0.18) ( 0.17) ( 0.13)
Distributions from net realized capital gains ( 0.15) ( 0.15) --
Total dividends and distributions ( 0.33) ( 0.32) ( 0.13)
Net asset value, end of period $ 19.39 $ 17.14 $ 11.89
Total return++ 15.25% 47.54% 20.22%
==================================================== ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $665,631 $374,504 $42,226
Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a)(b) 0.50%+(a)
Ratio of net investment income to average net
assets 1.03% 1.26% 1.92 +
Portfolio turnover rate 35% 30% 17%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.73%(a) 0.80%(a) 1.05%+(a)
</TABLE>
* Nations Managed Index Fund Primary A Shares
commenced operations on July 31, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%.
158
<PAGE>
<TABLE>
<CAPTION>
Nations Managed SmallCap Index
Fund For a Share outstanding throughout the period
Year ended Year ended Period ended
Primary A Shares 3/31/99# 03/31/98 3/31/97*
<S> <C> <C> <C>
Operating performance:
Net asset value at the beginning of period $ 14.10 $ 9.83 $ 10.00
Net investment income 0.06 0.06 0.03
Net realized and unrealized gain/(loss) on
investments ( 2.92) 4.58 ( 0.17)
Net increase/(decrease) in net asset value from
operations ( 2.86) 4.64 ( 0.14)
Distributions:
Dividends from net investment income ( 0.06) ( 0.06) ( 0.03)
Distributions from net realized capital gains ( 0.14) ( 0.31) --
Total dividends and distributions ( 0.20) ( 0.37) ( 0.03)
Net asset value, end of period $ 11.04 $ 14.10 $ 9.83
Total return++ (20.50)% 47.71% ( 1.37)%
================================================ ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $189,379 $102,437 $40,851
Ratio of operating expenses to average net
assets 0.50%(a)(b) 0.50%(a)(b) 0.50%+
Ratio of net investment income to average net
assets 0.52% 0.52% 1.05%+
Portfolio turnover rate 65% 62% 18%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.82%(a) 1.02%(a) 1.21%+
</TABLE>
* Nations Managed SmallCap Index Fund Primary A
Shares commenced operations on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%
<TABLE>
<CAPTION>
Nations Managed Value Index
Fund For a Share outstanding throughout the period
Year ended Period ended
Primary A Shares 3/31/99# 03/31/98*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.32 $ 10.00
Net investment income 0.16 0.07
Net realized and unrealized gain on investments 0.18 1.31
Net increase in net asset value from operations 0.34 1.38
Distributions:
Dividends from net investment income ( 0.19) ( 0.06)
Distributions from net realized capital gains ( 0.05) --
Total dividends and distributions ( 0.24) ( 0.06)
Net asset value, end of period $ 11.42 $ 11.32
Total return++ 3.06% 13.78%
==================================================== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,292 $7,330
Ratio of operating expenses to average net assets 0.50%(a) 0.50%+(a)(b)
Ratio of net operating expenses to average net
assets including interest expense 0.55%(a) --
Ratio of net investment income to average net
assets 1.45% 1.72%+
Portfolio turnover rate 115% 3%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.99%(a) 1.57%+(a)
</TABLE>
* Nations Managed Value Index Fund Primary A Shares
commenced operations on November 24, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%.
159
<PAGE>
<TABLE>
<CAPTION>
Nations Managed SmallCap Value
Index Fund For a Share outstanding throughout the period
Year ended Period ended
Primary A Shares 3/31/99# 03/31/98*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.46 $ 10.00
Net investment income 0.09 0.03
Net realized and unrealized gain/loss on
investments ( 2.38) 1.46
Net increase/decrease in net asset value from
operations ( 2.29) 1.49
Distributions:
Dividends from net investment income ( 0.07) ( 0.03)
Dividends from net realized capital gains ( 0.12) --
Total dividends and distributions ( 0.19) ( 0.03)
Net asset value, end of period $ 8.98 $ 11.46
Total return++ (20.11)% 14.88%
================================================ ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,084 $2,106
Ratio of operating expenses to average net
assets 0.50%(a)(b) 0.50%+(a)(b)
Ratio of net investment income to average net
assets 0.96% 0.78%+
Portfolio turnover rate 136% 30%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 3.56%(a) 2.17%+(a)
</TABLE>
* Nations Managed SmallCap Value Index Fund Primary
A Shares commenced operations on November 24, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%.
160
<PAGE>
<TABLE>
<CAPTION>
Nations Balanced Assets Fund For a Share outstanding throughout each period
Year ended Year ended
Primary A Shares 3/31/99# 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.49 $ 11.15
Net investment income 0.26 0.29
Net realized and unrealized gain/(loss) on
investments ( 0.39) 2.68
Net increase/(decrease) in net asset value from
operations ( 0.13) 2.97
Distributions:
Dividends from net investment income ( 0.23) ( 0.29)
Distributions from net realized capital gains ( 0.74) ( 2.34)
Total dividends and distributions ( 0.97) ( 2.63)
Net asset value, end of period $ 10.39 $ 11.49
Total return++ ( 1.20)% 30.35%
================================================ ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $48,373 $20,299
Ratio of operating expenses to average net
assets 1.00%(b)(c) 1.08%(b)(c)
Ratio of net investment income to average net
assets 2.43% 2.70%
Portfolio turnover rate 126% 276%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%(b) 1.08%(b)
<CAPTION>
Primary A Shares Year ended Period ended Year ended Year ended
03/31/97 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Net investment income 0.39 0.11 0.38 0.25
Net realized and unrealized gain/(loss) on
investments 1.03 0.45 2.21 ( 0.43)
Net increase/(decrease) in net asset value from
operations 1.42 0.56 2.59 ( 0.18)
Distributions:
Dividends from net investment income ( 0.38) ( 0.18) ( 0.33) ( 0.25)
Distributions from net realized capital gains ( 1.54) ( 1.41) ( 0.02) --
Total dividends and distributions ( 1.92) ( 1.59) ( 0.35) ( 0.25)
Net asset value, end of period $ 11.15 $ 11.65 $ 12.68 $ 10.44
Total return++ 12.50% 4.90% 25.27% ( 1.73)%
================================================ ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $135,731 $164,215 $163,198 $162,215
Ratio of operating expenses to average net
assets 1.00%(b) 1.00%+ 0.99% 0.98%
Ratio of net investment income to average net
assets 3.31% 2.91%+ 3.25% 2.31%
Portfolio turnover rate 264% 83% 174% 156%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%(b) 1.00%+ 0.99% 0.99%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
161
<PAGE>
<TABLE>
<CAPTION>
Nations Short-Term Income Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.77 $ 9.68
Net investment income 0.56 0.56
Net realized and unrealized gain/(loss) on investments 0.02 0.09
Net increase/(decrease) in net asset value from
operations 0.58 0.65
Distributions:
Dividends from net investment income (0.56) (0.56)
Distributions in excess of net investment income -- --
Distributions from capital -- --
Total dividends and distributions (0.56) (0.56)
Net asset value, end of period $ 9.79 $ 9.77
Total return++ 6.07% 6.89%
========================================================= ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $397,467 $331,961
Ratio of operating expenses to average net assets 0.50%(c) 0.56%(b)(c)
Ratio of net investment income to average net assets 5.70% 5.75%
Portfolio turnover rate 64% 66%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80%(c) 0.86%(c)
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97# 03/31/96(a)# 11/30/95# 11/30/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Net investment income 0.58 0.20 0.61 0.50
Net realized and unrealized gain/(loss) on investments (0.08) (0.08) 0.36 ( 0.51)
Net increase/(decrease) in net asset value from
operations 0.50 0.12 0.97 ( 0.01)
Distributions:
Dividends from net investment income (0.58) (0.20) (0.61) ( 0.48)
Distributions in excess of net investment income -- -- -- ( 0.02)
Distributions from capital -- -- -- ( 0.02)
Total dividends and distributions (0.58) (0.20) (0.61) ( 0.52)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48
Total return++ 5.25% 1.19% 10.48% ( 0.11)%
========================================================= ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $181,455 $179,957 $169,291 $176,712
Ratio of operating expenses to average net assets 0.55%(b) 0.55%+ 0.56% 0.50%
Ratio of net investment income to average net assets 5.97% 6.07%+ 6.32% 5.23%
Portfolio turnover rate 172% 73% 224% 293%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85% 0.88%+ 0.86% 0.82%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(b) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
<TABLE>
<CAPTION>
Nations Short-Intermediate
Government Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.12 $ 3.99
Net investment income 0.22 0.23
Net realized and unrealized gain/(loss) on investments (0.02) 0.13
Net increase/(decrease) in net asset value from
operations 0.20 0.36
Distributions:
Dividends from net investment income (0.22) (0.23)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.22) (0.23)
Net asset value, end of period $ 4.10 $ 4.12
Total return++ 4.97% 9.11%
========================================================= ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $589,092 $663,833
Ratio of operating expenses to average net assets 0.58%(d) 0.61%
Ratio of net investment income to average net assets 5.36% 5.53%
Portfolio turnover rate 242% 538%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.78%(d) 0.81%
<CAPTION>
Year Period Year
Primary A Shares ended ended ended
03/31/97# 03/31/96(b)# 11/30/95#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.07 $ 4.14 $ 3.93
Net investment income 0.23 0.07 0.24
Net realized and unrealized gain/(loss) on investments (0.08) (0.07) 0.21
Net increase/(decrease) in net asset value from
operations 0.15 0.00 0.45
Distributions:
Dividends from net investment income (0.23) (0.07)(a) (0.24)(a)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.23) (0.07) (0.24)
Net asset value, end of period $ 3.99 $ 4.07 $ 4.14
Total return++ 3.72% 0.07% 11.70%
========================================================= ======= ========= =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $371,118 $399,915 $425,200
Ratio of operating expenses to average net assets 0.63%(c)(d) 0.63%+ 0.60%
Ratio of net investment income to average net assets 5.73% 5.32%+ 5.88%
Portfolio turnover rate 529% 189% 328%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.83%(d) 0.86%+ 0.80%
<CAPTION>
Year
ended
Primary A Shares 11/30/94
<S> <C>
Operating performance:
Net asset value, beginning of period $ 4.28
Net investment income 0.23
Net realized and unrealized gain/(loss) on investments (0.33)
Net increase/(decrease) in net asset value from
operations (0.10)
Distributions:
Dividends from net investment income (0.23)(a)
Distributions from net realized capital gains (0.02)
Total dividends and distributions (0.25)
Net asset value, end of period $ 3.93
Total return++ (2.23)%
========================================================= =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $433,278
Ratio of operating expenses to average net assets 0.59%
Ratio of net investment income to average net assets 5.76%
Portfolio turnover rate 133%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Includes distribution in excess of less than
$0.01 per share.
(b) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(d) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
162
<PAGE>
<TABLE>
<CAPTION>
Nations Strategic Fixed Income
Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.62
Net investment income 0.59 0.58
Net realized and unrealized gain/(loss) on investments ( 0.04) 0.41
Net increase/(decrease) in net asset value from
operations 0.55 0.99
Distributions:
Dividends from net investment income ( 0.59) ( 0.58)
Distributions in excess of net investment income -- --
Distributions from net realized capital gains ( 0.06) --
Distributions from capital -- --
Total dividends and distributions ( 0.65) ( 0.58)
Net asset value, end of period $ 9.93 $ 10.03
Total return++ 5.61% 10.53%
========================================================= ======== =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,798,155 $1,681,990
Ratio of operating expenses to average net assets 0.68%(c) 0.72%(c)(d)
Ratio of net investment income to average net assets 5.86% 5.86%
Portfolio turnover rate 107% 244%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.78%(c) 0.83%(d)
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97# 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Net investment income 0.58 0.19 0.59 0.53
Net realized and unrealized gain/(loss) on investments (0.20) ( 0.29) 0.90 ( 0.89)
Net increase/(decrease) in net asset value from
operations 0.38 ( 0.10) 1.49 ( 0.36)
Distributions:
Dividends from net investment income (0.58) ( 0.19) ( 0.59) ( 0.51)
Distributions in excess of net investment income -- -- -- ( 0.02)
Distributions from net realized capital gains (0.11) -- -- ( 0.34)
Distributions from capital (0.00)(b) -- -- --
Total dividends and distributions (0.69) ( 0.19) ( 0.59) ( 0.87)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32
Total return++ 3.90% ( 1.04)% 16.45% ( 3.58)%
========================================================= ========= ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $947,277 $823,890 $823,098 $550,697
Ratio of operating expenses to average net assets 0.71%(c) 0.72%+ 0.71% 0.68%
Ratio of net investment income to average net assets 5.98% 5.49%+ 6.05% 5.43%
Portfolio turnover rate 368% 1.33% 228% 307%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.81%(d) 0.83%+ 0.81% 0.76%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year was November 30.
(b) Amount represents less than $0.01.
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating
expense ratio was less than 0.01%.
<TABLE>
<CAPTION>
Nations Government Securities
Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99# 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.90 $ 9.39
Net investment income 0.58 0.55
Net realized and unrealized gain/(loss) on investments (0.05) 0.51
Net increase/(decrease) in net asset value from
operations 0.53 1.06
Distributions:
Dividends from net investment income (0.57) (0.55)
Distributions in excess of net investment income -- --
Distributions in excess of net realized capital gains -- --
Distributions from capital -- --
Total dividends and distributions (0.57) (0.55)
Net asset value, end of period $ 9.86 $ 9.90
Total return++ 5.41% 11.65%
========================================================= ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $119,659 $75,796
Ratio of operating expenses to average net assets 0.73%(d) 0.85%(c)(d)
Ratio of net investment income to average net assets 5.70% 5.63%
Portfolio turnover rate 600% 303%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.84%(d) 0.99%(d)
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97# 03/31/96(a)# 05/31/95# 05/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Net investment income 0.60 0.52 0.64 0.64
Net realized and unrealized gain/(loss) on investments (0.30) (0.19) 0.06 ( 0.61)
Net increase/(decrease) in net asset value from
operations 0.30 0.33 0.70 0.03
Distributions:
Dividends from net investment income (0.58) (0.50) (0.60) ( 0.58)
Distributions in excess of net investment income -- (0.02) -- ( 0.02)
Distributions in excess of net realized capital gains -- -- -- ( 0.05)
Distributions from capital (0.00)(b) -- (0.04) ( 0.04)
Total dividends and distributions (0.58) (0.52) (0.64) ( 0.69)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 3.18% 3.41% 7.55% 0.06%
========================================================= ======== ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $52,606 $55,962 $39,909 $44,536
Ratio of operating expenses to average net assets 0,80% 0.80%+ 0.76% 0.73%
Ratio of net investment income to average net assets 6.28% 6.36%+ 6.69% 6.08%
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.94% 0.95%+ 0.94% 0.94%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(d) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
163
<PAGE>
<TABLE>
<CAPTION>
Nations U.S. Government Bond
Fund For a Share outstanding throughout each period
Year ended
Primary A Shares 3/31/99#
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.37
Net investment income 0.52
Net realized and unrealized gain/(loss) on
investments 0.07
Net increase in net asset value from operations 0.59
Distributions:
Dividends from net investment income ( 0.52)
Distributions from net realized capital gains ( 0.36)
Total dividends and distributions ( 0.88)
Net asset value at the end of the period $ 10.08
Total return++ 5.83%
====================================================== =======
Ratios to average net assets/supplemental data:
Net assets at end of period (in 000's) $109,028
Ratio of operating expenses to average net assets 0.59%(a)(c)
Ratio of net investment income to average net assets 5.06%
Portfolio turnover rate 270%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursement 0.87%(a)
<CAPTION>
Primary A Shares Period ended Period ended Period ended Period ended
03/31/98* 5/16/97 08/31/96 08/31/95(b)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.19 $ 10.53 $ 11.20 $ 10.00
Net investment income 0.48 0.41 0.61 0.56
Net realized and unrealized gain/(loss) on
investments 0.31 0.17 ( 0.22) 1.20
Net increase in net asset value from operations 0.79 0.58 0.39 1.76
Distributions:
Dividends from net investment income ( 0.48) ( 0.41) ( 0.61) ( 0.56)
Distributions from net realized capital gains ( 0.13) ( 0.51) ( 0.45) --
Total dividends and distributions ( 0.61) ( 0.92) ( 1.06) ( 0.56)
Net asset value at the end of the period $ 10.37 $ 10.19 $ 10.53 $ 11.20
Total return++ 7.84% 5.62% 3.46% 18.03%
====================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets at end of period (in 000's) $263,428 $148,082 $145,066 $137,261
Ratio of operating expenses to average net assets 0.60%(a)+ 0.62%+ 0.65% 0.62%+
Ratio of net investment income to average net assets 5.26%+ 5.60%+ 5.61% 6.45%+
Portfolio turnover rate 188% 58% 87% 132%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursement 0.86%(a)+ 0.77%+ 0.82% 0.87%+
</TABLE>
* The financial information for the fiscal periods
prior to May 23, 1997 reflects the financial
information for the Pilot U.S. Government Securities
Fund's Pilot Shares, which were reorganized into the
Primary A Shares of Nations U.S. Government Bond
Fund as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) Primary A Shares commenced operations on
November 7, 1994.
(c) The effect of interest expense on the operating
expense ratio was less than 0.01%
<TABLE>
<CAPTION>
Nations Diversified Income Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99# 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.55 $ 10.11
Net investment income 0.66 0.65
Net realized and unrealized gain/(loss) on
investments ( 0.14) 0.44
Net increase/(decrease) in net asset value from
operations 0.52 1.09
Distributions:
Dividends from net investment income ( 0.66) ( 0.65)
Distributions from net realized capital gains ( 0.10) --
Total dividends and distributions ( 0.76) ( 0.65)
Net asset value, end of period $ 10.31 $ 10.55
Total return++ 5.00% 11.07%
====================================================== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $317,937 $263,840
Ratio of operating expenses to average net assets 0.70%(c) 0.73%(c)
Ratio of net investment income to average net assets 6.27% 6.27%
Portfolio turnover rate 94% 203%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80%(c) 0.83%(c)
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97# 03/31/96(b) 11/30/95 11/30/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Net investment income 0.69 0.23 0.73 0.74
Net realized and unrealized gain/(loss) on
investments ( 0.18) ( 0.40) 1.15 ( 1.06)
Net increase/(decrease) in net asset value from
operations 0.51 ( 0.17) 1.88 ( 0.32)
Distributions:
Dividends from net investment income ( 0.69) ( 0.23) ( 0.73) ( 0.74)(a)
Distributions from net realized capital gains ( 0.13) -- -- ( 0.15)
Total dividends and distributions ( 0.82) ( 0.23) ( 0.73) ( 0.89)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67
Total return++ 4.97% ( 1.59)% 20.11% ( 3.05)%
====================================================== ======== ======= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $152,070 $65,081 $64,800 $22,298
Ratio of operating expenses to average net assets 0.75%(c) 0.77%+ 0.80% 0.74%
Ratio of net investment income to average net assets 6.73% 6.49%+ 7.03% 7.31%
Portfolio turnover rate 278% 69% 96% 144%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85%(c) 0.87%+ 0.93% 0.95%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Includes distribution in excess of less than
$0.01 per share.
(b) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(c) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
164
<PAGE>
<TABLE>
<CAPTION>
Nations Short-Term Municipal
Income Fund For a Share outstanding throughout each period
Year Year Year
Primary A Shares ended ended ended
3/31/99(c) 03/31/98 03/31/97
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.05 $ 9.95 $ 9.98
Net investment income 0.41 0.42 0.44
Net realized and unrealized gain/(loss) on
investments 0.05 0.10 (0.03)
Net increase/(decrease) in net asset value from
operations 0.46 0.52 0.41
Distributions:
Dividends from net investment income ( 0.41) ( 0.42) (0.44)
Distributions from net realized capital gains -- -- --
Total dividends and distributions ( 0.41) ( 0.42) (0.44)
Net asset value, end of period $ 10.10 $ 10.05 $ 9.95
Total return++ 4.71% 5.33% 4.15%
====================================================== ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $79,002 $70,740 $61,072
Ratio of operating expenses to average net assets 0.40%(a) 0.40%(a) 0.40%(a)
Ratio of net investment income to average net assets 4.11% 4.17% 4.36%
Portfolio turnover rate 53% 94% 80%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80% 0.77% 0.84%
<CAPTION>
Period Year Year
Primary A Shares ended ended ended
03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.15 0.44 0.38
Net realized and unrealized gain/(loss) on
investments ( 0.05) 0.34 (0.27)
Net increase/(decrease) in net asset value from
operations 0.10 0.78 0.11
Distributions:
Dividends from net investment income ( 0.15) ( 0.44) (0.38)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions ( 0.15) ( 0.44) (0.38)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.96% 8.16% 1.09%
====================================================== ======= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $48,511 $49,961 $33,488
Ratio of operating expenses to average net assets 0.40%+(a) 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.37%+ 4.38% 3.83%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.86%+ 0.93% 0.80%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Amount includes distributions in excess of net
investment income, which were less than $0.01 per
share.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
(c) Per share net investment income has been
calculated using the monthly average share method.
<TABLE>
<CAPTION>
Nations Intermediate Municipal
Bond Fund For a Share outstanding throughout each period
Year Year Year
ended ended ended
Primary A Shares 3/31/99 03/31/98 03/31/97
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.30 $ 10.01 $ 10.03
Net investment income 0.47 0.48 0.48
Net realized and unrealized gain/(loss) on
investments 0.07 0.33 ( 0.02)
Net increase/(decrease) in net asset value from
operations 0.54 0.81 0.46
Distributions:
Dividends from net investment income ( 0.47) ( 0.48) ( 0.48)
Distributions from net realized capital gains ( 0.07) ( 0.04) --
Total dividends and distributions ( 0.54) ( 0.52) ( 0.48)
Net asset value, end of period $ 10.30 $ 10.30 $ 10.01
Total return++ 5.33% 8.20% 4.63%
==================================================== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $918,367 $867,154 $108,204
Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a)
Ratio of net investment income to average net
assets 4.55% 4.65% 4.74%
Portfolio turnover rate 40% 47% 21%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.68% 0.74% 0.81%
<CAPTION>
Period Year Year
Primary A Shares ended ended ended
03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11
Net investment income 0.16 0.48 0.45
Net realized and unrealized gain/(loss) on
investments ( 0.14) 0.93 ( 0.86)
Net increase/(decrease) in net asset value from
operations 0.02 1.41 ( 0.41)
Distributions:
Dividends from net investment income ( 0.16) ( 0.48) ( 0.45)#
Distributions from net realized capital gains -- -- ( 0.01)
Total dividends and distributions ( 0.16) ( 0.48) ( 0.46)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.20% 15.60% ( 4.25)%
==================================================== ======= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $77,423 $73,897 $38,055
Ratio of operating expenses to average net assets 0.50%+(a) 0.45%(a) 0.35%(a)
Ratio of net investment income to average net
assets 4.75%+ 4.91% 4.59%
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.83%+ 0.84% 0.88%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Amount includes distributions in excess of net
investment income, which were less than $0.01 per
share.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
165
<PAGE>
<TABLE>
<CAPTION>
Nations Municipal Income Fund For a Share outstanding throughout each period
Year Year
ended ended
Primary A Shares 3/31/99 03/31/98
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.46 $ 10.89
Net investment income 0.54 0.57
Net realized and unrealized gain/(loss) on investments 0.07 0.62
Net increase/(decrease) in net asset value from
operations 0.61 1.19
Distributions:
Dividends from net investment income ( 0.54) ( 0.57)
Distributions from net realized capital gains ( 0.05) ( 0.05)
Total dividends and distributions ( 0.59) ( 0.62)
Net asset value, end of period $ 11.48 $ 11.46
Total return++ 5.42% 11.12%
========================================================= ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $635,629 $456,485
Ratio of operating expenses to average net assets 0.60% 0.60%
Ratio of operating expenses to average net asset
including interest expenses -- (a)
Ratio of net investment income to average net assets 4.71% 4.97%
Portfolio turnover rate 11% 38%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.80% 0.84%
<CAPTION>
Year Period Year Year
Primary A Shares ended ended ended ended
03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Net investment income 0.59 0.20 0.59 0.57
Net realized and unrealized gain/(loss) on investments 0.05 ( 0.24) 1.44 ( 1.44)
Net increase/(decrease) in net asset value from
operations 0.64 ( 0.04) 2.03 ( 0.87)
Distributions:
Dividends from net investment income ( 0.59) ( 0.20) ( 0.59) ( 0.57)#
Distributions from net realized capital gains -- -- -- ( 0.25)
Total dividends and distributions ( 0.59) ( 0.20) ( 0.59) ( 0.82)
Net asset value, end of period $ 10.89 $ 10.84 $ 11.08 $ 9.64
Total return++ 6.03% ( 0.41)% 21.55% ( 8.17)%
========================================================= ======= ======= ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $77,260 $68,022 $68,836 $59,279
Ratio of operating expenses to average net assets 0.60% 0.60%+ 0.60% 0.61%
Ratio of operating expenses to average net asset
including interest expenses (a) (a) (a) 0.62%
Ratio of net investment income to average net assets 5.41% 5.35%+ 5.63% 5.42%
Portfolio turnover rate 25% 4% 49% 63%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.91% 0.91%+ 0.88% 0.90%
</TABLE>
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Amount includes distributions in excess of net
investment income, which was less than $0.01 per
share.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%
(b) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was November 30.
166
<PAGE>
[GRAPHIC] Terms used in this prospectus
Asset-backed security - a debt security that gives you an interest in a pool
of assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.
Average dollar-weighted maturity - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.
Bank obligation - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.
Capital gain or loss - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
Cash equivalents - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's
Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).
Collateralized mortgage obligation (CMO) - a debt security that is backed by
real estate mortgages. CMO payment obligations are covered by interest and/or
principal payments from a pool of mortgages. In addition, the underlying
assets of a CMO are typically separated into classes, called tranches, based
on maturity. Each tranche pays a different rate of interest. CMOs are not
generally issued by the U.S. government, its agencies or instrumentalities.
Commercial paper - a money market instrument issued by a large company.
Common stock - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
Convertible debt - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
Convertible security - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.
167
<PAGE>
Corporate obligation - a money market instrument issued by a corporation or
commercial bank.
Crossing networks - an electronic system where anonymous parties can match buy
and sell transactions. These transactions don't affect the market, and
transaction costs are extremely low.
Debt security - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
Depositary receipts - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates
traded in U.S. markets representing an interest of a foreign company. They
were created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.
Dividend yield - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
Dollar roll transaction - the sale by a Fund of mortgage-backed or other
asset-backed securities, together with a commitment to buy similar, but not
identical, securities at a future date.
Duration - a security's or portfolio's sensitivity to changes in interest
rates. For example, if interest rates rise by one percentage point, the share
price of a fund with a duration of five years would decline by about 5%. If
interest rates fall by one percentage point, the fund's share price would rise
by about 5%.
Equity security - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.
First Boston Convertible Index - a widely-used unmanaged index that measures
the performance of convertible securities. The index is not available for
investment.
First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest
short-term rating from a nationally recognized statistical rating organization
(NRSRO), or if unrated, is determined by the fund's portfolio management team
to be of comparable quality, or is a money market fund issued by a registered
investment company, or is a government security.
168
<PAGE>
Fixed income security - an intermediate to long-term debt security that
matures in more than one year.
Foreign security - a debt or equity security issued by a foreign company or
government.
Fundamental analysis - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
Futures contract - a contract to buy or sell an asset or an index of
securities at a specified price on a specified future date. The price is set
through a futures exchange.
Guaranteed investment contract - an investment instrument issued by a rated
insurance company in return for a payment by an investor.
High quality - in the case of municipal securities, a long-term rating of A or
higher from Duff & Phelps Credit Rating Co. (D&P), Fitch, S&P, Thomson
BankWatch, Inc. (BankWatch), or Moody's in the case of certain bonds that are
lacking a short-term rating from the required number of NRSROs; rated D-1 or
higher by D&P, F-1 or higher by Fitch, SP-1 by S&P, or MIG-1 by Moody's in the
case of notes; rated D-1 or higher by D&P, F-1 or higher by Fitch, or VMIG-1
by Moody's in the case of variable rate demand notes; or rated D-1 or higher
by D&P, F-1 or higher by Fitch, A-1 or higher by S&P or Prime-1 by Moody's in
the case of tax-exempt commercial paper. The portfolio management team may
consider an unrated municipal security to be investment grade if the team
believes it to be of comparable quality, based on guidelines provided by the
Fund's Board of Directors. Please see the SAI for more information about
credit ratings.
IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks
in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the
Middle East. The index is weighted by market capitalization.
Investment grade - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other NRSROs) based on the issuer's ability to pay interest and repay
principal on time. The portfolio management team may consider an unrated debt
security to be investment grade if the team believes it is of comparable
quality. Please see the SAI for more information about credit ratings.
Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of
investment grade bonds with maturities of two to four years. All dividends are
reinvested.
Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of
investment grade bonds with maturities of seven to eight years. All dividends
are reinvested.
169
<PAGE>
Lehman Aggregate Bond Index - an index made up of the Lehman
Government/Corporate Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index. These indexes include U.S. government agency
and U.S. Treasury securities, corporate bonds and mortgage-backed securities.
All dividends are reinvested.
Lehman Government Bond Index - an index of government bonds with an average
maturity of approximately nine years. All dividends are reinvested.
Lehman Government/Corporate Bond Index - an index of U.S. government, U.S.
Treasury and agency securities, and corporate and Yankee bonds. All dividends
are reinvested.
Lehman Intermediate Government Bond Index - an index of U.S. government agency
and U.S. Treasury securities. All dividends are reinvested.
Lehman Intermediate Treasury Index - an index of U.S. Treasury securities with
maturities of three to 10 years. All dividends are reinvested.
Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000
investment grade bonds with long-term maturities. All dividends are
reinvested.
Liquidity - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
Merrill Lynch 1-3 Year Treasury Index - an index of U.S. Treasury bonds with
maturities of 1 to 3 years. All dividends are reinvested.
Money market instrument - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
Mortgage-backed security or Mortgage-related security - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.
MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
170
<PAGE>
Municipal security (obligation) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income from these
securities is exempt from federal income taxes and is generally exempt from
state taxes if you live in the state that issued the security. If you live in
the municipality that issued the security, interest income may also be exempt
from local taxes.
Non-diversified - a fund that holds securities of fewer issuers or kinds of
issuers than other kinds of funds. Non-diversified funds tend to have greater
price swings than more diversified funds because events affecting one or more
of its securities may have a disproportionately large effect on the fund.
Over-the-counter market - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
Participation - a pass-through certificate representing a share in a pool of
debt obligations or other instruments.
Pass-through certificate - securitized mortgages or other debt securities with
interest and principal paid by a servicing intermediary shortly after interest
payments are received from borrowers.
Preferred stock - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the
company's remaining assets before common shareholders and after bondholders
and other creditors.
Pre-refunded bond - a bond that is repaid before its maturity date. The
repayment is generally financed by a new issue. Issuers generally pre-refund
bonds during periods of lower interest rates to reduce their interest costs.
Price-to-earnings ratio (P/E ratio) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of
the value of a company.
Private activity bond - a municipal security that is used to finance private
projects or other projects that aren't qualified for tax purposes. Private
activity bonds are generally taxable, unless their use is specifically
exempted, or may be treated as tax preference items.
Quantitative analysis - an analysis of financial information about a company
or security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
171
<PAGE>
Real Estate Investment Trust (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans or interests.
Repurchase agreement - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.
Reverse repurchase agreement - a repurchase agreement in which an investor
sells a security to another party, like a bank or dealer, in return for cash,
and agrees to buy the security back at a specified date and price.
Right - a temporary privilege allowing investors who already own a common
stock to buy additional shares directly from the company at a specified price
or formula.
Russell 2000 - an unmanaged index of 2,000 of the smallest stocks representing
approximately 11% of the U.S. equity market. The index is weighted by market
capitalization, and is not available for investment.
S&P 5001 - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.
S&P MidCap 4001 - an unmanaged index of 400 domestic stocks chosen for market
size, liquidity and industry representation. The index is weighted by market
value, and is not available for investment.
S&P SmallCap 6001 - Standard & Poor's SmallCap 600 Index, an unmanaged index
of 600 common stocks, weighted by market capitalization. It is not available
for investment.
S&P/BARRA SmallCap Value Index1 - an unmanaged index of a group of stocks from
the S&P SmallCap 600 that have low price-to-book ratios relative to the S&P
SmallCap 600 as a whole. It is weighted by market capitalization, and is not
available for investment.
S&P/BARRA Value Index1 - an unmanaged index of a group of stocks from the S&P
500 that have low price-to-book ratios relative to the S&P 500 as a whole. It
is weighted by market capitalization, and is not available for investment.
Salomon Brothers Mortgage Index - an index of 30-year and 15-year GNMA, FNMA
and FHLMC securities, and FNMA and FHLMC balloon mortgages.
Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security
that is an eligible investment for money market funds, but is not a first-tier
security.
172
<PAGE>
Senior security - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
Special purpose issuer - an entity organized solely to issue asset-backed
securities on a pool of assets it owns.
Trade date - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. government obligations - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
U.S. Treasury obligation - a debt security issued by the U.S. Treasury.
Warrant - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
Wilshire 5000 Equity Index - an index that measures the performance of the
equity securities of all companies headquartered in the U.S. that have readily
available price data -- over 7, 000 companies. The index is weighted by market
capitalization and is not available for investment.
Zero-coupon bond - a bond that makes no periodic interest payments. Zero
coupon bonds are sold at a deep discount to their face value and mature at
face value. The difference between the face value at maturity and the purchase
price represents the return.
(1)S&P and BARRA have not reviewed any stock included in the S&P 500, S&P 600,
BARRA Index or BARRA SmallCap Index for its investment merit. S&P and BARRA
determine and calculate their indexes independently of the Funds and are not
a sponsor or affiliate of the Funds. S&P and BARRA give no information and
make no statements about the suitability of investing in the Funds or the
ability of their indexes to track stock market performance. S&P and BARRA
make no guarantees about the indexes, any data included in them and the
suitability of the indexes or their data for any purpose. "Standard and
Poor's," "S&P 500" and "S&P 600" are trademarks of the McGraw-Hill
Companies, Inc.
173
<PAGE>
[GRAPHIC] Where to find more information
You'll find more information about the Equity, International, Index, Balanced,
Fixed Income and Municipal Bond Funds in the following documents:
[GRAPHIC] Annual and semi-annual reports
The annual and semi-annual reports contain information about Fund
investments and performance, the financial statements and the auditor's
reports. The annual report also includes a discussion about the market
conditions and investment strategies that had a significant effect on
each Fund's performance during the period covered.
[GRAPHIC] Statement of Additional Information
The SAI contains additional information about the Funds and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other
information about the Funds and make shareholder inquiries by
contacting Nations Funds:
By telephone: 1.800.765.2668
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nationsbank.com/nationsfunds
If you prefer, you can write the SEC's Public Reference Room and ask
them to mail you copies of these documents. They'll charge you a fee
for this service. You can also download them from the SEC's website or
visit the Public Reference Section and copy the documents while you're
there. Please call the SEC for more information.
Public Reference Section of the SEC
Washington, DC 20549-6009
1.800.SEC.0330
www.sec.gov
SEC file numbers:
Nations Fund Trust, 811-04305
Nations Fund, Inc., 811-04614
Nations Reserves, 811-6030
NF-COMPROPA-8/99
<PAGE>
NATIONS FUND TRUST
NATIONS FUND, INC.
NATION FUND PORTFOLIOS, INC.
NATIONS EMERGING MARKETS FUND
NATIONS INTERNATIONAL VALUE FUND
NATIONS INTERNATIONAL EQUITY FUND
NATIONS MARSICO FOCUSED EQUITIES FUND
NATIONS MARSICO GROWTH & INCOME FUND
(THE "NAMED FUNDS")
NATIONS RESERVES
Supplement -- August 1, 1999
In March 1999, the Boards of Directors/Trustees of Nations Fund Trust,
Nations Fund, Inc., Nations Fund Portfolios, Inc., and Nations Reserves approved
the reorganization of the Named Funds into substantially identical shell funds
of Nations Reserves. If the reorganizations are approved by shareholders, they
are expected to occur on or about August 20, 1999 (the "Closing Date"). On the
Closing Date, the attached "prospectus," which is currently the prospectus for
the Named Funds (as portfolios in Nations Fund Trust, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.), will become the prospectus for the Named Funds
(as portfolios in Nations Reserves).
The attached prospectus for the Named Funds is modified as follows, until
the Closing Date, when this supplement automatically expires:
1. by deleting the phrase "August 20, 1999 for marked (*) Funds" from the
front cover.
2. by deleting "SEC File Number: Nations Institutional Reserves,
811-6030," as it relates to the Named Funds, from the back cover, and
inserting in its place the following: For Nations Emerging Markets Fund
- "SEC File Number: Nations Fund Portfolios, Inc., 811-08982;" For
Nations International Value Fund and Nations International Equity Fund
- "SEC File Number: Nations Fund, Inc., 811-04614;" and For Nations
Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
- "SEC File Number: Nations Fund Trust, 811-04305."
3. Nations Emerging Markets Fund and Nations International Value Fund will
not have the flexibility to adopt a master-feeder structure before
August 20, 1999. Until that date, all disclosure regarding this
flexibility should be disregarded.
4. Nations International Equity Fund, Nations Marsico Focused Equities
Fund and Nations Marsico Growth & Income Fund will not adopt a
master-feeder structure before August 20, 1999. On that date, these
Funds are expected to begin investing in the corresponding master
portfolios of Nations Master Investment Trust as discussed in the
prospectuses. Until that date, Nations International Equity Fund,
Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund will continue to invest directly in securities, and all
disclosure regarding the adoption by these Funds of a master-feeder
structure should be disregarded.
<PAGE>
INTERNATIONAL FUNDS
PROSPECTUS -- INVESTOR A, B AND C SHARES
AUGUST 1, 1999
AUGUST 20, 1999 FOR
MARKED (*) FUNDS
International Funds
NATIONS INTERNATIONAL VALUE FUND*
NATIONS INTERNATIONAL EQUITY FUND*
NATIONS INTERNATIONAL GROWTH FUND
NATIONS EMERGING MARKETS FUND*
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED
- -----------------
MAY LOSE VALUE
- -----------------
NO BANK GUARANTEE
- -----------------
NATIONS FUNDS
<PAGE>
AN OVERVIEW OF THE FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC] TERMS USED IN THIS PROSPECTUS
IN THIS PROSPECTUS, WE, US AND OUR REFER TO THE NATIONS FUNDS
FAMILY (NATIONS FUNDS). SOME OTHER IMPORTANT TERMS WE'VE USED MAY
BE NEW TO YOU. THESE ARE PRINTED IN ITALICS WHERE THEY FIRST
APPEAR IN A SECTION AND ARE DESCRIBED IN TERMS USED IN THIS
PROSPECTUS.
[GRAPHIC] YOU'LL FIND TERMS USED IN
THIS PROSPECTUS ON PAGE 59.
YOUR INVESTMENT IN THESE FUNDS IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY BANK OF AMERICA, N. A. (BANK OF AMERICA),
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER
GOVERNMENT AGENCY. YOUR INVESTMENT MAY LOSE MONEY.
AFFILIATES OF BANK OF AMERICA ARE PAID FOR THE SERVICES THEY
PROVIDE TO THE FUNDS.
This booklet, which is called a prospectus, tells you about Nations Funds
International Funds. Please read it carefully, because it contains information
that's designed to help you make informed investment decisions.
ABOUT THE FUNDS
The International Funds focus on long-term growth by investing primarily in
EQUITY SECURITIES of companies outside the United States.
FOREIGN SECURITIES have the potential to provide you with higher returns than
many other kinds of investments, but they involve special risks not associated
with investing in the U.S. stock market, which you need to be aware of before
you invest. There's always the risk that you'll lose money or you may not earn
as much as you expect.
ARE THESE FUNDS RIGHT FOR YOU?
Not every Fund is right for every investor. When you're choosing a Fund to
invest in, you should consider things like your investment goals, how much
risk you can accept and how long you're planning to hold your investment.
The International Funds may be suitable for you if:
o you have longer-term investment goals
o they're part of a balanced portfolio
o you want to try to protect your portfolio against a loss of buying power
that inflation can cause over time
They may not be suitable for you if:
o you're not prepared to accept or are unable to bear the risks associated
with foreign securities
o you have short-term investment goals
o you're looking for a regular stream of income
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page 4.
FOR MORE INFORMATION
If you have any questions about the Funds, please call us at 1.800.321.7854 or
contact your investment professional.
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes more detailed information about each
Fund's investments, policies, performance and management, among other things.
Please turn to the back cover to find out how you can get a copy.
2
<PAGE>
WHAT'S INSIDE
- --------------------------------------------------------------------------------
[GRAPHIC] BANC OF AMERICA ADVISORS, INC.
BANC OF AMERICA ADVISORS, INC. (BAAI)* IS THE INVESTMENT ADVISER
TO EACH OF THE FUNDS. BAAI IS RESPONSIBLE FOR THE OVERALL
MANAGEMENT AND SUPERVISION OF THE INVESTMENT MANAGEMENT OF EACH
FUND. BAAI AND NATIONS FUNDS HAVE ENGAGED SUB-ADVISERS, WHICH ARE
RESPONSIBLE FOR THE DAY-TO-DAY INVESTMENT DECISIONS FOR EACH OF
THE FUNDS.
[GRAPHIC] BAAI AND THE SUB-ADVISERS
STARTING ON PAGE 25.
*BAAI'S NAME IS EXPECTED TO BE CHANGED FROM NATIONSBANC
ADVISORS, INC. ON OR ABOUT SEPTEMBER 1, 1999.
<TABLE>
[GRAPHIC] About the International Funds
<S> <C>
NATIONS INTERNATIONAL VALUE FUND 4
Sub-adviser: Brandes Investment Partners, L.P.
- -------------------------------------------------------------
NATIONS INTERNATIONAL EQUITY FUND 9
Sub-advisers: Gartmore Global Partners, INVESCO Global Asset
Management (N.A.), Inc., and Putnam Investment Management,
Inc.
- -------------------------------------------------------------
NATIONS INTERNATIONAL GROWTH FUND 14
Sub-adviser: Gartmore Global Partners
- -------------------------------------------------------------
NATIONS EMERGING MARKETS FUND 18
Sub-adviser: Gartmore Global Partners
- -------------------------------------------------------------
OTHER IMPORTANT INFORMATION 23
- -------------------------------------------------------------
HOW THE FUNDS ARE MANAGED 25
[GRAPHIC] About your investment
INFORMATION FOR INVESTORS
Choosing a share class 31
Buying, selling and exchanging shares 40
How selling and servicing agents are paid 48
Distributions and taxes 50
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS 52
- -------------------------------------------------------------
TERMS USED IN THIS PROSPECTUS 59
- -------------------------------------------------------------
WHERE TO FIND MORE INFORMATION BACK COVER
</TABLE>
3
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC] ABOUT THE SUB-ADVISER
BRANDES INVESTMENT PARTNERS, L.P.
(BRANDES) IS THIS FUND'S SUB-ADVISER. BRANDES'S LARGE CAP
INVESTMENT COMMITTEE MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR
THE FUND.
[GRAPHIC] YOU'LL FIND MORE ABOUT
BRANDES ON PAGE 26.
[GRAPHIC] WHAT IS THE GRAHAM AND
DODD APPROACH TO INVESTING?
BENJAMIN GRAHAM IS WIDELY REGARDED AS THE FOUNDER OF THIS CLASSIC
VALUE APPROACH TO INVESTING AND A PIONEER IN MODERN SECURITY
ANALYSIS. IN HIS 1934 BOOK, SECURITY ANALYSIS, CO-WRITTEN BY DAVID
DODD, GRAHAM INTRODUCED THE IDEA THAT STOCKS SHOULD BE CHOSEN BY
IDENTIFYING THE "TRUE" LONG-TERM -- OR INTRINSIC -- VALUE OF A
COMPANY BASED ON MEASURABLE DATA.
THE TEAM FOLLOWS THIS APPROACH, LOOKING AT EACH STOCK AS THOUGH
IT'S A BUSINESS THAT'S FOR SALE. BY BUYING STOCKS AT WHAT IT
BELIEVES ARE FAVORABLE PRICES, THE FUND LOOKS FOR THE POTENTIAL
FOR APPRECIATION OVER THE BUSINESS CYCLE, AND FOR A MARGIN OF
SAFETY AGAINST PRICE DECLINES.
Nations International Value Fund
[GRAPHIC] INVESTMENT OBJECTIVE
This Fund seeks long-term capital appreciation by investing primarily in
EQUITY SECURITIES of foreign issuers, including emerging markets
countries.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in foreign
companies anywhere in the world that have a market capitalization of
more than $1 billion at the time of investment. The Fund typically
invests in at least three countries other than the United States at any
one time.
The Fund primarily invests in COMMON STOCKS, PREFERRED STOCKS and CONVERTIBLE
SECURITIES, either directly or indirectly through closed-end investment
companies and DEPOSITARY RECEIPTS.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Fund. The team invests in a company when
its current price appears to be below its true long-term -- or
intrinsic -- value.
The team uses FUNDAMENTAL ANALYSIS to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management
record, as well as its industry and its position in the industry. This
analysis includes a review of company reports, filings with the SEC, computer
databases, industry publications, general and business publications, brokerage
firm research reports and other information sources, as well as interviews
with company management.
The team may sell a security when its price reaches the target set by the
team, there is a deterioration in the company's financial situation, when the
team believes other investments are more attractive, or for other reasons.
4
<PAGE>
[GRAPHIC] LIMITS ON INVESTMENTS
TO HELP MANAGE RISK, THE
FUND HAS CERTAIN LIMITS ON ITS INVESTMENTS. THESE LIMITS
APPLY AT THE TIME AN
INVESTMENT IS MADE:
o THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE
SECURITY.
o IT MAY NOT INVEST MORE THAN THE HIGHER OF:
o 20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR
o 150% OF THE WEIGHTING OF A SINGLE COUNTRY OR INDUSTRY IN THE MSCI EAFE
INDEX (TO A MAXIMUM OF 25% OF ITS ASSETS IN A SINGLE INDUSTRY, OTHER
THAN U.S. GOVERNMENT SECURITIES).
o IT GENERALLY MAY NOT INVEST MORE THAN 20% OF ITS ASSETS IN EMERGING
MARKETS OR DEVELOPING COUNTRIES.
[GRAPHIC] YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS FUND STARTING ON
PAGE 23 AND IN THE SAI.
[GRAPHIC] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS, AND FUND
EXPENSES.
[GRAPHIC] RISKS AND OTHER THINGS TO CONSIDER
Nations International Value Fund has the following risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks it believes
are undervalued or out of favor with the expectation that these stocks
will eventually rise in value. There is a risk that the value of these
investments will not rise as high or as quickly as the manager expects,
or will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign controls
on investment, difficulties selling some securities and lack of or
limited financial information. Withholding taxes also may apply to some
foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial markets,
and the companies that issue the stocks, among other things. Stock prices
can rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and periods
of falling prices.
o CHANGING TO A FEEDER FUND - Unlike traditional mutual funds, which invest
in individual securities, a "feeder fund" invests all of its assets in
another fund, called a "master portfolio." Other feeder funds generally
also invest in a master portfolio. The master portfolio invests in
individual securities and has the same investment objective, investment
strategies and principal risks as the feeder funds. This structure can
help reduce a feeder fund's expenses because its assets are combined with
those of other feeder funds. If a master portfolio doesn't attract other
feeder funds, however, a feeder fund's expenses could be higher than
those of a traditional mutual fund.
This Fund may become a feeder fund if the Board of Trustees decides this
would be in the best interests of shareholders. Management currently
intends to propose that the Fund change to a feeder fund within the next
year, but only if other feeder funds are likely to also invest in the
master portfolio. We don't require shareholder approval to make the
change, but we'll notify you if it happens.
If the Fund becomes a feeder fund, it would have the additional risks of
investing in a master portfolio. These are described on page 10.
[GRAPHIC] A LOOK AT THE FUND'S PERFORMANCE
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM
IN THE FUTURE.
5
<PAGE>
[GRAPHIC] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER INTERNATIONAL FUNDS
MANAGED BY BRANDES, SEE HOW THE FUNDS ARE MANAGED.
[GRAPHIC] THE FUND'S RETURNS IN THIS TABLE REFLECT SALES CHARGES. THE
INDEX'S RETURN DOES NOT REFLECT SALES CHARGES.
YEAR BY YEAR TOTAL RETURN FOR INVESTOR A SHARES (%) AS OF DECEMBER 31
EACH YEAR
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses, pricing and sales charges.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
- -0.54%* 15.32% 20.38% 11.82%
*Return is from inception (12-27-95) to 12-31-95
YEAR-TO-DATE RETURN AS OF JUNE 30, 1999: 22.40%
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD
<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.13%
Worst: 3rd quarter 1998: -16.57%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998*
The table shows the Fund's average annual total return for each period,
compared with the MSCI EAFE Index (Morgan Stanley Capital International
Europe, Australasia and Far East Index), an index of over 1,100 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
1 year Since inception
<S> <C> <C>
Investor A Shares 5.42% 13.27 %
MSCI EAFE Index 20.33% 9.31%*
</TABLE>
* Investor B and C Shares have been in operation for less than a full
calendar year so no performance information for the classes shares
has been included in this prospectus.
6
<PAGE>
[GRAPHIC] THERE ARE TWO KINDS OF FEES -- SALES CHARGES YOU PAY DIRECTLY, AND
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S
ASSETS.
TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER
WAIVERS AND/OR REIMBURSEMENTS.
[GRAPHIC] WHAT IT COSTS TO INVEST IN THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases, as a % of
offering price 5.75% none none
Maximum deferred sales charge (load),
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a %
of the amount sold none(4) none none
ANNUAL FUND OPERATING EXPENSES(5)
(Expenses that are deducted from the Fund's assets)
Management fees 0.90% 0.90 % 0.90 %
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00 % 1.00 %
Other expenses 0.50% 0.50 % 0.50 %
------ -------- --------
Total annual Fund operating expenses 1.65% 2.40 % 2.40 %
Fee waivers and/or reimbursements (0.10)% (0.10) % (0.10) %
------ -------- --------
Total net expenses(6) 1.55% 2.30 % 2.30 %
====== ======== ========
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen
months of buying them. Different charges may apply to purchases made
prior to August 1, 1999. Please see page 33 for details.
(2)This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 33 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 35 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 33 for details.
(5)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as necessary, to reflect current service provider fees.
(6)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2000. The figures shown here are after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
7
<PAGE>
[GRAPHIC] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the
Fund for the time periods indicated and then sell all of your shares at
the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire in July 31, 2000
and are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $724 $1,057 $1,413 $2,413
Investor B Shares $733 $1,039 $1,471 $2,543
Investor C Shares $333 $ 739 $1,271 $2,729
</TABLE>
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $233 $739 $1,271 $2,543
Investor C Shares $233 $739 $1,271 $2,729
</TABLE>
8
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC] ABOUT THE SUB-ADVISERS
THE FUND DOES NOT HAVE ITS OWN INVESTMENT ADVISER OR SUB-ADVISER
BECAUSE IT'S A "FEEDER" FUND. A FEEDER FUND TYPICALLY INVESTS ALL
OF ITS ASSETS IN ANOTHER FUND, WHICH IS CALLED A "MASTER
PORTFOLIO." MASTER PORTFOLIO AND FUND ARE SOMETIMES USED
INTERCHANGEABLY.
BAAI IS THE MASTER PORTFOLIO'S INVESTMENT ADVISER. THE MASTER
PORTFOLIO IS A "MULTI-MANAGER" FUND, WHICH MEANS THAT IT'S MANAGED
BY MORE THAN ONE SUB-ADVISER. GARTMORE GLOBAL PARTNERS (GARTMORE),
INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. (INVESCO) AND PUTNAM
INVESTMENT MANAGEMENT INC. (PUTNAM) EACH MANAGE APPROXIMATELY
ONE-THIRD OF THE ASSETS OF THE MASTER PORTFOLIO. SIX PORTFOLIO
MANAGERS FROM GARTMORE, INVESCO'S INTERNATIONAL EQUITY PORTFOLIO
MANAGEMENT TEAM AND PUTNAM'S CORE INTERNATIONAL EQUITY GROUP MAKE
THE DAY-TO-DAY INVESTMENT DECISIONS FOR THEIR PORTION OF THE
MASTER PORTFOLIO.
[GRAPHIC] YOU'LL FIND MORE ABOUT
GARTMORE, INVESCO AND
PUTNAM STARTING ON
PAGE 27.
[GRAPHIC] WHY INVEST IN AN INTERNATIONAL
EQUITY FUND?
INTERNATIONAL EQUITY FUNDS INVEST IN A DIVERSIFIED PORTFOLIO OF
COMPANIES LOCATED IN MARKETS THROUGHOUT THE WORLD. THESE COMPANIES
CAN OFFER INVESTMENT OPPORTUNITIES THAT ARE NOT AVAILABLE IN THE
UNITED STATES. INVESTING INTERNATIONALLY ALSO INVOLVES SPECIAL
RISKS NOT ASSOCIATED WITH INVESTING IN THE U.S. STOCK MARKET.
Nations International Equity Fund
[GRAPHIC] INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in
EQUITY SECURITIES of non-United States companies in Europe, Australia,
the Far East and other regions, including developing countries.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations International Equity
Master Portfolio (the Master Portfolio). The Master Portfolio has the
same investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in
established companies located in at least three countries other than the
United States. The investment managers select countries, including emerging
market or developing countries, and companies they believe have the potential
for growth.
The Master Portfolio primarily invests in equity securities which may include
equity interests in foreign investment funds or trusts, CONVERTIBLE
SECURITIES, REAL ESTATE INVESTMENT TRUST securities and DEPOSITARY RECEIPTS.
The Master Portfolio may also invest in securities that aren't part of its
principal investment strategies, but it won't hold more than 10% of its assets
in any one type of securities. These securities are described in the SAI.
The Master Portfolio may 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.
The Master Portfolio is a "multi-manager" fund. It has three different
investment managers. Each is responsible for managing approximately one-third
of the Master Portfolio's assets. The managers all have different, but
complementary, investment styles:
o Gartmore combines "top down," allocation among regions around the world with
a stock selection process that focuses on investing in securities when
growth is likely to be higher, or sustained longer, than other investors
expect.
o INVESCO uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for sustainable growth.
o Putnam is a "core manager," focusing on stable, long-term investments,
rather than growth or value stocks. It combines "bottom up" stock selection
with "top down" country allocation.
The multi-manager strategy is based on the belief that having more than one
manager may result in better performance and more stable returns over time.
A manager may sell a security when its price reaches the target set by the
manager, when the company's growth prospects are deteriorating, when the
manager believes other investments are more attractive, or for other reasons.
9
<PAGE>
[GRAPHIC] YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS FUND STARTING ON
PAGE 23 AND IN THE SAI.
[GRAPHIC] RISKS AND OTHER THINGS TO CONSIDER
Nations International Equity Fund has the following risks:
o INVESTMENT STRATEGY RISK - The managers choose stocks they believe have
the potential for long-term growth. There is a risk that the value of
these investments will not rise as high as expected, or will fall. There
is also a risk that the Fund's multi-manager strategy may not result in
better performance or more stable returns.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign controls
on investment, difficulties selling some securities and lack of or
limited financial information. Withholding taxes also may apply to some
foreign investments.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds
can be affected by changes in U.S. or foreign economies and financial
markets, and the companies that issue the stocks, among other things.
Stock prices can rise or fall over short as well as long periods. In
general, stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
o FUTURES RISK - This Master Portfolio may use FUTURES CONTRACTS to convert
currencies and to hedge against changes in foreign currency exchange
rates. There is a risk that this could result in losses, reduce returns,
increase transaction costs or increase the Fund's volatility.
o INVESTING IN THE MASTER PORTFOLIO - The Fund began investing in the
Master Portfolio in August 1999. Other mutual funds and eligible
investors can buy shares in the Master Portfolio. All investors in the
Master Portfolio invest under the same terms and conditions as the Fund
and pay a proportionate share of the Master Portfolio's expenses. Other
feeder funds that invest in the Master Portfolio may have different share
prices and returns than the Fund because different feeder funds typically
have varying sales charges, and ongoing administrative and other
expenses.
The Fund can withdraw its entire investment from the Master Portfolio if
it believes it's in the best interest of the Fund to do so. It is
unlikely that this would happen, but if it did, the Fund's portfolio
could be less diversified and therefore less liquid, and expenses could
increase. The Fund might also have to pay brokerage, tax or other
charges.
10
<PAGE>
[GRAPHIC] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS, AND FUND
EXPENSES.
[GRAPHIC] THE FUND'S RETURNS IN THIS TABLE REFLECT SALES CHARGES. THE
INDEX'S RETURN DOES NOT REFLECT SALES CHARGES.
[GRAPHIC] A LOOK AT THE FUND'S PERFORMANCE
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM
IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN FOR INVESTOR A SHARES (%) AS OF DECEMBER 31
EACH YEAR
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses, pricing and sales charges.
1992 1993 1994 1995 1996 1997 1998
- -8.86%* 26.90% 2.21% 8.21% 8.14% 1.04% 16.40%
*Return is from inception (6-3-92) to 12-31-92.
[GRAPHIC] YEAR-TO-DATE RETURN AS OF JUNE 30, 1999: 4.09%
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD
<TABLE>
<S> <C>
Best: 4th quarter 1998: 17.71%
Worst: 3rd quarter 1998: -13.88%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the MSCI EAFE INDEX (Morgan Stanley Capital International
Europe, Australasia and Far East Index), an index of over 1,100 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
1 year 5 years Since inception
<S> <C> <C> <C>
Investor A Shares 9.73% 5.80% 6.72 %
Investor B Shares 10.35% 6.03% 7.86 %
Investor C Shares 14.35% 6.38% 7.43 %
MSCI EAFE Index 20.33% 9.50% 10.68%**
</TABLE>
** Return is from inception of Investor A Shares. The inception dates
for classes shown may vary.
11
<PAGE>
[GRAPHIC] THERE ARE TWO KINDS OF FEES -- SALES CHARGES YOU PAY DIRECTLY, AND
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S
ASSETS.
[GRAPHIC] WHAT IT COSTS TO INVEST IN THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases, as a % of
offering price 5.75% none none
Maximum deferred sales charge (load)
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a %
of the amount sold none(4) none none
ANNUAL FUND OPERATING EXPENSES (5)
(Expenses that are deducted from the Fund's assets)(6)
Management fees 0.80% 0.80 % 0.80 %
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00 % 1.00 %
Other expenses 0.34% 0.34 % 0.34 %
---- -------- --------
Total annual Fund operating expenses(7) 1.39% 2.14 % 2.14 %
==== ======== ========
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen
months of buying them. Different charges may apply to purchases made
prior to August 1, 1999. Please see page 33 for details.
(2)This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 33 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 35 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 33 for details.
(5)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as necessary, to reflect current service provider fees.
(6)These fees and expenses include the Fund's portion of the fees and
expenses deducted from the assets of the Master Portfolio.
(7)Nations International Equity Fund's investment adviser and/or some of
its other service providers have agreed to limit total annual Fund
operating expenses to 1.40% for Investor A Shares, 2.15% for Investor
B Shares, and 2.15% for Investor C Shares until May 2000. There is no
guarantee that these limitations will continue after this date.
12
<PAGE>
[GRAPHIC] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the
Fund for the time periods indicated and then sell all of your shares at
the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $709 $990 $1,293 $2,151
Investor B Shares $717 $970 $1,349 $2,282
Investor C Shares $317 $670 $1,149 $2,472
</TABLE>
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $217 $670 $1,149 $2,282
Investor C Shares $217 $670 $1,149 $2,472
</TABLE>
13
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC] ABOUT THE SUB-ADVISER
GARTMORE IS THIS FUND'S SUB-ADVISER. BRIAN O'NEILL, THE PRINCIPAL
SENIOR INVESTMENT MANAGER OF THE GARTMORE GLOBAL PORTFOLIO TEAM,
MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC] YOU'LL FIND MORE ABOUT
GARTMORE ON PAGE 27.
[GRAPHIC] WHAT IS AN INTERNATIONAL GROWTH FUND?
INTERNATIONAL GROWTH FUNDS INVEST IN COMPANIES AROUND THE WORLD
THAT HAVE THE POTENTIAL FOR SIGNIFICANT INCREASES IN REVENUE OR
EARNINGS. THESE ARE TYPICALLY COMPANIES THAT ARE DEVELOPING OR
APPLYING NEW TECHNOLOGIES, PRODUCTS OR SERVICES IN STRONG INDUSTRY
SECTORS.
THE PORTFOLIO MANAGER FOR THIS FUND LOOKS FOR COMPANIES WITH
EARNINGS GROWTH THAT IS EXPECTED TO BE HIGHER THAN OTHER INVESTORS
BELIEVE, AND THEN SELLS THESE INVESTMENTS WHEN GROWTH MAY BE LOWER
THAN OTHERS EXPECT.
Nations International Growth Fund
[GRAPHIC] INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in
EQUITY SECURITIES of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in Europe
and the Pacific Basin.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in foreign
companies listed on major exchanges in Europe and the Pacific Basin.
These companies can be of any size.
The Fund invests in COMMON STOCKS, PREFERRED STOCKS and CONVERTIBLE
SECURITIES, such as WARRANTS, RIGHTS and CONVERTIBLE DEBT.
The Fund may invest up to 35% of its assets in securities of issuers located
in developing countries in the Asia and Pacific regions, Africa, Latin America
and Eastern Europe.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The Fund will generally hold 50 to 80 securities invested in approximately
10 industry sectors within 15 to 20 stock markets.
The portfolio manager uses a "bottom-up" approach to selecting securities,
looking for companies with:
o high quality and sustainable earnings
o high growth potential over a two-year investment horizon
o quality management teams
o the ability to finance growth internally
o strong financial results
Throughout the investment process, the portfolio manager balances the Fund's
emphasis on growth companies with a sensitivity to securities prices.
The portfolio manager may sell a security when its price reaches the target
set by the portfolio manager, when there is a deterioration in the growth
prospects of the company or its industry, when the portfolio manager believes
other investments are more attractive, or for other reasons.
14
<PAGE>
[GRAPHIC] YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING
IN THIS FUND STARTING ON
PAGE 23 AND IN THE SAI.
[GRAPHIC] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS, AND FUND
EXPENSES.
[GRAPHIC] RISKS AND OTHER THINGS TO CONSIDER
Nations International Growth Fund has the following risks:
o INVESTMENT STRATEGY RISK - The portfolio manager chooses stocks believed
to have the potential for high growth. There is a risk that the value of
these investments will not rise as high as the portfolio manager
expects, or will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign
controls on investment, difficulties selling some securities and lack of
or limited financial information. Withholding taxes also may apply to
some foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial markets,
and the companies that issue the stocks, among other things. Stock
prices can rise or fall over short as well as long periods. In general,
stock markets tend to move in cycles, with periods of rising prices and
periods of falling prices.
[GRAPHIC] A LOOK AT THE FUND'S PERFORMANCE
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM
IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN FOR INVESTOR A SHARES (%) AS OF DECEMBER 31
EACH YEAR
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses,
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
22.99% -14.77% 11.81% -3.42% -28.48% -0.28% 13.73% 10.89% 1.88% 19.85%
</TABLE>
YEAR-TO-DATE RETURN AS OF JUNE 30, 1999: 3.00%
15
<PAGE>
[GRAPHIC] THE FUND'S RETURNS IN THIS TABLE REFLECT SALES CHARGES. THE
INDEX'S RETURN DOES NOT REFLECT SALES CHARGES.
[GRAPHIC] THERE ARE TWO KINDS OF FEES -- SALES CHARGES YOU PAY DIRECTLY, AND
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S
ASSETS.
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD
<TABLE>
<S> <C>
Best: 4th quarter 1998: 20.96%
Worst: 3rd quarter 1990: -21.73%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the MSCI EAFE INDEX (Morgan Stanley Capital International
Europe, Australasia and Far East Index), an index of over 1,100 stocks
from 21 developed markets in Europe, Australia, New Zealand and Asia.
The index reflects the relative size of each market.
<TABLE>
<CAPTION>
Since
1 year 5 years 10 years inception
<S> <C> <C> <C> <C>
Investor A Shares 12.94% 7.67% 7.72% 11.47 %
Investor B Shares 14.57% -- -- 6.74 %
Investor C Shares 18.91% -- -- 10.35 %
MSCI EAFE Index 20.33% 9.50% 5.85% 12.75%*
</TABLE>
*Return is from inception of index (12-31-69).
[GRAPHIC] WHAT IT COSTS TO INVEST IN THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases, as a % of
offering price 5.75% none none
Maximum deferred sales charge (load),
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a % of the amount sold none(4) none none
ANNUAL FUND OPERATING EXPENSES(5)
(Expenses that are deducted from the Fund's assets)
Management fees 0.80% 0.80 % 0.80 %
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00 % 1.00 %
Other expenses 0.42% 0.42 % 0.42 %
---- -------- --------
Total annual Fund operating expenses 1.47% 2.22 % 2.22 %
==== ======== ========
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen
months of buying them. Different charges may apply to purchases made
prior to August 1, 1999. Please see page 33 for details.
(2)This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 33 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 35 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 33 for details.
(5)The figures contained in the above table are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as necessary, to reflect current service provider fees.
16
<PAGE>
[GRAPHIC] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the
Fund for the time periods indicated and then sell all of your shares at
the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $716 $1,014 $1,333 $2,235
Investor B Shares $725 $ 994 $1,390 $2,365
Investor C Shares $325 $ 694 $1,190 $2,554
</TABLE>
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $225 $694 $1,190 $2,365
Investor C Shares $225 $694 $1,190 $2,554
</TABLE>
17
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC] ABOUT THE SUB-ADVISER
GARTMORE IS THIS FUND'S SUB-ADVISER. CHRISTOPHER PALMER, A SENIOR
INVESTMENT MANAGER ON THE GARTMORE EMERGING MARKETS TEAM, MAKES
THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC] YOU'LL FIND MORE ABOUT
GARTMORE ON PAGE 27.
[GRAPHIC] WHAT'S AN EMERGING MARKET?
THIS FUND CONSIDERS A COUNTRY TO
BE AN EMERGING MARKET IF:
o THE INTERNATIONAL FINANCE CORPORATION HAS DEFINED IT AS AN EMERGING
MARKET,
o IT HAS A LOW-TO-MIDDLE INCOME ECONOMY ACCORDING TO THE WORLD BANK, OR
o IT'S LISTED AS DEVELOPING IN WORLD BANK PUBLICATIONS.
THERE ARE OVER 25 COUNTRIES THAT CURRENTLY QUALIFY AS EMERGING
MARKETS, INCLUDING ARGENTINA, BRAZIL, CHILE, CHINA, THE CZECH
REPUBLIC, COLOMBIA, ECUADOR, GREECE, HONG KONG, INDONESIA, INDIA,
MALAYSIA, MEXICO, THE PHILIPPINES, POLAND, PORTUGAL, PERU, RUSSIA,
SINGAPORE, SOUTH AFRICA, THAILAND, TAIWAN AND TURKEY.
Nations Emerging Markets Fund
[GRAPHIC] INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in
EQUITY SECURITIES of companies in emerging market countries, such as
those in Latin America, Eastern Europe, the Pacific Basin, the Far East
and India.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in companies in
emerging markets or developing countries. The Fund intends to invest in
securities of companies in at least three of these countries at any one
time.
The Fund normally invests in COMMON STOCKS, PREFERRED STOCKS, CONVERTIBLE
SECURITIES, equity interests in foreign investment funds or trusts, and
DEPOSITARY RECEIPTS.
The Fund may 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.
The Fund may also invest in securities that aren't part of its principal
investment strategies, but it won't hold more than 10% of its assets in any
one type of these securities. These securities are described in the SAI.
The portfolio manager looks for emerging markets that are believed to have the
potential for strong economic growth, and tries to avoid emerging markets that
might be politically or economically risky.
The manager starts with approximately 800 companies in the most promising
markets, and:
o uses fundamental research to select 80 to 100 stocks in 15 or more
countries, looking at earnings growth, financial resources, marketability,
and other factors
o visits companies to confirm the corporate and industry factors that led to a
stock's selection as a potential investment
o regularly reviews the Fund's investments to determine whether companies are
meeting expected return targets and whether their fundamental financial
health has changed
The portfolio manager may sell a security when its price reaches the target
set by the portfolio manager, when there is a deterioration in the growth
prospects of the company or its industry, when the portfolio manager believes
other investments are more attractive, or for other reasons.
18
<PAGE>
[GRAPHIC] YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS FUND STARTING ON
PAGE 23 AND IN THE SAI.
[GRAPHIC] RISKS AND OTHER THINGS TO CONSIDER
Nations Emerging Markets Fund has the following risks:
o INVESTMENT STRATEGY RISK - The portfolio manager invests in securities of
companies in emerging markets, which have high growth potential, but can
be more volatile than securities in more developed markets. There is a
risk that the value of these investments will not rise as high as the
portfolio manager expects, or will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, the implementation of the Euro, foreign controls
on investment, difficulties selling some securities and lack of or
limited financial information. Withholding taxes also may apply to some
foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds can be
affected by changes in U.S. or foreign economies and financial markets,
and the companies that issue the stocks, among other things. Stock prices
can rise or fall over short as well as long periods. In general, stock
markets tend to move in cycles, with periods of rising prices and periods
of falling prices.
o FUTURES RISK - This Fund may use FUTURES CONTRACTS to convert currencies
and to hedge against changes in foreign currency exchange rates. There is
a risk that this could result in losses, reduce returns, increase
transaction costs or increase the Fund's volatility.
o CHANGING TO A FEEDER FUND - Unlike traditional mutual funds, which invest
in individual securities, a "feeder fund" invests all of its assets in
another fund, called a "master portfolio." Other feeder funds generally
also invest in a master portfolio. The master portfolio invests in
individual securities and has the same investment objective, investment
strategies and principal risks as the feeder funds. This structure can
help reduce a feeder fund's expenses because its assets are combined with
those of other feeder funds. If a master portfolio doesn't attract other
feeder funds, however, a feeder fund's expenses could be higher than
those of a traditional mutual fund.
This Fund may become a feeder fund if the Board of Trustees decides this
would be in the best interests of shareholders. Management currently
intends to propose that the Fund change to a feeder fund within the next
year, but only if other feeder funds are likely to also invest in the
master portfolio. We don't require shareholder approval to make the
change, but we'll notify you if it happens.
If the Fund becomes a feeder fund, it would have the additional risks of
investing in a master portfolio. These are described on page 10.
19
<PAGE>
[GRAPHIC] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET
CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS, AND FUND
EXPENSES.
[GRAPHIC] THE FUND'S RETURNS IN THIS TABLE REFLECT SALES CHARGES. THE
INDEX'S RETURN DOES NOT REFLECT SALES CHARGES.
[GRAPHIC] A LOOK AT THE FUND'S PERFORMANCE
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM
IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN FOR INVESTOR A SHARES (%) AS OF DECEMBER 31
EACH YEAR
The bar chart shows you how the performance of the Fund's Investor A
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, and would be lower if they
did. Returns for Investor B and Investor C Shares are different because
they have their own expenses, pricing and sales charges.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
---- ---- ---- ----
-2.30%* 8.50% -3.20% -25.78%
*Return is from inception (6-30-95) to 12-31-95.
YEAR-TO-DATE RETURN AS OF JUNE 30, 1999: 38.54%
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD
<TABLE>
<S> <C>
Best: 4th quarter 1998: 15.94%
Worst: 3rd quarter 1998: -24.26%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
The table shows the Fund's average annual total return for each period,
compared with the IFC INVESTABLES INDEX, an unmanaged index that tracks
more than 1,400 stocks in 25 emerging markets in Asia, Latin America,
Eastern Europe, Africa and the Middle East. The index is weighted by
market capitalization.
<TABLE>
<CAPTION>
1 year Since inception
<S> <C> <C>
Investor A Shares -30.02% -9.03%
Investor B Shares -29.95% -8.94%
Investor C Shares -27.07% -8.02%
IFC Investables Index 20.33% 10.49%**
</TABLE>
** From inception of Investor A Shares. The inception dates for classes
shown may vary.
20
<PAGE>
[GRAPHIC] THERE ARE TWO KINDS OF FEES -- SALES CHARGES YOU PAY DIRECTLY, AND
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S
ASSETS.
[GRAPHIC] WHAT IT COSTS TO INVEST IN THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES Investor A Investor B Investor C
(Fees paid directly from your investment) Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases, as a % of
offering price 5.75% none none
Maximum deferred sales charge (load)
as a % of net asset value none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a %
of the amount sold none(4) none none
ANNUAL FUND OPERATING EXPENSES (5)
(Expenses that are deducted from the Fund's assets)
Management fees 1.00% 1.00 % 1.00 %
Distribution (12b-1) and shareholder
servicing fees 0.25% 1.00 % 1.00 %
Other expenses 0.99% 0.99 % 0.99 %
---- -------- --------
Total annual Fund operating expenses(6) 2.24% 2.99 % 2.99 %
==== ======== ========
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen
months of buying them. Different charges may apply to purchases made
prior to August 1, 1999. Please see page 33 for details.
(2)This charge decreases over time. Please see page 34 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 33 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 35 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 33 for details.
(5)The figures contained in the above tables are based on amounts
incurred during the Fund's most recent fiscal year and have been
adjusted, as necessary, to reflect current service provider fees.
(6)Nations Emerging Market Fund's investment adviser is voluntarily
limiting total annual Fund operating expenses to 2.15% for Investor A
Shares, 2.90% for Investor B Shares, and 2.90% for Investor C Shares.
There is no guarantee that these limitations will continue. This
limit is not reflected in the table above.
21
<PAGE>
[GRAPHIC] THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the
Fund for the time periods indicated and then sell all of your shares at
the end of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $789 $1,236 $1,708 $3,006
Investor B Shares $802 $1,224 $1,772 $3,133
Investor C Shares $402 $ 924 $1,572 $3,308
</TABLE>
If you bought Investor B or Investor C Shares, you would pay the
following expenses if you didn't sell your shares:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $302 $924 $1,572 $3,133
Investor C Shares $302 $924 $1,572 $3,308
</TABLE>
22
<PAGE>
[GRAPHIC] Other important information
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page 4. The following are
some other risks and information you should consider before you invest:
o CHANGING INVESTMENT OBJECTIVES AND POLICIES - The investment objective
and certain investment policies of any Fund can be changed without
shareholder approval. Other investment policies may be changed only with
shareholder approval.
o HOLDING OTHER KINDS OF INVESTMENTS - The Funds may hold investments that
aren't part of their principal investment strategies. Please refer to the
SAI for more information. The portfolio managers or management team can
also choose not to invest in specific securities described in this
prospectus and in the SAI.
o FOREIGN INVESTMENT RISK - Funds that invest in FOREIGN SECURITIES may be
affected by changes in currency exchange rates and the costs of
converting currencies; the implementation of the Euro; foreign government
controls on foreign investment, repatriation of capital, and currency and
exchange; foreign taxes; inadequate supervision and regulation of some
foreign markets; difficulty selling some investments, which may increase
volatility; different settlement practices or delayed settlements in some
markets; difficulty getting complete or accurate information about
foreign companies; less strict accounting, auditing and financial
reporting standards than those in the U.S.; political, economic or social
instability; and difficulty enforcing legal rights outside the U.S.
o EMERGING MARKETS RISK - Securities issued by companies in developing or
emerging market countries, like those in Eastern Europe, the Middle East,
Asia or Africa, may be more sensitive to the risks of foreign investing.
In particular, these countries may experience instability resulting from
rapid social, political and economic development. Many of these countries
are dependent on international trade, which makes them sensitive to world
commodity prices and economic factors in other countries. Some emerging
countries have a higher risk of currency devaluation, and some countries
may experience long periods of high inflation or rapid changes in
inflation rates.
o INVESTING DEFENSIVELY - A Fund may temporarily hold investments that are
not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn or
because of political or other conditions. A Fund may not achieve its
investment objective while it is investing defensively.
23
<PAGE>
o PORTFOLIO TURNOVER - A Fund that replaces -- or turns over -- more than
100% of its investments in a year is considered to trade frequently.
Frequent trading can result in larger distributions of short-term CAPITAL
GAINS to shareholders. These gains are taxable at higher rates than
long-term capital gains. Frequent trading can also mean higher brokerage
and other transaction costs, which could reduce the Fund's returns. The
Funds generally buy securities for capital appreciation, investment
income, or both, and don't engage in short- term trading. You'll find the
portfolio turnover rate for each Fund in FINANCIAL HIGHLIGHTS.
o PREPARING FOR THE YEAR 2000 - The year 2000 is an issue for
organizations, companies and entities around the world that rely on
computer systems to process date-related information. Computer systems
that cannot read a four-digit year may not be able to calculate and
process information on or after January 1, 2000.
All of the Funds' primary service providers have confirmed that they have
been working to make the necessary changes to their systems, and that
they expect them to be adapted in time. There is no guarantee, however,
that their computer systems will be ready by the year 2000. If their
computer systems are not ready in time, there could be a negative effect
on Fund operations.
A Fund's performance could also be affected if securities it holds
decrease in value because of year 2000 issues. Funds that invest in
foreign securities may be at greater risk because the computer systems of
foreign issuers, governments or other entities may not be ready for the
year 2000.
24
<PAGE>
[GRAPHIC] BANC OF AMERICA ADVISORS, INC.
ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255
[GRAPHIC] How the Funds are managed
INVESTMENT ADVISER
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds family, including the International Funds described in this
prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation. Nations Funds
pays BAAI an annual fee for its investment advisory services. The fee is
calculated daily based on the average net assets of each Fund and is paid
monthly. BAAI uses part of this money to pay investment sub-advisers for the
services they provide to each Fund.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds
until May 2000 or July 31, 2000. You'll find a discussion of any waiver and/or
reimbursement in the Fund descriptions. There is no assurance that BAAI will
continue to waive and/or reimburse any fees and/or expenses after these dates.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Funds' last fiscal year,
after waivers and/or reimbursements:
ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
Maximum Actual fee paid
advisory fee(1) last fiscal year
<S> <C> <C>
Nations International Value Fund 0.90% 0.91%
Nations International Equity Fund(2) 0.80% 0.90%
Nations International Growth Fund 0.80% 0.81%
Nations Emerging Markets Fund 1.00% 0.90%
</TABLE>
(1)These fees are the current contract levels, which have been reduced from the
contract levels that were in effect during the last fiscal year.
(2)This Fund doesn't have its own investment adviser because it invests in
Nations International Equity Master Portfolio. BAAI is the investment
adviser to the Master Portfolio.
25
<PAGE>
[GRAPHIC] BRANDES INVESTMENT
PARTNERS, L.P.
12750 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
INVESTMENT SUB-ADVISERS
Nations Funds and BAAI have engaged investment sub-advisers to provide day-
to-day portfolio management for the Funds. These sub-advisers function under
the supervision of BAAI and the Boards of Directors/Trustees of Nations Funds.
BRANDES INVESTMENT PARTNERS, L.P.
Founded in 1974, Brandes is an investment advisory firm with 46 investment
professionals who manage more than $30 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Fund.
Brandes's Large Cap Investment Committee is responsible for making the day-
to-day investment decisions for the Fund.
PERFORMANCE OF OTHER INTERNATIONAL EQUITY FUNDS MANAGED BY BRANDES
Nations International Value Fund has been in operation since December 27,
1995. The table below is designed to show you how a similar composite of
international equity accounts managed by Brandes performed over a longer
period in the past.
The Brandes composite's investment objective, policies and strategies are
substantially similar to Nations International Value Fund.
The table below shows the returns for the Brandes composite compared with the
MSCI EAFE INDEX for the periods ending December 31, 1998. The returns reflect
deductions of account fees and expenses, and assume all dividends and
distributions have been reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
one year 15.03% 20.33%
three years 17.12% 9.00%
five years 12.13% 9.19%
since inception (6/30/90) 18.10% 6.97%
</TABLE>
26
<PAGE>
[GRAPHIC] GARTMORE GLOBAL PARTNERS
ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Brandes MSCI EAFE
Composite (%) Index (%)
<S> <C> <C>
1998 15.03% 20.33%
1997 20.00% 1.78%
1996 16.34% 6.05%
1995 13.75% 11.21%
1994 (2.98)% 7.78%
1993 40.86% 32.56%
1992 6.28% (12.17)%
1991 40.17% 12.13%
</TABLE>
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Fund has performed or will perform in
the future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Brandes composite includes Brandes International Equity Fund (since 1995)
and international equity accounts managed by Brandes. The accounts don't pay
the same expenses that mutual funds pay and aren't subject to the
diversification rules, tax restrictions and investment limits under the 1940
Act or Subchapter M of the Internal Revenue Code. Returns could have been
lower if the composite had been subject to these expenses and regulations. The
aggregate returns of the accounts in the composite may not reflect the returns
of any particular account of Brandes.
GARTMORE GLOBAL PARTNERS
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $1 billion in assets.
Gartmore is a joint venture structured as a 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, a UK holding company for a leading UK-based international fund
management group of companies.
Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.
Gartmore is co-investment sub-adviser to:
o Nations International Equity Master Portfolio
Gartmore is the investment sub-adviser to:
o Nations International Growth Fund
o Nations Emerging Markets Fund
27
<PAGE>
Nations International Equity Master Portfolio is co-managed by six portfolio
managers:
CHRISTOPHER PALMER has been responsible since May 1999 for investments in
developing countries, and has been the principal portfolio manager of Nations
Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a
senior investment manager on the Gartmore Emerging Markets Team. Before he
joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment
bank, in its Mexico City and Hong Kong offices, and managed global
derivatives, credit and counterparty credit risk as vice president in the
Institutional Credit Department of Bear Stearns & Co. He graduated from
Colgate University in 1986 with a BA Honors degree in History and completed an
MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA
designation by the Association of Investment Management and Research in 1993.
SEOK TEOH has been responsible since June 1998 for investments in Asia. Ms.
Teoh has been with Gartmore since 1990 as the London based manager of its Far
East Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms.
Teoh is native to Singapore and is fluent in Mandarin and Cantonese. She
received an Economics degree from the University of Durham.
JOHN STEWART has shared responsibility with Nick Reid for investments in Japan
since August 1999. He is also senior investment manager for the Gartmore
Japanese Equities Team and is responsible for managing specialist
institutional portfolios and providing input to the global asset allocation
team in London. Mr. Stewart joined Gartmore in 1992, after starting his career
at the London office of Prudential Portfolio Managers. He graduated from
Loughborough University in 1991 with a BS Honors degree in Banking and
Finance. Mr. Stewart is also a member of the Institute of Investment
Management and Research, and the Chartered Institute of Bankers.
NICK REID has shared responsibility with John Stewart for investments in Japan
since August 1999. He has been investment manager for the Gartmore Japanese
Equities Team since he joined Gartmore in 1994 and has specific responsibility
for managing retail funds. Before he joined Gartmore, Mr. Reid was an United
Kingdom Smaller Companies Analyst with Panmure Gordon and a fund manager
covering Japanese and other Asian markets with Refuge Assurance. He graduated
from Cambridge University in 1989 with an honors degree in History. Mr. Reid
is also an associate member of the Institute of Investment Management and
Research.
STEPHEN JONES has been responsible for investments in Europe since 1998. He is
also head of Gartmore European Equities. Mr. Jones joined Gartmore in 1994 and
was appointed head of the European equity team in 1995. He began his career at
The Prudential in 1984, and became a European equities investment manager in
1987, focusing on France, Belgium and Switzerland. He graduated from
Manchester University in 1984 with an honors degree in Economics.
28
<PAGE>
[GRAPHIC] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC.
1315 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
[GRAPHIC] PUTNAM INVESTMENT MANAGEMENT, INC.
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
STEPHEN WATSON has been responsible since June 1998 for allocating assets
among the various regions and for determining investments in regions not
covered by the other portfolio managers. He was the sole portfolio manager
from February 1995 to June 1998. Mr. Watson joined Gartmore in 1993 as a
global fund manager, and is the chief investment officer of Gartmore Global
Partners and a member of Gartmore's global policy group. Before joining
Gartmore, he was director and global fund manager with James Capel Fund
Managers, London, as well as client service manager for international clients.
He was in Capel-Cure Myers' portfolio management division from 1980 to 1987,
and began his career in 1976 with Samuel Motagu. He is a member of the
Securities Institute.
Nations International Growth Fund is managed by BRIAN O'NEILL, the principal
senior investment manager of the Gartmore Global Portfolio Team at Gartmore
Global Partners. He has managed the Fund since 1997. Before joining Gartmore
in 1981, Mr. O'Neill was a fund manager in global equities at Antony Gibbs &
Sons and an investment analyst at Royal Insurance. He graduated from Glasgow
University in 1969 with a MA Honors degree in Political Economy.
Nations Emerging Markets Fund is managed by Christopher Palmer, a senior
investment manager on the Gartmore Emerging Markets Team. He has managed the
Fund since August 1999. He also co-manages Nations International Equity Master
Portfolio.
INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC.
INVESCO is 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, which is also
located in London.
INVESCO is one of three investment sub-advisers to Nations International
Equity Master Portfolio. INVESCO's International Equity Portfolio Management
Team is responsible for making the day-to-day investment decisions for its
portion of the Fund.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Fund.
29
<PAGE>
[GRAPHIC] STEPHENS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
[GRAPHIC] FIRST DATA INVESTOR
SERVICES GROUP, INC.
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
OTHER SERVICE PROVIDERS
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer. Stephens may pay commissions, distribution (12b-1) and
shareholder servicing fees, and/or other compensation to companies for selling
shares and providing services to investors.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee of 0.22% for their services, plus certain out-of-pocket expenses.
The fee is calculated as an annual percentage of the average daily net assets
of the Funds, and is paid monthly.
First Data Investor Services Group, Inc. (First Data) is the transfer agent
for the Funds' shares. Its responsibilities include processing purchases,
sales and exchanges, calculating and paying distributions, keeping shareholder
records, preparing account statements and providing customer service.
30
<PAGE>
ABOUT YOUR INVESTMENT
- --------------------------------------------------------------------------------
[GRAPHIC] WE'VE USED THE TERM, INVESTMENT PROFESSIONAL, TO REFER TO THE
PERSON WHO HAS ASSISTED YOU WITH BUYING NATIONS FUNDS. SELLING
AGENT or SERVICING AGENT (SOMETIMES REFERRED TO AS A SELLING
AGENT) MEANS THE COMPANY THAT EMPLOYS YOUR INVESTMENT
PROFESSIONAL. SELLING AND SERVICING AGENTS INCLUDE BANKS,
BROKERAGE FIRMS, MUTUAL FUND DEALERS AND OTHER FINANCIAL
INSTITUTIONS, INCLUDING AFFILIATES OF BANK OF AMERICA.
[GRAPHIC] FOR MORE INFORMATION
ABOUT HOW TO CHOOSE A
SHARE CLASS, CONTACT YOUR INVESTMENT PROFESSIONAL OR
CALL US AT 1.800.321.7854.
[GRAPHIC] BEFORE YOU INVEST, PLEASE
NOTE THAT OVER TIME,
DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES
WILL INCREASE THE COST OF YOUR INVESTMENT, AND MAY COST YOU MORE
THAN ANY SALES CHARGES
YOU MAY PAY. FOR MORE INFORMATION, SEE HOW
SELLING AND SERVICING
AGENTS ARE PAID.
[GRAPHIC] Choosing a share class
Before you can invest in the Funds, you'll need to choose a share class. There
are three classes of shares for each Fund offered by this prospectus. Each
class has its own sales charges and fees. The table below compares the charges
and fees of the share classes.
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Shares Shares Shares
<S> <C> <C> <C>
Maximum amount no limit $250,000 no limit
you can buy
Maximum front-end 5.75% none none
sales charge
Maximum deferred none(1) 5.00%(2) 1.00%(3)
sales charge
Redemption fee none(4) none none
Maximum annual 0.25% 0.75 % 0.75 %
distribution distribution distribution distribution
and shareholder (12b-1)/service fee (12b-1) fee and (12b-1) fee and
servicing fees 0.25% service fee 0.25% service fee
Conversion feature none yes none
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within eighteen months of
buying them. Different charges may apply to purchases made prior to August
1, 1999. Please see page 33 for details.
(2)This charge decreases over time. Please see page 34 for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after
July 31, 1997. Please see page 34 for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page 35 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see
page 33 for details.
The share class you choose will depend on how much you're investing, how long
you're planning to stay invested, and how you prefer to pay the sales charge.
The total cost of your investment over the time you expect to hold your shares
will be affected by the distribution (12b-1) and shareholder servicing fees,
as well as by the amount of any front-end sales charge or contingent deferred
sales charge (CDSC) that applies and when you're required to pay the charge.
You should think about these things carefully before you invest.
Investor A Shares have a front-end sales charge, which is deducted when you
buy your shares. This means that a smaller amount is invested in the Funds,
unless you qualify for a waiver or reduction of the sales charge. However,
Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder
servicing fees than Investor B and Investor C Shares. This means that Investor
A Shares can be expected to pay relatively higher dividends per share.
31
<PAGE>
[GRAPHIC] THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE PLUS
ANY SALES CHARGE THAT APPLIES.
THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED
BY A FUND EVERY BUSINESS DAY.
Investor B Shares have limits on how much you can invest. When you buy
Investor B or Investor C Shares, the full amount is invested in the Funds.
However, you may pay a CDSC when you sell your shares. Over time, Investor B
and Investor C Shares can incur distribution (12b-1) and shareholder servicing
fees that are equal to or more than the front-end sales charge, and the
distribution (12b-1) and shareholder servicing fees you would pay for Investor
A Shares. Although the full amount of your purchase is invested in the Funds,
any positive investment return on this money may be partially or fully offset
by the expected higher annual expenses of Investor B and Investor C Shares.
You should also consider the conversion feature for Investor B Shares, which
is described in ABOUT INVESTOR B SHARES.
[GRAPHIC] ABOUT INVESTOR A SHARES
There is no limit to the amount you can invest in Investor A Shares.
You generally will pay a front-end sales charge when you buy your
shares, or in some cases, a CDSC when you sell your shares.
FRONT-END SALES CHARGE
You'll pay a front-end sales charge when you buy Investor A Shares,
unless:
o you qualify for a waiver of the sales charge. You can find out if you
qualify for a waiver in the section, WHEN YOU MIGHT NOT HAVE TO PAY A
SALES CHARGE
o you're reinvesting distributions
The sales charge you'll pay depends on the amount you're
investing -- the larger the investment, the smaller the sales charge.
<TABLE>
<CAPTION>
Amounts
retained by selling
Sales charge Sales charge agents
as a % of the as a % of the as a % of the
offering price net asset value offering price
Amount you bought per share per share per share
<S> <C> <C> <C>
$ 0-$49,999 5.75% 6.10% 5.00 %
$ 50,000- $99,999 4.50% 4.71% 3.75 %
$ 100,000-$249,999 3.50% 3.63% 2.75 %
$ 250,000-$499,999 2.50% 2.56% 2.00 %
$ 500,000-$999,999 2.00% 2.04% 1.75 %
$1,000,000 or more 0.00% 0.00% 1.00%(1)
</TABLE>
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25%
on amounts over $50,000,000. Stephens pays the amount retained by
selling agents on investments of $1,000,000 or more, but may be
reimbursed when a CDSC is deducted if the shares are sold within
eighteen months from the time they were bought. Please see HOW
SELLING AND SERVICING AGENTS ARE PAID for more information.
32
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
If you own or buy $1,000,000 or more of Investor A Shares, there are
two situations when you'll pay a CDSC:
o If you bought your shares before August 1, 1999, and you sell them:
o during the first year you own them, you'll pay a CDSC of 1.00%
o during the second year you own them, you'll pay a CDSC of 0.50%
o If you buy your shares on or after August 1, 1999 and sell them within
18 months of buying them, you'll pay a CDSC of 1.00%.
The CDSC is calculated from the day your purchase is accepted (the
TRADE DATE). We deduct the CDSC from the market value or purchase price
of the shares, whichever is lower.
You won't pay a CDSC on any increase in net asset value since you
bought your shares, or on any shares you receive from reinvested
distributions. We'll sell any shares that aren't subject to the CDSC
first. We'll then sell shares that result in the lowest CDSC.
REDEMPTION FEE
There are two situations when we'll charge a 1% redemption fee on the
sale of Investor A Shares:
o if you bought $1,000,000 or more Investor A Shares between July 31, 1997
and November 15, 1998 and sell them within 18 months of buying them
o if an employee benefit plan made its initial investment in Investor A
Shares between July 31, 1997 and November 15, 1998 and sold those shares
within 18 months of buying them because the plan sold all of its Nations
Funds holdings
This fee is deducted from the amount sold and is paid to the Fund. The
Fund can reduce or cancel the fee at any time.
[GRAPHIC] ABOUT INVESTOR B SHARES
You can buy up to $250,000 of Investor B Shares at a time. You don't
pay a sales charge when you buy Investor B Shares, but you may have to
pay a CDSC when you sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC when you sell your Investor B Shares, unless:
o you bought the shares on or after January 1, 1996 and before August 1,
1997
o you received the shares from reinvested distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify
for a waiver on page 38
33
<PAGE>
The CDSC you pay depends on when you bought your shares, how much you
bought in some cases, and how long you held them.
<TABLE>
<CAPTION>
If you sell your shares during the
following year: You'll pay a CDSC of:
- ----------------------------------- ------------------------------------------------
Shares
you
bought Shares
Shares on or after you
you bought Shares you bought between 1/1/1996 bought
after 8/1/1997 and 11/15/1998 and before before
11/15/1998 in the following amounts: 8/1/1997 1/1/1996
------------ ----------------------------------- ------------ ---------
$250,000- $500,000-
$0-$249,999 $499,999 $999,999
<S> <C> <C> <C> <C> <C> <C>
the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0%
the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0%
the third year you own them 3.0% 3.0% 1.0% none none 3.0%
the fourth year you own them 3.0% 3.0% none none none 2.0%
the fifth year you own them 2.0% 2.0% none none none 2.0%
the sixth year you own them 1.0% 1.0% none none none 1.0%
after six years of owning them none none none none none none
</TABLE>
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
Your selling agent receives compensation when you buy Investor B
Shares. Please see HOW SELLING AND SERVICING AGENTS ARE PAID for more
information.
ABOUT THE CONVERSION FEATURE
Investor B Shares generally convert automatically to Investor A Shares
according to the following schedule:
<TABLE>
<CAPTION>
Will convert to Investor A Shares
Investor B Shares you bought after you've owned them for
<S> <C>
after November 15, 1998 eight years
between August 1, 1997
and November 15, 1998
$ 0-$249,000 nine years
$ 250,000-$499,999 six years
$ 500,000-$999,999 five years
before August 1, 1997 nine years
</TABLE>
The conversion feature allows you to benefit from the lower operating
costs of Investor A Shares, which can help increase total returns.
34
<PAGE>
Here's how the conversion works:
o We won't convert your shares if you tell your investment professional,
selling agent or the transfer agent within 90 days before the conversion
date that you don't want your shares to be converted. Remember, it's in
your best interest to convert your shares because Investor A Shares have
lower expenses.
o Shares are converted at the end of the month in which they become
eligible for conversion. Any shares you received from reinvested
distributions on those shares will convert to Investor A Shares at the
same time.
o You'll receive the same dollar value of Investor A Shares as the Investor
B Shares that were converted. No sales charge or other charges apply.
o Investor B Shares that you received from an exchange of Investor B Shares
of another Nations Fund will convert based on the day you bought the
original shares. Your conversion date may be later if you exchanged to or
from a Nations Funds Money Market Fund.
o Conversions are free from federal tax.
[GRAPHIC] ABOUT INVESTOR C SHARES
There is no limit to the amount you can invest in Investor C Shares.
You don't pay a sales charge when you buy Investor C Shares, but you
may pay a CDSC when you sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC of 1.00% when you sell Investor C Shares within one
year of buying them, unless:
o you received the shares from reinvested distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify
for a waiver on page 38
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
Your selling agent receives compensation when you buy Investor C
Shares. Please see HOW SELLING AND SERVICING AGENTS ARE PAID for more
information.
35
<PAGE>
[GRAPHIC] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION
ABOUT REDUCTIONS AND WAIVERS OF SALES CHARGES.
YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY
FOR A REDUCTION OR A WAIVER BEFORE BUYING SHARES.
WE CAN CHANGE OR CANCEL THESE TERMS AT ANY TIME. ANY CHANGE OR
CANCELLATION APPLIES ONLY TO FUTURE PURCHASES.
WHEN YOU MIGHT NOT HAVE TO PAY A SALES CHARGE
FRONT-END SALES CHARGES
(Investor A Shares)
There are three ways you can lower the front-end sales charge you pay
on Investor A Shares:
o COMBINE PURCHASES YOU'VE ALREADY MADE Rights of accumulation allow you to
combine the value of Investor A, Investor B and Investor C Shares you
already own with Investor A Shares you're buying to calculate the sales
charge. The sales charge is based on the total value of the shares you
already own, or the original purchase cost, whichever is higher, plus the
value of the shares you're buying. Index Funds and Money Market Funds,
except Investor B and Investor C Shares of Nations Reserves Money Market
Funds, don't qualify for rights of accumulation.
o COMBINE PURCHASES YOU PLAN TO MAKE
By signing a letter of intent, you can combine the value of shares you
already own with the value of shares you plan to buy over a 13-month period
to calculate the sales charge.
o You can choose to start the 13-month period up to 90 days before you sign
the letter of intent.
o Each purchase you make will receive the sales charge that applies to the
total amount you plan to buy.
o If you don't buy as much as you planned within the period, you must pay
the difference between the charges you've paid and the charges that
actually apply to the shares you've bought.
o Your first purchase must be at least 5% of the minimum amount for the
sales charge level that applies to the total amount you plan to buy.
o If the purchase you've made later qualifies for a reduced sales charge
through the 90-day backdating provisions, we'll make an adjustment for
the lower charge when the letter of intent expires. Any adjustment will
be used to buy additional shares at the reduced sales charge.
o COMBINE PURCHASES WITH FAMILY MEMBERS You can receive a quantity discount
by combining purchases of Investor A Shares that you, your spouse and
children under age 21 make on the same day. Some distributions or
payments from the dissolution of certain qualified plans also qualify for
the quantity discount. Index Funds and Money Market Funds, except
Investor B and Investor C Shares of Nations Reserves Money Market Funds,
don't qualify.
The following investors can buy Investor A Shares without paying a
front-end sales charge:
o full-time employees and retired employees of Bank of America Corporation
(and its predecessors), its affiliates and subsidiaries and the immediate
families of these people
36
<PAGE>
o banks, trust companies and thrift institutions, acting as fiduciaries
o individuals receiving a distribution from a Bank of America trust or
other fiduciary account may use the proceeds of that distribution to buy
Investor A Shares without paying a front-end sales charge, as long as the
proceeds are invested through a trust account established with certain
trustees and invested in the Funds within 90 days.
o Nations Funds' Trustees, Directors and employees of its investment
sub-advisers
o registered broker/dealers that have entered into a Nations Funds dealer
agreement with Stephens may buy Investor A Shares without paying a
front-end sales charge for their investment account only
o registered personnel and employees of these broker/dealers may buy
Investor A Shares without paying a front-end sales charge according to
the internal policies and procedures of their employer as long as these
purchases are made for their own investment purposes
o employees or partners of any service provider to the Funds
o investors who buy through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds
Personal Investment Planner accounts, wrap fee accounts and other managed
agency/asset allocation accounts
o shareholders of certain Funds that reorganized into the Nations Funds who
were entitled to buy shares at net asset value
The following plans can buy Investor A Shares without paying a front-end
sales charge:
o pension, profit-sharing or other employee benefit plans established under
Section 401 or Section 457 of the Internal Revenue Code of 1986, as
amended (the tax code)
o employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under Section
501(c)(3) of the tax code. To qualify for the waiver, the plan must:
o have at least $500,000 invested in Investor A Shares of Nations Funds
(except Money Market Funds), or
o sign a letter of intent to buy at least $500,000 of Investor A Shares of
Nations Funds (except Money Market Funds), or
o be an employer-sponsored plan with at least 100 eligible participants, or
o be a participant in an alliance program that has signed an agreement with
the Fund or a selling agent
37
<PAGE>
You can also buy Investor A Shares without paying a sales charge if you
buy the shares within 120 days of selling the same Fund. This is called
the reinstatement privilege. You can invest up to the amount of the
sale proceeds. We'll credit your account with any CDSC paid when you
sold the shares. The reinstatement privilege does not apply to any
shares you bought through a previous reinstatement. First Data,
Stephens or their agents must receive your written request within 120
days after you sell your shares.
Stephens may pay selling agents up to 1.00% of the net asset value of
Investor A Shares bought without a sales charge. Stephens may be
reimbursed through any CDSC that applies.
CONTINGENT DEFERRED SALES CHARGES
(Investor A, Investor B and Investor C Shares)
You won't pay a CDSC on the following transactions:
o shares sold following the death or disability (as defined in the tax
code) of a shareholder, including a registered joint owner
o the following retirement plan distributions:
o lump-sum or other distributions from a qualified corporate or self-
employed retirement plan following the retirement (or following
attainment of age 59 1/2 in the case of a "key employee" of a "top
heavy" plan)
o distributions from an IRA or Custodial Account under Section
403(b)(7) of the tax code, following attainment of age 59 1/2
o a tax-free return of an excess contribution to an IRA
o distributions from a qualified retirement plan that aren't subject
to the 10% additional federal withdrawal tax under Section 72(t)(2)
of the tax code
o payments made to pay medical expenses which exceed 7.5% of income, and
distributions made to pay for insurance by an individual who has
separated from employment and who has received unemployment compensation
under a federal or state program for at least 12 weeks
o shares sold under our right to liquidate a shareholder's account,
including instances where the aggregate net asset value of Investor A,
Investor B or Investor C Shares held in the account is less than the
minimum account size
o withdrawals made under the Automatic Withdrawal Plan described in BUYING,
SELLING AND EXCHANGING SHARES, if the total withdrawals of Investor A,
Investor B or Investor C Shares made in a year are less than 12% of the
total value of those shares in your account. A CDSC may only apply to
Investor A Shares if you bought more than $1,000,000
38
<PAGE>
We'll also waive the CDSC on the sale of Investor A or Investor C
Shares bought before September 30, 1994 by current or retired employees
of Bank of America and its affiliates, or by current or former trustees
or directors of the Nations Funds or other management companies managed
by Bank of America.
You won't pay a CDSC on the sale of Investor B or Investor C Shares if
you reinvest any of the proceeds in the same Fund within 120 days of
the sale. This is called the reinstatement privilege. You can invest up
to the amount of the sale proceeds. We'll credit your account with any
CDSC paid when you sold the shares. The reinstatement privilege does
not apply to any shares you bought through a previous reinstatement.
First Data, Stephens or their agents must receive your written request
within 120 days after you sell your shares.
39
<PAGE>
[GRAPHIC] WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY
"BUYING" THEM BACK FROM YOU. THIS IS CALLED A REDEMPTION.
[GRAPHIC] Buying, selling and exchanging shares
You can invest in the Funds through your selling agent or directly from
Nations Funds.
We encourage you to consult with an investment professional who can open an
account for you with a selling agent and help you with your investment
decisions. Once you have an account, you can buy, sell and exchange shares by
contacting your investment professional or selling agent. They will look after
any paperwork that's needed to complete a transaction and send your order to
us.
You should also ask your selling agent about its limits, fees and policies for
buying, selling and exchanging shares, which may be different from those
described here, and about its related programs and services.
The table on the next page summarizes some key information about buying,
selling and exchanging shares. You'll find sales charges and other fees that
apply to these transactions in CHOOSING A SHARE CLASS.
The Funds also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. Please contact your
investment professional, or call us at 1.800.321.7854 if you have any
questions or you need help placing an order.
40
<PAGE>
<TABLE>
<CAPTION>
Ways to
buy, sell or How much you can buy,
exchange sell or exchange Other things to know
------------------ ------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in
o $1,000 for regular accounts Investor A and C Shares. You can invest up to
o $500 for traditional and Roth IRA $250,000 in Investor B Shares at a time.
accounts
o $250 for certain fee-based accounts
o no minimum for certain retirement plan
accounts like 401(k) plans and SEP
accounts, but other restrictions apply
minimum additional investment:
o $100 for all accounts
Using our minimum initial investment: You can buy shares monthly, twice a month or
Systematic o $100 quarterly, using automatic transfers from your
Investment Plan minimum additional investment: bank account.
o $50
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're
shares by telephone, otherwise there selling and send you or your selling agent the
are no limits to the amount you can sell balance, usually within three business days of
o other restrictions may apply to receiving your order.
withdrawals from retirement plan If you paid for your shares with a check that
accounts wasn't certified, we'll hold the sale proceeds
when you sell those shares for at least 15 days
after the trade date of the purchase, or until the
check has cleared.
- ------------------------------------------------------------------------------------------------------------------------------------
Using our o minimum $25 per withdrawal Your account balance must be at least $10,000
Automatic to set up the plan. You can make withdrawals
Withdrawal Plan monthly, twice a month or quarterly. We'll send
your money by check or deposit it directly to
your bank account. No CDSC is deducted if you
withdraw 12% or less of the value of your shares
in a class.
- ------------------------------------------------------------------------------------------------------------------------------------
Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for
Investor A shares of any other Nations Fund,
except Index Funds. You won't pay a front-end
sales charge, CDSC or redemption fee on the
shares you're exchanging.
You can exchange your Investor B Shares for:
o Investor B Shares of any other Nations Fund,
except Nations Funds Money Market Funds
o Investor C Shares of Nations Funds Money
Market Funds (before October 1, 1999)
o Investor B Shares of Nations Reserves Money
Market Funds (on or after October 1, 1999)
You won't pay a CDSC on the shares you're
exchanging.
You can exchange your Investor C Shares for:
o Investor C Shares of any other Nations Fund,
except Nations Funds Money Market Funds
o Daily Shares of Nations Funds Money Market
Funds (before October 1, 1999)
o Investor C Shares of Nations Reserves Money
Market Funds (on or after October 1, 1999)
If you received Investor C Shares of a Fund from
an exchange of Investor A Shares of a Managed
Index Fund, you can also exchange these shares
for Investor A Shares of an Index Fund.
You won't pay a CDSC on the shares you're
exchanging.
- ------------------------------------------------------------------------------------------------------------------------------------
Using our o minimum $25 per exchange This feature is not available for Investor B
Shares. You must already have an investment in
the Funds you want to exchange. You can make
exchanges monthly or quarterly.
</TABLE>
41
<PAGE>
[GRAPHIC] A BUSINESS DAY IS ANY DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
IS OPEN. A BUSINESS DAY ENDS AT THE CLOSE OF REGULAR TRADING ON
THE NYSE, USUALLY AT 4:00 P.M. EASTERN TIME. IF THE NYSE CLOSES
EARLY, THE BUSINESS DAY ENDS AS OF THE TIME THE NYSE CLOSES.
THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL
HOLIDAYS: NEW YEAR'S DAY, MARTIN LUTHER KING, JR. DAY, PRESIDENTS'
DAY, GOOD FRIDAY, MEMORIAL DAY, INDEPENDENCE DAY, LABOR DAY,
THANKSGIVING DAY AND CHRISTMAS DAY.
HOW SHARES ARE PRICED
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the net asset value
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class.
VALUING SECURITIES IN A FUND
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, we'll base the price of a security on its
fair market value. We use the amortized cost method, which approximates market
value, to value short-term investments maturing in 60 days or less.
International markets may be open on days when U.S. markets are closed. The
value of foreign securities owned by a Fund could change on days when Fund
shares may not be bought or sold.
HOW ORDERS ARE PROCESSED
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, First Data or their agents before the end of a business
day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will
receive that day's net asset value per share. Orders received after the end of
a business day will receive the next business day's net asset value per share.
The business day that applies to your order is also called the TRADE DATE. We
may refuse any order to buy or exchange shares. If this happens, we'll return
any money we've received to your selling agent.
TELEPHONE ORDERS
You can place orders to buy, sell or exchange by telephone if you complete the
telephone authorization section of our account application and send it to us.
Here's how telephone orders work:
o If you sign up for telephone orders after you open your account, you must
have your signature guaranteed.
o Telephone orders may not be as secure as written orders. You may be
responsible for any loss resulting from a telephone order.
o We'll take reasonable steps to confirm that telephone instructions are
genuine. For example, we require proof of your identification before we
will act on instructions received by telephone and may record telephone
conversations. If we and our service providers don't take these steps, we
may be liable for any losses from unauthorized or fraudulent
instructions.
o Telephone orders may be difficult to complete during periods of
significant economic or market change.
42
<PAGE>
[GRAPHIC] THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE PLUS
ANY SALES CHARGE THAT APPLIES.
THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED
BY A FUND EVERY BUSINESS DAY.
[GRAPHIC] BUYING SHARES
Here are some general rules for buying shares:
o You buy Investor A Shares at the offering price per share. You buy
Investor B and Investor C Shares at net asset value per share.
o If we don't receive your money within three business days of
receiving your order, we'll refuse the order.
o Selling agents are responsible for sending orders to us and
ensuring we receive your money on time.
o Shares you buy are recorded on the books of the Fund. We don't
issue certificates unless you ask for them in writing, and we
don't issue certificates for fractions of shares.
MINIMUM INITIAL INVESTMENT
The minimum initial amount you can buy is usually $1,000.
If you're buying shares through one of the following accounts or plans,
the minimum initial amount you can buy is:
o $500 for traditional and Roth individual retirement accounts (IRAs)
o $250 for accounts set up with some fee-based investment advisers or
financial planners, including wrap fee accounts and other managed
accounts
o $100 using our Systematic Investment Plan
o There is no minimum for 401(k) plans, simplified employee pension
plans (SEPs), salary reduction-simplified employee pension plans
(SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE
IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of
accounts. However, if the value of your account falls below
$1,000 for 401(k) plans or $500 for the other plans within one
year after you open your account, we may sell your shares. We'll
give you 60 days notice in writing if we're going to do this
MINIMUM ADDITIONAL INVESTMENT
You can make additional purchases of $100, or $50 if you use our
Systematic Investment Plan.
43
<PAGE>
[GRAPHIC] FOR MORE INFORMATION
ABOUT TELEPHONE ORDERS,
SEE PAGE 42.
SYSTEMATIC INVESTMENT PLAN
You can make regular purchases of $50 or more using automatic transfers from
your bank account to the Funds you choose. You can contact your investment
professional or us to set up the plan.
Here's how the plan works:
o You can buy shares twice a month, monthly or quarterly.
o You can choose to have us transfer your money on or about the 15th or the
last day of the month.
o Some exceptions may apply to employees of Bank of America and its
affiliates, and to plans set up before August 1, 1997. For details,
please contact your investment professional.
[GRAPHIC] SELLING SHARES
Here are some general rules for selling shares:
o We'll deduct any CDSC from the amount you're selling and send you
the balance.
o If you're selling your shares through a selling agent, we'll
normally send the sale proceeds by federal funds wire within
three business days after Stephens, First Data or their agents
receive your order. Your selling agent is responsible for
depositing the sale proceeds to your account on time.
o If you're selling your shares directly through us, we'll send the
sale proceeds by mail or wire them to your bank account within
three business days after the Fund receives your order.
o You can sell up to $50,000 of shares by telephone if you qualify
for telephone orders.
o If you paid for your shares with a check that wasn't certified,
we'll hold the sale proceeds when you sell those shares for at
least 15 days after the trade date of the purchase, or until the
check has cleared.
o If you hold any shares in certificate form, you must sign the
certificates (or send a signed stock power with them) and send
them to First Data. Your signature must be guaranteed unless
you've made other arrangements with us. We may ask for any other
information we need to prove that the order is properly
authorized.
o Under certain circumstances allowed under the Investment Company Act
of 1940 (1940 Act), we can pay you in securities or other property
when you sell your shares, or delay payment of the sale proceeds for
up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information about these restrictions, please contact your retirement
plan administrator.
44
<PAGE>
[GRAPHIC] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS
PROSPECTUS CAREFULLY.
We may sell your shares:
o if the value of your account falls below $500. We'll give you 60
days notice in writing if we're going to do this
o if your selling agent tells us to sell your shares under
arrangements made between the selling agent and its customers
o under certain other circumstances allowed under the 1940 Act
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan lets you withdraw $25 or more every month, every
quarter or every year. You can contact your investment professional or us to
set up the plan.
Here's how the plan works:
o Your account balance must be at least $10,000 to set up the plan.
o If you set up the plan after you've opened your account, your
signature must be guaranteed.
o You can choose to have us transfer your money on or about the 15th
or 25th of the month.
o You won't pay a CDSC on Investor A, Investor B or Investor C Shares
if you withdraw 12% or less of the value of those shares in a year.
Otherwise, we'll deduct any CDSC from the withdrawals.
o We'll send you a check or deposit the money directly to your bank
account.
o You can cancel the plan by giving your selling agent or us 30 days
notice in writing.
It's important to remember that if you withdraw more than your investment in
the Fund is earning, you'll eventually use up your original investment.
[GRAPHIC] EXCHANGING SHARES
You can sell shares of a Fund to buy shares of another Nations Fund.
This is called an exchange. You might want to do this if your
investment goals or tolerance for risk changes.
Here's how exchanges work:
o You must exchange at least $1,000, or $25 if you use our Automatic
Exchange Feature.
o The rules for buying shares of a Fund, including any minimum
investment requirements, apply to exchanges into that Fund.
o You may only make an exchange into a Fund that is legally sold in
your state of residence.
45
<PAGE>
o You generally may only make an exchange into a Fund that is
accepting investments.
o We may limit the number of exchanges you can make within a specified
period of time.
o We may change or cancel your right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
o You cannot exchange any shares you own in certificate form until
First Data has received the certificate and deposited the shares to
your account.
EXCHANGING INVESTOR A SHARES
You can exchange Investor A Shares of a Fund for Investor A Shares of
any other Nations Fund except Index Funds.
Here are some rules for exchanging Investor A Shares:
o You won't pay a front-end sales charge on the shares of the Fund
you're exchanging.
o You won't pay a CDSC on the shares you're exchanging. Any CDSC will
be deducted later on when you sell the shares you received from the
exchange. The CDSC at that time will be based on the period from
when you bought the original shares until when you sold the shares
you received from the exchange.
o You won't pay a redemption fee on the shares you're exchanging. Any
redemption fee will be deducted later on when you sell the shares
you received from the exchange. Any redemption fee will be paid to
the original Fund.
EXCHANGING INVESTOR B SHARES
You can exchange Investor B Shares of a Fund for:
o Investor B Shares of any other Nations Fund, except Nations Funds
Money Market Funds
o Investor C Shares of Nations Funds Money Market Funds (before
October 1, 1999)
o Investor B Shares of Nations Reserves Money Market Funds (on or
after October 1, 1999)
You won't pay a CDSC on the shares you're exchanging. Any CDSC will be
deducted later on when you sell the shares you received from the
exchange. The CDSC will be based on the period from when you bought the
original shares until you sold the shares you received from the
exchange.
If you received Investor C Shares of a Nations Funds Money Market Fund
from an exchange of Investor B Shares of a Fund before October 1, 1999,
a CDSC may apply when you sell your Investor C Shares. The CDSC will be
based on the period from when you bought the original shares until you
exchanged them.
46
<PAGE>
EXCHANGING INVESTOR C SHARES
You can exchange Investor C Shares of a Fund for:
o Investor C Shares of any other Nations Fund, except Nations Funds
Money Market Funds
o Daily Shares of Nations Funds Money Market Funds (before October 1,
1999)
o Investor C Shares of Nations Reserves Money Market Funds (on or
after October 1, 1999)
If you received Investor C Shares of a Fund from an exchange of
Investor A Shares of a Managed Index Fund, you can also exchange these
shares for Investor A Shares of an Index Fund.
You won't pay a CDSC on the shares you're exchanging. Any CDSC will be
deducted later on when you sell the shares you received from the
exchange. The CDSC will be based on the period from when you bought the
original shares until you sold the shares you received from the
exchange.
If you received Daily Shares of a Nations Funds Money Market Fund
through an exchange of Investor C Shares of a Fund before October 1,
1999, a CDSC may apply when you sell your Daily Shares. The CDSC will
be based on the period from when you bought the original shares until
you exchanged them.
AUTOMATIC EXCHANGE FEATURE
The Automatic Exchange Feature lets you exchange $25 or more of Investor A or
Investor C Shares every month or every quarter. You can contact your
investment professional or us to set up the plan.
o Here's how automatic exchanges work:
o Send your request to First Data in writing or call 1.800.321.7854.
o You must already have an investment in the Funds you want to
exchange.
o You can choose to have us transfer your money on or about the 15th
or the last day of the month.
o The rules for making exchanges apply to automatic exchanges.
47
<PAGE>
[GRAPHIC] THE FINANCIAL INSTITUTION OR INTERMEDIARY THAT BUYS SHARES FOR YOU
IS ALSO SOMETIMES REFERRED TO AS A SELLING AGENT.
THE DISTRIBUTION FEE IS OFTEN REFERRED TO AS A "12B-1" FEE BECAUSE
IT'S PAID THROUGH A PLAN APPROVED UNDER RULE 12B-1 UNDER THE 1940
ACT.
YOUR SELLING AGENT MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO
YOUR ACCOUNT.
[GRAPHIC] How selling and servicing agents are paid
Selling and servicing agents usually receive compensation based on your
investment in the Funds. The kind and amount of the compensation depends on
the share class you invest in. Selling agents typically pay a portion of the
compensation they receive to their investment professionals.
COMMISSIONS
Your selling agent may receive an up-front commission (reallowance) when you
buy shares of a Fund. The amount of this commission depends on which share
class you choose:
o up to 5.00% of the offering price per share of Investor A Shares. The
commission is paid from the sales charge we deduct when you buy your shares
o up to 4.00% of the net asset value per share of Investor B Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly
o up to 1.00% of the net asset value per share of Investor C Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly
If you buy Investor B or Investor C Shares you will be subject to higher
distribution (12b-1) and shareholder servicing fees and may be subject to a
CDSC when you sell your shares.
DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES
Stephens and selling and servicing agents may be compensated for selling
shares and providing services to investors under distribution and shareholder
servicing plans.
The amount of the fee depends on the class of shares you own:
<TABLE>
<CAPTION>
Maximum annual distribution (12b-1)
and shareholder servicing fees
(as an annual % of average daily net assets)
<S> <C>
Investor A Shares 0.25% combined distribution (12b-1) and servicing fee
Investor B Shares 0.75% distribution (12b-1) fee , 0.25% servicing fee
Investor C Shares 0.75% distribution (12b-1) fee, 0.25% servicing fee
</TABLE>
Fees are calculated daily and deducted monthly. Because these fees are paid
out of the Funds' assets on an ongoing basis, they will increase the cost of
your investment over time, and may cost you more than any sales charges you
may pay.
The Funds pay these fees to Stephens and to eligible selling and servicing
agents for as long as the plans continue. We may reduce or discontinue
payments at any time.
48
<PAGE>
OTHER COMPENSATION
Selling and servicing agents may also receive:
o a bonus, incentive or other compensation relating to the sale, promotion and
marketing of the Funds
o additional amounts on all sales of shares:
o up to 1.00% of the offering price per share of Investor A Shares
o up to 1.00% of the net asset value per share of Investor B Shares
o up to 1.00% of the net asset value per share of Investor C Shares
o non-cash compensation like trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise
This compensation, which is not paid by the Funds, is discretionary and may be
available only to selected selling and servicing agents. For example, Stephens
sometimes sponsors promotions involving Banc of America Investments, Inc., an
affiliate of BAAI, and certain other selling or servicing agents. Selected
selling or servicing agents also may receive compensation for opening or
servicing a minimum number of accounts.
BAAI also may pay amounts from its own assets to Stephens or to selling or
servicing agents for services they provide.
49
<PAGE>
[GRAPHIC] THE POWER OF COMPOUNDING
REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF A
FUND -- WHICH LETS YOU TAKE ADVANTAGE OF THE POTENTIAL FOR
COMPOUND GROWTH.
PUTTING THE MONEY YOU EARN BACK INTO YOUR INVESTMENT MEANS IT, IN
TURN, MAY EARN EVEN MORE MONEY. OVER TIME, THE POWER OF
COMPOUNDING HAS THE POTENTIAL TO SIGNIFICANTLY INCREASE THE VALUE
OF YOUR INVESTMENT. THERE IS NO ASSURANCE, HOWEVER, THAT YOU'LL
EARN MORE MONEY IF YOU REINVEST YOUR DISTRIBUTIONS.
[GRAPHIC] Distributions and taxes
ABOUT DISTRIBUTIONS
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on COMMON STOCKS.
o A fund can also have CAPITAL GAIN if the value of its investments increases.
If a fund sells an investment at a gain, the gain is realized. If a fund
continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gain to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gain to
their shareholders so the Funds won't have to pay any income tax. When a Fund
makes this kind of a payment, it's split equally among all shares, and is
called a distribution.
All of the Funds distribute any net realized capital gain at least once a
year. The frequency of distributions of net investment income varies by Fund:
<TABLE>
<CAPTION>
Frequency of
Fund income distributions
<S> <C>
Nations International Equity Fund quarterly
Nations International Growth Fund annually
Nations International Value Fund annually
Nations Emerging Markets Fund quarterly
</TABLE>
A distribution is paid based on the number of shares you hold on the record
date, which is usually the day the distribution is declared (daily dividend
Funds) or the day before the distribution is declared (all other Funds).
Shares are eligible to receive distributions from the SETTLEMENT DATE (daily
dividend Funds) or the TRADE DATE (all other Funds) of the purchase up to and
including the day before the shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made,
the net asset value per share of the share class is reduced by the amount of
the distribution.
We'll automatically reinvest distributions in additional shares of the same
Fund unless you tell us you want to receive your distributions in cash. You
can do this by writing to us at the address on the back cover or by calling us
at 1.800.321.7854.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll pay any distribution that applies to those shares in
cash within five business days after the sale was made.
50
<PAGE>
[GRAPHIC] THIS INFORMATION IS A SUMMARY OF HOW FEDERAL INCOME TAXES MAY
AFFECT YOUR INVESTMENT IN THE FUNDS. IT IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD CONSULT WITH YOUR
OWN TAX ADVISOR ABOUT YOUR SITUATION, INCLUDING ANY FOREIGN, STATE
AND LOCAL TAXES THAT MAY APPLY.
[GRAPHIC] FOR MORE INFORMATION ABOUT
TAXES, PLEASE SEE THE SAI.
If you buy shares of a Fund shortly before it makes a distribution, you will,
in effect, receive part of your purchase back in the distribution, which is
subject to tax. Similarly, if you buy shares of a Fund that holds securities
with unrealized capital gain, you will, in effect, receive part of your
purchase back if and when the Fund sells those securities and distributes the
gain. This distribution is also subject to tax. Some Funds have built up, or
have the potential to build up, high levels of unrealized capital gain.
HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, net foreign currency gain and any
excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income.
Distributions of net capital gain (generally the excess of net long-term
capital gain over net short-term capital loss) generally are taxable to you as
net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
FOREIGN TAXES
Mutual funds that maintain most of their portfolio in foreign
securities -- like the International Funds -- have special tax considerations.
You'll generally be required to:
o include in your gross income your proportional amount of foreign taxes paid
by the fund
o treat this amount as foreign taxes you paid directly
o either deduct this amount when calculating your income, or subject to
certain conditions and limitations, claim this amount as a foreign tax
credit against your federal income tax liability
In general, each year you can claim up to $300 ($600 if you're filing jointly)
of foreign taxes paid (or deemed paid) by you as a foreign tax credit against
your federal income tax liability.
51
<PAGE>
WITHHOLDING TAX
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts deemed to be paid for "in
kind" redemptions and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you're otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax on distributions
paid to foreign shareholders.
TAXATION OF REDEMPTIONS AND EXCHANGES
Your redemptions (including redemptions "in kind") and exchanges of Fund
shares will usually result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the amount you paid (or are deemed to have paid) for them.
[GRAPHIC] Financial highlights
The financial highlights table is designed to help you understand how the
Funds have performed for the past five years. Certain information reflects
financial results for a single Fund share. The total investment return line
indicates how much an investment in the Fund would have earned, assuming all
dividends and distributions had been reinvested.
This information, except as noted below, has been audited by
PricewaterhouseCoopers LLP. Certain information for the Investor A Shares of
Nations International Value Fund has been derived from the audited financial
statements of the Emerald International Equity Fund (the predecessor
portfolio). KPMG LLP were the independent auditors for the Emerald
International Equity Fund for the fiscal period December 1, 1997 through May
15, 1998 and for the fiscal year ended November 30, 1997. The financial
highlights of Nations International Growth Fund for the period ended May 16,
1997 were audited by other independent accountants. The independent
accountant's report and Nations Funds financial statements are incorporated by
reference into the SAI. Please see the back cover to find out how you can get
a copy.
52
<PAGE>
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
Investor A Shares* 3/31/99# 5/15/98## 11/30/97 11/30/96**
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 15.44 $ 13.13 $ 11.29 $ 10.00
Net investment income 0.14 0.08 0.01 0.04
Net realized and unrealized gain on investments 0.36 2.52 1.91 1.31
Net increase in net asset value from operations 0.50 2.60 1.92 1.35
DISTRIBUTIONS:
Dividends from net investment income ( 0.17) -- ( 0.01) ( 0.04)
Dividends in excess of net investment income -- -- ( 0.05) --
Distributions from net realized capital gains ( 1.34) ( 0.29) ( 0.02) ( 0.02)
Total dividends and distributions ( 1.51) ( 0.29) ( 0.08) ( 0.06)
Net asset value, end of period $ 14.43 $ 15.44 $ 13.13 $ 11.29
TOTAL RETURN++ 1.75% 20.22% 17.11% 13.54%
=================================================== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,960 $5,128 $4,259 $ 115
Ratio of operating expenses to average net assets 1.55%+ 1.81%+ 1.73% 0.00%+
Ratio of net investment income to average net
assets 1.11%+ 1.21%+ 0.26% 1.83%+
Portfolio turnover rate 44% 88% 29% 50%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.64%+ 1.82%+ 1.93% 57.40%+
</TABLE>
* The financial information for the fiscal periods
through May 15, 1998 reflect the financial
information for the Emerald International Equity
Fund's Retail Shares, which were reorganized into
the Investor A Shares as of May 22, 1998.
** Nations International Value Investor A Shares
commenced operations on December 27, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
## For the period from December 1, 1997 through May
15, 1998.
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED
Investor B Shares 3/31/99***#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.33
Net investment income 0.06
Net realized and unrealized gain on investments 0.76
Net increase in net asset value from operations 0.82
DISTRIBUTIONS:
Dividends from net investment income ( 0.13)
Dividends in excess of net investment income --
Distributions from net realized capital gains ( 0.62)
Total dividends and distributions ( 0.75)
Net asset value, end of period $ 14.40
TOTAL RETURN++ 1.25%
=================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $4,296
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income to average net
assets 0.36%+
Portfolio turnover rate 44%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.39%+
</TABLE>
*** Nations International Value Investor B Shares
commenced operations on May 28, 1998.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
53
<PAGE>
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED
Investor C Shares 3/31/99***#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.33
Net investment income 0.06
Net realized and unrealized gain on investments 1.77
Net increase in net asset value from operations 1.83
DISTRIBUTIONS:
Dividends from net investment income ( 0.13)
Dividends in excess of net investment income --
Distributions from net realized capital gains ( 0.62)
Total dividends and distributions ( 0.75)
Net asset value, end of period $ 14.41
TOTAL RETURN++ 3.98%
=================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 182
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income to average net
assets 0.36%+
Portfolio turnover rate 44%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.39%+
</TABLE>
*** Nations International Value Investor C Shares
commenced operations on June 15, 1998.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED
Investor A Shares 3/31/99# 03/31/98#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.67 $ 13.01
Net investment income/(loss) 0.08 0.07
Net realized and unrealized gain/(loss) on
investments 0.40 1.94
Net increase/(decrease) in net asset value from
operations 0.48 2.01
DISTRIBUTIONS:
Dividends from net investment income ( 0.11) ( 0.15)
Distributions in excess of net investment income -- ( 0.04)
Distributions from net realized capital gains ( 1.07) ( 0.16)
Distributions in excess of net realized capital gains -- --
Total dividends and distributions ( 1.18) ( 0.35)
Net asset value, end of period $ 13.97 $ 14.67
TOTAL RETURN++ 3.59% 15.77%
======================================================= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $12,785 $13,477
Ratio of operating expenses to average net assets 1.38% 1.39%
Ratio of net investment income/(loss) to average
net assets 0.54% 0.51%
Portfolio turnover rate 146% 64%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.38% 1.39%
<CAPTION>
Investor A Shares YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
03/31/97# 03/31/96(A)# 05/31/95# 05/31/94#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.39 $ 11.67 $ 12.00 $ 10.56
Net investment income/(loss) 0.05 0.04 0.11 0.06
Net realized and unrealized gain/(loss) on
investments 0.11 1.78 ( 0.20) 1.44
Net increase/(decrease) in net asset value from
operations 0.16 1.82 ( 0.09) 1.50
DISTRIBUTIONS:
Dividends from net investment income ( 0.09) ( 0.04) ( 0.02) ( 0.04)
Distributions in excess of net investment income ( 0.00)*** ( 0.04) -- --
Distributions from net realized capital gains ( 0.42) ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized capital gains ( 0.03) -- ( 0.10) --
Total dividends and distributions ( 0.54) ( 0.10) ( 0.24) ( 0.06)
Net asset value, end of period $ 13.01 $ 13.39 $ 11.67 $ 12.00
TOTAL RETURN++ 1.08% 15.66% ( 0.69)% 14.00%
======================================================= ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $9,443 $7,643 $4,877 $3,219
Ratio of operating expenses to average net assets 1.41% 1.42%+ 1.28% 1.42%
Ratio of net investment income/(loss) to average
net assets 0.37% 0.40%+ 0.92% 0.50%
Portfolio turnover rate 36% 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.41% 1.43%+ 1.29% 1.43%
</TABLE>
*** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
54
<PAGE>
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED
Investor B Shares 3/31/99# 03/31/98# 03/31/97#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.56 $ 12.83 $ 13.27
Net investment income/(loss) ( 0.03) ( 0.03) ( 0.05)
Net realized and unrealized gain/(loss) on
investments 0.38 1.92 0.10
Net increase/(decrease) in net asset value from
operation 0.35 1.89 0.05
DISTRIBUTIONS:
Dividends from net investment income ( 0.09) -- ( 0.04)
Distributions in excess of net investment income -- -- ( 0.00)**
Distributions from net realized capital gains ( 1.07) ( 0.16) ( 0.42)
Distributions in excess of net realized capital gains -- -- ( 0.03)
Total dividends and distributions ( 1.16) ( 0.16) ( 0.49)
Net asset value, end of period $ 13.75 $ 14.56 $ 12.83
TOTAL RETURN++ 2.65% 14.93% 0.28%
======================================================= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $28,266 $34,119 $36,698
Ratio of operating expenses to average net assets 2.13% 2.14% 2.16%
Ratio of net investment income/(loss) to average
net assets ( 0.21)% ( 0.24)% ( 0.38)%
Portfolio turnover rate 146% 64% 36%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.13% 2.14% 2.16%
<CAPTION>
Investor B Shares PERIOD ENDED YEAR ENDED PERIOD ENDED
03/31/96(A)# 05/31/95# 05/31/94*#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) ( 0.02) 0.05 ( 0.00)**
Net realized and unrealized gain/(loss) on
investments 1.78 ( 0.22) 1.51
Net increase/(decrease) in net asset value from
operation 1.76 ( 0.17) 1.51
DISTRIBUTIONS:
Dividends from net investment income -- ( 0.01) ( 0.04)
Distributions in excess of net investment income ( 0.03) -- --
Distributions from net realized capital gains ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized capital gains -- ( 0.10) --
Total dividends and distributions ( 0.05) ( 0.23) ( 0.06)
Net asset value, end of period $ 13.27 $ 11.56 $ 11.96
TOTAL RETURN++ 15.25% ( 1.30)% 14.32%
======================================================= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $40,426 $31,372 $17,349
Ratio of operating expenses to average net assets 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to average
net assets ( 0.17)%+ 0.42% ( 0.00)%+##
Portfolio turnover rate 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.00%+ 1.79% 1.93%+
</TABLE>
* Nations International Equity Fund Investor B
Shares commenced operations on June 7, 1993.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
## Amount represents less than 0.01%.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED
Investor C Shares 3/31/99# 03/31/98#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.34 $ 12.74
Net investment income/(loss) ( 0.03) ( 0.01)
Net realized and unrealized gain/(loss) on
investments 0.37 1.89
Net increase/(decrease) in net asset value from
operations 0.34 1.88
DISTRIBUTIONS:
Dividends from net investment income ( 0.09) ( 0.10)
Distributions in excess of net investment income -- ( 0.02)
Distributions from net realized capital gains ( 1.07) ( 0.16)
Distributions in excess of net realized capital gains -- --
Total dividends and distributions ( 1.16) ( 0.28)
Net asset value, end of period $ 13.52 $ 14.34
TOTAL RETURN++ 2.63% 15.05%
======================================================= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 824 $ 933
Ratio of operating expenses to average net assets 2.13% 1.97%
Ratio of net investment income/(loss) to average
net assets ( 0.21)% ( 0.07)%
Portfolio turnover rate 146% 64%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.13% 1.97%
<CAPTION>
Investor C Shares YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
03/31/97# 03/31/96(A)# 05/31/95# 05/31/94#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.13 $ 11.45 $ 11.86 $ 10.49
Net investment income/(loss) 0.02 ( 0.03) 0.02 ( 0.03)
Net realized and unrealized gain/(loss) on
investments 0.10 1.75 ( 0.21) 1.43
Net increase/(decrease) in net asset value from
operations 0.12 1.72 ( 0.19) 1.40
DISTRIBUTIONS:
Dividends from net investment income ( 0.06) -- -- ( 0.01)
Distributions in excess of net investment income ( 0.00)*** ( 0.02) -- --
Distributions from net realized capital gains ( 0.42) ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized capital gains ( 0.03) -- ( 0.10) --
Total dividends and distributions ( 0.51) ( 0.04) ( 0.22) ( 0.03)
Net asset value, end of period $ 12.74 $ 13.13 $ 11.45 $ 11.86
TOTAL RETURN++ 0.77% 15.09% ( 1.56)% 13.21%
======================================================= ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 988 $ 652 $ 495 $ 339
Ratio of operating expenses to average net assets 1.66% 2.09%+ 2.03% 2.17%
Ratio of net investment income/(loss) to average
net assets 0.12% ( 0.27)%+ 0.17% ( 0.25)%
Portfolio turnover rate 36% 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.66% 2.10%+ 2.04% 2.18%
</TABLE>
*** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
55
<PAGE>
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
Investor A Shares* 3/31/99# 03/31/98# 05/16/97 08/31/96 08/31/95# 08/31/94#
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value at the beginning of the period $ 19.21 $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Net investment income/(loss) 0.01 ( 0.01) ( 0.05) 0.04 0.08 0.07
Net realized and unrealized gain/(loss) on
investments 0.85 1.29 1.90 1.57 0.17 2.24
Net income/(loss) from operations 0.86 1.28 1.85 1.61 0.25 2.31
Dividends from net investment income -- -- ( 0.14) ( 0.46) ( 0.11) --
Distributions from net realized capital gain ( 4.81) ( 0.34) ( 0.34) ( 0.39) ( 0.29) ( 0.15)
Total dividends and distributions ( 4.81) ( 0.34) ( 0.48) ( 0.85) ( 0.40) ( 0.15)
Net asset value, end of the period $ 15.26 $ 19.21 $ 18.27 $ 16.90 $ 16.14 $ 16.29
TOTAL RETURN++ 5.89% 7.18% 11.14% 10.40% 1.77% 16.48%
==================================================== ======= ======== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $22,874 $24,353 $26,730 $26,730 $27,625 $44,990
Ratio of operating expenses to average net assets 1.37% 1.40%+ 1.42%+ 1.32% 1.42% 1.37%
Ratio of operating expenses to average net assets
without waivers 1.39% -- -- -- -- --
Ratio of net investment income/(loss) to average
net assets ( 0.01)% ( 0.04)%+ 0.29%+ 0.48% 0.50% 0.48%
Portfolio turnover rate 21% 11% 34% 22% 36% 35%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46% 1.42%+ 1.42%+ 1.32% 1.42% 1.37%
</TABLE>
* The financial information for the fiscal periods
through May 23, 1997 reflect the financial
information for the Pilot International Equity
Fund's Class A Shares, which were reorganized into
the Investor A Shares as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Investor B Shares* YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
3/31/99# 03/31/98# 05/16/97 08/31/96(A)
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of the period $ 19.11 $ 18.32 $ 17.04 $ 17.54
Net investment income/(loss) ( 0.12) ( 0.11) ( 0.05) --
Net realized and unrealized gain/(loss) on
investments 0.83 1.24 1.79 ( 0.50)
Net increase/(decrease) in net asset value from
operations 0.71 1.13 1.74 ( 0.50)
DISTRIBUTIONS:
Dividends from net investment income -- -- ( 0.12) --
Distributions from net realized capital gains ( 4.81) ( 0.34) ( 0.34) --
Total dividends and distributions ( 4.81) ( 0.34) ( 0.46) --
Net asset value, end of the period $ 15.01 $ 19.11 $ 18.32 $ 17.04
TOTAL RETURN++ 5.11% 6.34% 10.37% ( 2.85)%
====================================================== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 957 $ 500 $ 560 $ 184
Ratio of operating expenses to average net assets 2.12% 2.15%+ 2.18%+ 2.06%+
Ratio of operating expenses to average net assets
including interest expense 2.14% -- -- --
Ratio of net investment income (loss) to average net
assets ( 0.76)% ( 0.79)%+ ( 0.61)%+ ( 0.32)%+
Portfolio turnover rate 21% 11% 34% 22%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.21% 2.17%+ 2.18%+ 2.06%+
</TABLE>
* The financial information for the fiscal periods
through May 23, 1997 reflect the financial
information for the Pilot International Equity
Fund's Class B Shares, which were reorganized into
the Investor B Shares as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) Shares were initially issued on July 1, 1996.
56
<PAGE>
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
YEAR ENDED PERIOD ENDED
Investor C Shares 3/31/99# 03/31/98*#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value at the beginning of the period $ 19.42 $ 18.49
Net investment income/(loss) ( 0.12) ( 0.09)
Net realized and unrealized gain/(loss) on
investments 0.94 1.36
Net increase/(decrease) in net asset value from
operations 0.82 1.27
DISTRIBUTIONS:
Dividends from net investment income -- --
Distributions from net realized capital gains ( 4.81) ( 0.34)
Total dividends and distributions ( 4.81) ( 0.34)
Net asset value, end of the period $ 15.43 $ 19.42
TOTAL RETURN++ 5.56% 7.04%
==================================================== ======= =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 459 $ 465
Ratio of operating expenses to average net assets 2.12% 2.15%+
Ratio of operating expenses to average net assets
including interest expense. 2.14% --
Ratio of net investment income/(loss) to average
net assets ( 0.76)% ( 0.79)%+
Portfolio turnover rate 21% 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.21% 2.17%+
</TABLE>
* Nations International Growth Fund Investor C
Shares commenced operations on September 19, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share investment income/(loss) has been
calculated using the monthly average share method.
<TABLE>
<CAPTION>
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
Investor A Shares 3/31/99# 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.57 $ 11.39 $ 10.32 $ 10.00
Net investment income/(loss) 0.10 0.01 ( 0.01) ( 0.05)
Net realized and unrealized gain/(loss) on
investments ( 2.52) ( 0.75) 1.21 0.37
Net increase/(decrease) in net asset value from
operations ( 2.42) ( 0.74) 1.20 0.32
DISTRIBUTIONS:
Dividends from net investment income ( 0.06) ( 0.08) ( 0.02) --
Distributions in excess of net investment income -- -- ( 0.05) --
Distributions from net realized capital gains -- -- ( 0.06) --
Total dividends and distributions ( 0.06) ( 0.08) ( 0.13) --
Net asset value, end of period $ 8.09 $ 10.57 $ 11.39 $ 10.32
TOTAL RETURN++ (22.90)% ( 6.60)% 11.74% 3.20%
=================================================== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 951 $ 652 $ 894 $ 477
Ratio of operating expenses to average net assets 2.03%(a)(b) 1.82% 1.99% 2.38%+
Ratio of net investment income/(loss) to average
net assets 1.41% 0.11% ( 0.12)% ( 0.63)%+
Portfolio turnover rate 71% 63% 31% 17%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.23%(b) 1.82% 1.99% 2.38%+
</TABLE>
* Nations Emerging Markets Fund Investor A Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%
57
<PAGE>
<TABLE>
<CAPTION>
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
Investor B Shares 3/31/99# 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.49 $ 11.31 $ 10.26 $ 10.00
Net investment income/(loss) 0.05 ( 0.07) ( 0.09) ( 0.11)
Net realized and unrealized gain/(loss) on
investments ( 2.50) ( 0.75) 1.20 0.37
Net increase/(decrease) in net asset value from
operations ( 2.45) ( 0.82) 1.11 0.26
DISTRIBUTIONS:
Dividends from net investment income ( 0.05) -- -- --
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains -- -- ( 0.06) --
Total dividends and distributions ( 0.05) -- ( 0.06) --
Net asset value, end of period $ 7.99 $ 10.49 $ 11.31 $ 10.26
TOTAL RETURN++ (23.42)% ( 7.25)% 10.88% 2.60%
===================================================== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $ 1,579 $1,247 $1,499 $1,209
Ratio of operating expenses to average net assets 2.78%(a)(b) 2.57% 2.74% 3.13%+
Ratio of net investment loss to average net assets 0.66% ( 0.64)% ( 0.87)% ( 1.38)%+
Portfolio turnover rate 71% 63% 31% 17%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.98%(b) 2.57% 2.74% 3.13%+
</TABLE>
* Nations Emerging Markets Fund Investor B Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%
<TABLE>
<CAPTION>
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
Investor C Shares 3/31/99# 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.47 $ 11.34 $ 10.27 $ 10.00
Net investment income/(loss) 0.05 ( 0.05) ( 0.04) ( 0.10)
Net realized and unrealized gain/(loss) on
investments ( 2.49) ( 0.75) 1.20 0.37
Net increase/(decrease) in net asset value from
operations ( 2.44) ( 0.80) 1.16 0.27
DISTRIBUTIONS:
Dividends from net investment income ( 0.05) ( 0.07) ( 0.01) --
Distributions in excess of net investment income -- -- ( 0.02) --
Distributions from net realized capital gains -- -- ( 0.06) --
Total dividends and distributions ( 0.05) ( 0.07) ( 0.09) --
Net asset value, end of period $ 7.98 $ 10.47 $ 11.34 $ 10.27
TOTAL RETURN++ (23.37)% ( 7.17)% 11.34% 2.70%
=================================================== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 86 $ 293 $ 226 $ 23
Ratio of operating expenses to average net assets 2.78%(a)(b) 2.40% 2.24% 3.02%+
Ratio of net investment income to average net
assets 0.66% ( 0.47)% ( 0.37)% ( 1.27)%+
Portfolio turnover rate 71% 63% 31% 17%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.98%(b) 2.40% 2.24% 3.02%+
</TABLE>
* Nations Emerging Markets Fund Investor C Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated, assumes reinvestment of
all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) The effect of interest expense on the operating
expense ratio was less than 0.01%
(b) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%
58
<PAGE>
[GRAPHIC] Terms used in this prospectus
ASSET-BACKED SECURITY - a debt security that gives you an interest in a pool
of assets that is collateralized or "backed" by one or more kinds of assets,
including real property, receivables or mortgages, generally issued by banks,
credit card companies or other lenders. Some securities may be issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities. Asset-backed securities typically make periodic payments,
which may be interest or a combination of interest and a portion of the
principal of the underlying assets.
CAPITAL GAIN OR LOSS - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
CASH EQUIVALENTS - short-term, interest-bearing instruments, including
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, bank obligations, asset-backed securities, foreign
government securities and commercial paper issued by U.S. and foreign issuers
which, at the time of investment, is rated at least Prime-2 by Moody's
Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch).
COMMON STOCK - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
CONVERTIBLE DEBT - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
CONVERTIBLE SECURITY - a security that can be exchanged for common stock (or
another type of security) at a specified rate. Convertible securities include
convertible debt, rights and warrants.
CROSSING NETWORKS - an electronic system where anonymous parties can match buy
and sell transactions. These transactions don't affect the market, and
transaction costs are extremely low.
DEBT SECURITY - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
DEPOSITARY RECEIPTS - evidence of the deposit of a security with a custodian
bank. American Depositary Receipts (ADRs), for example, are certificates
traded in U.S. markets representing an interest of a foreign company. They
were created to make it possible for foreign issuers to meet U.S. security
registration requirements. Other examples include ADSs, GDRs and EDRs.
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<PAGE>
DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
EQUITY SECURITY - an investment that gives you an equity ownership right in a
company. Equity securities (or "equities") include common and preferred stock,
rights and warrants.
FIRST BOSTON CONVERTIBLE INDEX - a widely-used unmanaged index that measures
the performance of convertible securities. The index is not available for
investment.
FIXED INCOME SECURITY - an intermediate to long-term debt security that
matures in more than one year.
FOREIGN SECURITY - a debt or equity security issued by a foreign company or
government.
FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
FUTURES CONTRACT - a contract to buy or sell an asset or an index of
securities at a specified price on a specified future date. The price is set
through a futures exchange.
INVESTMENT GRADE - a debt security that has been given a medium to high credit
rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating
by other nationally recognized statistical rating organization NRSROs) based
on the issuer's ability to pay interest and repay principal on time. The
portfolio management team may consider an unrated debt security to be
investment grade if the team believes it is of comparable quality. Please see
the SAI for more information about credit ratings.
LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
MONEY MARKET INSTRUMENT - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
MORTGAGE-BACKED SECURITY OR MORTGAGE-RELATED SECURITY - a debt security that
gives you an interest in, and is backed by, a pool of residential mortgages
issued by the U.S. government or by financial institutions. The underlying
mortgages may be guaranteed by the U.S. government or one of its agencies,
authorities or instrumentalities. Mortgage-backed securities typically make
monthly payments, which are a combination of interest and a portion of the
principal of the underlying mortgages.
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<PAGE>
MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
MUNICIPAL SECURITY (OBLIGATION) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income from these
securities is exempt from federal income taxes and is generally exempt from
state taxes if you live in the state that issued the security. If you live in
the municipality that issued the security, interest income may also be exempt
from local taxes.
NON-DIVERSIFIED - a fund that holds securities of fewer issuers or kinds of
issuers than other kinds of funds. Non-diversified funds tend to have greater
price swings than more diversified funds because events affecting one or more
of its securities may have a disproportionately large effect on the fund.
OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
PREFERRED STOCK - a type of equity security that gives you a limited ownership
right in a company, with certain preferences or priority over common stock.
Preferred stock generally pays a fixed annual dividend. If the company goes
bankrupt, preferred shareholders generally receive their share of the
company's remaining assets before common shareholders and after bondholders
and other creditors.
PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of
the value of a company.
QUANTITATIVE ANALYSIS - an analysis of financial information about a company
or security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
REAL ESTATE INVESTMENT TRUST (REIT) - a portfolio of real estate investments
which may include office buildings, apartment complexes, hotels and shopping
malls, and real-estate-related loans or interests.
RIGHT - a temporary privilege allowing investors who already own a common
stock to buy additional shares directly from the company at a specified price
or formula.
RUSSELL 2000 - an unmanaged index of 2,000 of the smallest stocks representing
approximately 11% of the U.S. equity market. The index is weighted by market
capitalization, and is not available for investment.
61
<PAGE>
S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged
index of 500 widely held common stocks. It is not available for investment.
S&P MIDCAP 400(1) - an unmanaged index of 400 domestic stocks chosen for market
size, liquidity and industry representation. The index is weighted by market
value, and is not available for investment.
S&P SMALLCAP 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index
of 600 common stocks, weighted by market capitalization. It is not available
for investment.
S&P/BARRA SMALLCAP VALUE INDEX(1) - an unmanaged index of a group of stocks
from the S&P SmallCap 600 that have low price-to-book ratios relative to the
S&P SmallCap 600 as a whole. It is weighted by market capitalization, and is
not available for investment.
S&P/BARRA VALUE INDEX(1) - an unmanaged index of a group of stocks from the S&P
500 that have low price-to-book ratios relative to the S&P 500 as a whole. It
is weighted by market capitalization, and is not available for investment.
SENIOR SECURITY - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
SETTLEMENT DATE - the date on which an order is settled either by payment or
delivery of securities.
TRADE DATE - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. GOVERNMENT OBLIGATIONS - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
WILSHIRE 5000 EQUITY INDEX - an index that measures the performance of the
equity securities of all companies headquartered in the U.S. that have readily
available price data -- over 7,000 companies. The index is weighted by market
capitalization and is not available for investment.
(1)S&P and BARRA have not reviewed any stock included in the S&P 500, S&P 600,
BARRA Index or BARRA SmallCap Index for its investment merit. S&P and BARRA
determine and calculate their indexes independently of the Funds and are not
a sponsor or affiliate of the Funds. S&P and BARRA give no information and
make no statements about the suitability of investing in the Funds or the
ability of their indexes to track stock market performance. S&P and BARRA
make no guarantees about the indexes, any data included in them and the
suitability of the indexes or their data for any purpose. "Standard and
Poor's," "S&P 500" and "S&P 600" are trademarks of the McGraw-Hill Companies,
Inc.
62
<PAGE>
[GRAPHIC] Where to find more information
You'll find more information about the International Funds in the following
documents:
[GRAPHIC] ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports contain information about Fund
investments and performance, the financial statements and the auditor's
reports. The annual report also includes a discussion about the market
conditions and investment strategies that had a significant effect on
each Fund's performance during the period covered.
[GRAPHIC] STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional information about the Funds and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other
information about the Funds and make shareholder inquiries by
contacting Nations Funds:
By telephone: 1.800.321.7854
By mail:
NATIONS FUNDS
C/O STEPHENS INC.
ONE BANK OF AMERICA PLAZA
33RD FLOOR
CHARLOTTE, NC 28255
On the Internet: WWW.NATIONSBANK.COM/NATIONSFUNDS
If you prefer, you can write the SEC's Public Reference Room and ask
them to mail you copies of these documents. They'll charge you a fee
for this service. You can also download them from the SEC's website or
visit the Public Reference Section and copy the documents while you're
there. Please call the SEC for more information.
PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, DC 20549-6009
1.800.SEC.0330
WWW.SEC.GOV
SEC file numbers:
Nations Fund, Inc., 811-04614
Nations Reserves, 811-6030
NF-INTERPROIX-8/99
NATIONS FUNDS
<PAGE>
Statement of Additional Information
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
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.
<PAGE>
TABLE OF CONTENTS
Page
----
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC. AND
NATIONS FUND PORTFOLIOS, INC. ................................. x
DESCRIPTION OF THE COMPANIES AND THE INVESTMENTS AND RISKS
OF THE FUNDS .................................................. x
General................................................... x
Investment Limitations ................................... x
Permissible Fund Investments.............................. x
Asset-Backed Securities................................... x
Borrowings................................................ x
Commercial Instruments.................................... x
Combined Transactions..................................... x
Convertible Securities.................................... x
Corporate Debt Securities................................. x
Custodial Receipts........................................ x
Currency Swaps............................................ x
Delayed Delivery Transactions............................. x
Dollar Roll Transactions ................................. x
Equity Swap Contracts .................................... x
Foreign Currency Transactions ............................ x
Futures, Options and Other Derivative
Instruments........................................... x
Risk Factors Associated with Futures and Options
Transactions......................................... x
Guaranteed Investment Contracts........................... x
Insured Municipal Securities ............................. x
Interest Rate Transactions ............................... x
Lower Rated Debt Securities............................... x
Municipal Securities ..................................... x
Options on Currencies..................................... x
Other Investment Companies................................ x
Participation Interests and Company Receipts.............. x
Real Estate Investment Trusts............................. x
Repurchase Agreements .................................... x
Reverse Repurchase Agreements ............................ x
Securities Lending........................................ x
Short Sales............................................... x
Special Situations........................................ x
Stand-by Commitments ..................................... x
Stripped Securities....................................... x
U.S. and Foreign Bank Obligations......................... x
U.S. Government Obligations............................... x
Use of Segregated and Other Special Accounts.............. x
Variable and Floating Rate Instruments ................... x
Warrants.................................................. x
When-Issued Purchases and Forward Commitments ........... x
Portfolio Turnover........................................ x
Investment Risks.......................................... x
MANAGEMENT OF THE COMPANIES.................................... x
Nations Funds Retirement Plan............................ x
Nations Funds Deferred Compensation Plan................. x
Shareholder and Trustee Liability........................ x
4
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ....................................... x
Investment Adviser and Sub-Advisers....................... x
Co-Administrator and Sub-Administrator.................... x
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares...................... x
Fees Paid Pursuant to Shareholder Servicing/
Distribution Plans - Investor A Shares................ x
Fees Paid Pursuant to Distribution Plan
Investor B Shares - Money Market Funds................ x
Investor-C Shares - Money Market Funds
Investor B Shares - Non-Money Market Funds............ x
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares).................................... x
Shareholder Servicing Plan-Prime Fund
(Marsico Shares)...................................... x
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares).................................... x
Expenses.................................................. x
Transfer Agents and Custodians............................ x
Distributor............................................... x
Independent Accountant and Reports........................ x
Counsel................................................... x
FUND TRANSACTIONS AND BROKERAGE................................ x
General Brokerage Policy.................................. x
Section 28(e) Standards................................... x
DESCRIPTION OF SHARES.......................................... x
Description of Shares of the Corporation.................. x
Dividends and Distributions of NFI........................ x
Dividends and Distributions of NFP........................ x
Dividends and Distributions of NFT........................ x
Net Asset Value Determination............................. x
ADDITIONAL INFORMATION CONCERNING TAXES........................ x
General................................................... x
Excise Tax ............................................... x
Private Letter Ruling..................................... x
Taxation of Fund Investments.............................. x
Foreign Taxes ............................................ x
Capital Gain Distribution................................. x
Other Distributions....................................... x
Disposition of Fund Shares................................ x
Federal Income Tax Rates.................................. x
Corporate Shareholders.................................... x
Foreign Shareholders...................................... x
Backup Withholding........................................ x
Tax Deferred Plans........................................ x
Special Tax Consideration................................. x
Other Matters............................................. x
ADDITIONAL INFORMATION ON PERFORMANCE.......................... x
Yield Calculations........................................ x
Total Return Calculations................................. x
MISCELLANEOUS ................................................. x
Certain Record Holders........................................ x
SCHEDULE A - Description of
Ratings........................................................... A-1
5
<PAGE>
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. Each NFT, NFI and NFP 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 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.
6
<PAGE>
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.
7
<PAGE>
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."
Banc of America Advisors, Inc. ("BAAI") is the investment adviser to the
Funds. 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 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.
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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 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.
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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.
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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.
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 defensive periods). These types of securities are
listed below for each portfolio and then are described in more detail after this
sub-section.
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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, 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.
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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 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.
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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.
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.
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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
participations in, or debt instruments backed by, the securities and other
assets owned by such trusts and partnerships.
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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.
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.
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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 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.
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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 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.
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<PAGE>
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 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.
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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 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.
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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 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.
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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.
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.
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Delayed Delivery Transactions
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous. 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.
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.
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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.
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").
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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.
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.
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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
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.
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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.
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.
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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.
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.
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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 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.
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A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of a
Fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
investments that are being hedged. While a Fund will incur commission expenses
in selling and closing out futures positions (which is done by taking an
opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified 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.
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If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of 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.
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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
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.
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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 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.)
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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.
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.
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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.
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.
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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.
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The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 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
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.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures =
$60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable, 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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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.
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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.
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.
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.
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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.)
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.
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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.
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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 being considered by the North Carolina General
Assembly for the fiscal year ending June 30, 2000 projects an ending General
Fund balance of approximately $1,043 million. However, no funds have been
appropriated or reserved for intangibles tax refunds, which could be as much as
$465 million, payable as a result of the Smith-Shaver cases described below.
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.
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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. Because a dispute continues as to the timing of the payment of these
intangibles tax refunds, the General Assembly of North Carolina has made no
appropriations for their payment and they are not included in the budget being
considered by the North Carolina General Assembly for the fiscal year ending
June 30, 2000. Additional class action lawsuits claim approximately $105 million
for intangibles taxes paid for 1990. While the State believes that this claim is
barred by the statute of limitations, this defense has been dismissed by the
Superior Court.
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.
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.
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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.
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.
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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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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<PAGE>
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.
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.
71
<PAGE>
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.
72
<PAGE>
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.
73
<PAGE>
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.
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.
74
<PAGE>
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(*).
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Companies Directorships
- ---------------------- ------------- -----------------------
Edmund L. Benson, III, Director Director, President and
62 Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (Insurance),
1510 Willow Lawn Drive Insurance Managers, Inc.
Suite 216 (insurance); Trustee,
Richmond, VA 23230 Nations Reserves, Master
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
11511 Compass Point President, Corporate
Drive 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.
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<PAGE>
William H. Grigg, 66 Director Chairman Emeritus since
Duke Power Co. July 1997, Chairman and
16092A Reap Road Chief Executive Officer
Albermarle, NC 28001 from April 1994 to July
1997 - Duke 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.
Thomas F. Keller, 67 Director R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and Former
Duke University Dean - Fuqua School of
Durham, NC 27708 Business, Duke University;
Director - 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.
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<PAGE>
Carl E. Mundy, Jr., 64 Director President and CEO - USO
USO World Headquarters from May 1996 to present;
Washington Navy Yard Commandant - United States
Building 198 Marine Corps from July
901 M Street, S.E. 1991 to July 1995;
Washington, D.C. Director - Shering-Plough
20374-5096 (pharmaceuticals and
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.
Dr. Cornelius J. Pings, Director/Trustee President - Association of
70* American Universities from
480 S. Orange Grove February 1993 to June
Blvd. 1998; Director - Farmers
Pasadena, CA 91105 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.
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<PAGE>
James B. Sommers*, 60 Director President - NationsBank
237 Cherokee Road Trust from January 1992 to
Charlotte, NC 28207 September 1996; 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 Independent Financial
4580 Windsor Gate Court and Chairman of the Consultant; Director and
Atlanta, GA 30342 Board Chairman of the Board -
Hatteras Income Securities,
Inc., Nations Government Income
Term Trust 2003, Inc., Nations
Government Income Term Trust
2004, Inc., Nations Balanced
Target Maturity Fund, Inc.;
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>
Charles B. Walker, 60 Director Director-Ethyl Corporation
Albermarle Corporation (chemical manufacturing);
Vice Chairman and CFO Vice Chairman and Chief
330 South Fourth Street Financial Officer -
Richmond, VA 23219 Albemarle Corporation
(chemical 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,
McGuire, Woods, Battle Battle & Boothe LLP (law
& Boothe LLP firm); Director -
One James Center Vaughan-Bassett Furniture
8th Floor Companies, Inc.
Richmond, VA 23219 (furniture), 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>
Richard H. Blank, Jr., Secretary and Treasurer Senior Vice President
42 since 1998, Vice President
Stephens Inc. from 1994 to 1998 and
111 Center Street Manager from 1990 to 1994
Little Rock, AR 72201 - Mutual 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 -
Stephens Inc. Nations Fund Trust,
Nations Fund, Inc., Nations
Reserves, Nations Fund
Portfolios, Inc., Nations
LifeGoal Funds, Inc., Nations
Annuity Trust and Nations
Master Investment Trust.
James E. Banks, 43 Assistant Secretary Assistant Secretary -
Stephens Inc. Nations Fund Trust,
Nations Fund, Inc., Nations
Reserves, Nations Fund
Portfolios, Inc., Nations
LifeGoal Funds, Inc., Nations
Annuity Trust and Nations
Master Investment Trust.
80
<PAGE>
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>
Pension or
Aggregate Retirement
Compensation Benefits Estimated Total Compensation
Name of Person from Accrued as Annual from Registrant
Position (1) Registrant Part of Benefits Upon & Fund Complex(3)(4)
(2) Fund Retirement
Expenses Plan
<S> <C> <C> <C> <C>
Edmund L. Benson, $46,000 $8,889 $35,000 $77,377
III
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>
(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.
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<PAGE>
(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 meetings per
calendar year. In addition, the Chairman of the Boards, currently A. Max Walker,
would receive an addtional fee of 20% of the base retainer fee; the Chairman of
the Nominating Committees would receive an additional fee of 10% of the base
retainer fee. The members of the Nominating and Audit Committees will receive
additional compensation at the rate of $1,000 per meeting attended.
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<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.
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.
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<PAGE>
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
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.
85
<PAGE>
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.
86
<PAGE>
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.
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.
87
<PAGE>
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.
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
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 0.00 148,556 (123,556.00)
Fund
Nations Marsico Growth & 687,321 0.00 0.00
Income Fund
Nations Marsico Focused 1,951,845 0.00 0.00
Equities Fund
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 179,149 445,481 (33,630.00)
Fund
Intermediate Municipal Bond 3,120,856 1,454,144 0.00
Fund
Florida Intermediate 750,898 419,102 0.00
Municipal Bond Fund
Georgia Intermediate 446,861 333,011 (1,872.00)
Municipal Bond Fund
Maryland Intermediate 512,685 397,315 0.00
Municipal Bond Fund
North Carolina Intermediate 626,613 379,387 0.00
Municipal Bond Fund
South Carolina Intermediate 900,188 451,812 0.00
Municipal Bond Fund
Tennessee Intermediate 124,633 172,760 (37,393.00)
Municipal Bond Fund
Texas Intermediate Municipal 1,350,723 620,277 0.00
Bond Fund
Virginia Intermediate 849,701 485,299 0.00
Municipal Bond Fund
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 113,404 143,226 (30,630.00)
Bond Fund
South Carolina Municipal Bond 59,273 129,724 (49,997.00)
Fund
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
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.
88
<PAGE>
ADVISORY FEES
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 193 5,901 0.00
Fund
Nations Marsico Growth & 0.00 10,919 0.00
Income Fund
Nations Marsico Focused 27,032 0.00 0.00
Equities Fund
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 143,891 357,577 0.00
Fund
Intermediate Municipal Bond 1,814,264 1,420,175 0.00
Fund
Florida Intermediate 414,266 371,186 0.00
Municipal Bond Fund
Georgia Intermediate 305,490 267,367 0.00
Municipal Bond Fund
Maryland Intermediate 216,531 251,773 0.00
Municipal Bond Fund
North Carolina Intermediate 350,910 325,600 0.00
Municipal Bond Fund
South Carolina Intermediate 532,494 471,252 0.00
Municipal Bond Fund
Tennessee Intermediate 67,179 121,971 0.00
Municipal Bond Fund
Texas Intermediate Municipal 688,008 601,927 0.00
Bond Fund
Virginia Intermediate 631,227 484,093 0.00
Municipal Bond Fund
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 83,208 94,452 0.00
Bond Fund
South Carolina Municipal Bond 42,805 72,257 0.00
Fund
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
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.
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<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
<S> <C> <C> <C>
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 104,662.00 161,773.00 0.00
Fund
Georgia Intermediate Municipal Bond 124,834.00 165,879.00 0.00
Fund
Maryland Intermediate Municipal 260,093.00 227,212.00 0.00
Bond Fund
North Carolina Intermediate 76,726.00 121,064.00 0.00
Municipal Bond Fund
South Carolina Intermediate 152,937.00 197,205.00 0.00
Municipal Bond Fund
Tennessee Intermediate Municipal 14,485.00 79,715.00 0.00
Bond Fund
Texas Intermediate Municipal Bond 54,898.00 104,929.00 0.00
Fund
Virginia Intermediate Municipal 614,014.00 520,946.00 0.00
Bond Fund
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
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<PAGE>
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
91
<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
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 4,902 1,410
Fund
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 82,663 70,205
Fund
Intermediate Municipal Bond 640,558 452,822
Fund
Florida Intermediate 163,780 109,963
Municipal Bond Fund
Georgia Intermediate 108,963 80,200
Municipal Bond Fund
Maryland Intermediate 127,375 65,563
Municipal Bond Fund
North Carolina Intermediate 140,804 94,711
Municipal Bond Fund
South Carolina Intermediate 189,337 140,524
Municipal Bond Fund
Tennessee Intermediate 36,337 26,481
Municipal Bond Fund
Texas Intermediate Municipal 275,982 180,591
Bond Fund
Virginia Intermediate 186,964 156,145
Municipal Bond Fund
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 26,344 20,727
Bond Fund
South Carolina Municipal Bond 16,161 13,424
Fund
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 ----
92
<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 65,382.00
Fund
Florida Intermediate Municipal 37,301.00
Bond Fund
Georgia Intermediate Municipal 40,700.00
Bond Fund
Maryland Intermediate Municipal 59,822.00
Bond Fund
North Carolina Intermediate 27,691.00
Municipal Bond Fund
South Carolina Intermediate 49,020.00
Municipal Bond Fund
Tennessee Intermediate 13,188.00
Municipal Bond Fund
Texas Intermediate Municipal 22,376.00
Bond Fund
Virginia Intermediate Municipal 158,894.00
Bond Fund
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 20,193.00
Fund
South Carolina Municipal Bond 12,571.00
Fund
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
93
<PAGE>
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
Period Ending Period Ending Period
3/31/999 3/31/98 Ending
3/31/97
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
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
Period Ending Period Ending
3/31/999 3/31/98
Nations Marsico Focused
Equities Fund $1,033,332 $14,311
Nations Marsico Growth & 363,877 5,780
Income Fund
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.
Period Ending Period Ending Period Ending
3/31/99 5/15/98 11/30/97
International Value Fund $570,822 $177,516.52 $212,631.72
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.
94
<PAGE>
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.
Co-Administration Fees
Fees Paid Fees Waived
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 8,212 0
Fund
Georgia Intermediate Municipal Bond 5,394 0
Fund
Maryland Intermediate Municipal Bond 6,862 0
Fund
North Carolina Intermediate 6,825 0
Municipal Bond Fund
South Carolina Intermediate 8,946 0
Municipal Bond Fund
Tennessee Intermediate Municipal 1,803 0
Bond Fund
Texas Intermediate Municipal Bond 13,204 0
Fund
Virginia Intermediate Municipal Bond 9,640 0
Fund
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
95
<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
Fees Paid Fees Waived
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 45,671 16,423
Fund
Georgia Intermediate Municipal Bond 29,968 10,787
Fund
Maryland Intermediate Municipal Bond 38,131 13,725
Fund
North Carolina Intermediate 37,951 13,647
Municipal Bond Fund
South Carolina Intermediate 50,278 17,891
Municipal Bond Fund
Tennessee Intermediate Municipal 10,131 3,603
Bond Fund
Texas Intermediate Municipal Bond 74,216 26,408
Fund
Virginia Intermediate Municipal Bond 54,229 19,280
Fund
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
96
<PAGE>
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
Fees Paid Fees Waived
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 20,539 ---
Fund
Georgia Intermediate Municipal Bond 13,341 ---
Fund
Maryland Intermediate Municipal Bond 16,968 ---
Fund
North Carolina Intermediate 17,041 ---
Municipal Bond Fund
South Carolina Intermediate 24,764 ---
Municipal Bond Fund
Tennessee Intermediate Municipal 5,015 ---
Bond Fund
Texas Intermediate Municipal Bond 36,575 ---
Fund
Virginia Intermediate Municipal Bond 26,442 ---
Fund
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
97
<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 Muncipal Bond, Tennessee Intermediate Muncipal 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 16,273
Fund
Georgia Intermediate Municipal Bond 10,822
Fund
Maryland Intermediate Municipal Bond 13,746
Fund
North Carolina Intermediate 13,539
Municipal Bond Fund
South Carolina Intermediate 15,768
Municipal Bond Fund
Tennessee Intermediate Municipal 3,157
Bond Fund
Texas Intermediate Municipal Bond 23,244
Fund
Virginia Intermediate Municipal Bond 16,760
Fund
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
98
<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
Fees Paid Fees Waived
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 81,828 30,370
Fund
Georgia Intermediate Municipal Bond 54,784 20,345
Fund
Maryland Intermediate Municipal Bond 60,219 22,669
Fund
North Carolina Intermediate 71,685 26,583
Municipal Bond Fund
South Carolina Intermediate 97,730 36,206
Municipal Bond Fund
Tennessee Intermediate Municipal 18,283 6,779
Bond Fund
Texas Intermediate Municipal Bond 141,467 52,443
Fund
Virginia Intermediate Municipal Bond 91,890 34,139
Fund
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
==========================
99
<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
Fees Paid Fees Waived
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 58,485 --
Fund
Georgia Intermediate Municipal Bond 39,175 --
Fund
Maryland Intermediate Municipal Bond 43,548 --
Fund
North Carolina Intermediate 51,196 --
Municipal Bond Fund
South Carolina Intermediate 69,741 --
Municipal Bond Fund
Tennessee Intermediate Municipal 13,055 --
Bond Fund
Texas Intermediate Municipal Bond 101,011 --
Fund
Virginia Intermediate Municipal Bond 65,729 --
Fund
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 --
==========================
100
<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
Fees Paid Fees Waived
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 11,540 --
Fund
Georgia Intermediate Municipal Bond 7,764 --
Fund
Maryland Intermediate Municipal Bond 9,579 --
Fund
North Carolina Intermediate 10,031 --
Municipal Bond Fund
South Carolina Intermediate 13,556 --
Municipal Bond Fund
Tennessee Intermediate Municipal 2,553 --
Bond Fund
Texas Intermediate Municipal Bond 19,744 --
Fund
Virginia Intermediate Municipal Bond 13,073 --
Fund
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 --
==========================
101
<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
Net Fees Fees Waived
Paid
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 61,898 31,419
Fund
Georgia Intermediate Municipal Bond 44,811 22,914
Fund
Maryland Intermediate Municipal Bond 36,010 26,201
Fund
North Carolina Intermediate 53,527 27,061
Municipal Bond Fund
South Carolina Intermediate 79,235 40,150
Municipal Bond Fund
Tennessee Intermediate Municipal 14,824 7,566
Bond Fund
Texas Intermediate Municipal Bond 102,899 51,598
Fund
Virginia Intermediate Municipal Bond 85,542 44,703
Fund
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
102
<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
Net Fees Fees Waived
Paid
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 63,773 0.00
Fund
Georgia Intermediate Municipal Bond 46,846 0.00
Fund
Maryland Intermediate Municipal Bond 31,450 0.00
Fund
North Carolina Intermediate 54,714 0.00
Municipal Bond Fund
South Carolina Intermediate 81,364 0.00
Municipal Bond Fund
Tennessee Intermediate Municipal 15,440 0.00
Bond Fund
Texas Intermediate Municipal Bond 103,490 0.00
Fund
Virginia Intermediate Municipal Bond 92,909 0.00
Fund
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
103
<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
Net Fees Fees Waived
Paid
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 15,709 --
Fund
Georgia Intermediate Municipal Bond 11,457 --
Fund
Maryland Intermediate Municipal Bond 9,366 --
Fund
North Carolina Intermediate 13,530 --
Municipal Bond Fund
South Carolina Intermediate 20,075 --
Municipal Bond Fund
Tennessee Intermediate Municipal 3,783 --
Bond Fund
Texas Intermediate Municipal Bond 25,799 --
Fund
Virginia Intermediate Municipal Bond 22,306 --
Fund
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 --
104
<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
Net Fees Fees Waived
Paid
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 23,525.00 5,513.00
Fund
Georgia Intermediate Municipal Bond 25,682.00 5,977.00
Fund
Maryland Intermediate Municipal Bond 38,122.00 2,519.00
Fund
North Carolina Intermediate 17,628.00 3,971.00
Municipal Bond Fund
South Carolina Intermediate 31,091.00 7,071.00
Municipal Bond Fund
Tennessee Intermediate Municipal 8,422.00 1,869.00
Bond Fund
Texas Intermediate Municipal Bond 14,310.00 3,130.00
Fund
Virginia Intermediate Municipal Bond 101,774.00 22,264.00
Fund
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
105
<PAGE>
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
Net Fees Fees Waived
Paid
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 24,249.00 0.00
Fund
Georgia Intermediate Municipal Bond 26,483.00 0.00
Fund
Maryland Intermediate Municipal Bond 38,819.00 0.00
Fund
North Carolina Intermediate 17,960.00 0.00
Municipal Bond Fund
South Carolina Intermediate 31,867.00 0.00
Municipal Bond Fund
Tennessee Intermediate Municipal 8,549.00 0.00
Bond Fund
Texas Intermediate Municipal Bond 14,526.00 0.00
Fund
Virginia Intermediate Municipal Bond 102,954.00 0.00
Fund
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
106
<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.
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.
107
<PAGE>
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.
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.
108
<PAGE>
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.
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.
109
<PAGE>
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.
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.
110
<PAGE>
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.
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.
111
<PAGE>
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.
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.
112
<PAGE>
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.
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.
113
<PAGE>
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.
114
<PAGE>
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.
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.
115
<PAGE>
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.
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.
116
<PAGE>
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.
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
Net Fees Paid (12b-1 (Shareholder
FUND Component) Servicing Net Fees Paid
Year ended 3/31/99 Component)
Year ended 3/31/99
<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 6,828 -- 6,828
Fund
Disciplined Equity Fund 166,141 -- 166,141
Nations Marsico Focused 144,518 -- 144,518
Equities Fund
Nations Marsico Growth & 42,482 -- 42,282
Income Fund
Balanced Assets Fund 66,729 -- 66,729
Short-Intermediate Government 103,329 -- 103,329
Fund
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 -- 91,654 91,654
Fund
Intermediate Municipal Bond 25,402 -- 25,402
Fund
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 18,421 -- 18,421
Fund
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
117
<PAGE>
Fees Paid Pursuant to Distribution Plans
Investor B Shares - Money Market Funds
Investor C Shares - Non-Money Market Funds
Net Fees Paid
Net Fees Paid (12b-1 (Shareholder
FUND Component) Servicing Net Fees Paid
Year ended 3/31/99 Component)
Year ended 3/31/99
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 955,914 318,638 1,274,552
Equities Fund
Nations Marsico Growth & 336,117 112,039 448,156
Income Fund
Balanced Assets Fund 699,898 233,299 933,197
Short-Intermediate Government 68,547 31,158 99,705
Fund
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 14,076 35,193 49,269
Fund
Intermediate Municipal Bond 15,865 7,211 23,076
Fund
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 20,961 9,528 30,489
Fund
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
========= ========= ==========
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.
Investor B Shares - Non-Money Market Funds
Investor C Shares - Money Market Funds
Net Fees Paid
(Shareholder
Net Fees Paid Servicing
(12b-1 Component) Component)
FUND Year ended 3/31/99 Year ended 3/31/99 Net Fees Paid
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 216 216 432
Fund
Disciplined Equity Fund 10,223 3,408 13,631
Nations Marsico Focused 19,789 6,596 26,385
Equities Fund
Nations Marsico Growth & 7,885 2,628 10,513
Income Fund
Balanced Assets Fund 12,435 4,145 16,580
Short-Intermediate Government 5,604 1,868 7,472
Fund
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 10,582 3,527 14,109
Fund
Intermediate Municipal Bond 6,246 2,082 8,328
Fund
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 20 7 27
Fund
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>
Daily Shares - Money Market Funds
Net Fees Paid
Net Fees Paid (Shareholder
FUND (12b-1 Component) Servicing Net Fees Paid
Year ended Component)
3/31/99 Year ended
3/31/99
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
Fees Paid Pursuant to the Administration Plan
Primary B Shares
Net Admin
Fees Paid Net Admin
Year ended 3/31/99 Fees Waived
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 945 1,055
Fund
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
118
<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.
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.
119
<PAGE>
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.
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).
120
<PAGE>
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.
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.
121
<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.
122
<PAGE>
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.
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.
123
<PAGE>
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.
124
<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.
125
<PAGE>
BROKERAGE COMMISSIONS
- ------------------------------------------------------------------------------
Fund Fiscal Year Fiscal Year Fiscal Year
Ended March Ended March Ended March
31,1999 31,1998 31,1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Managed SmallCap Index 143,732 $ 54,486.18
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Disciplined Equity 152,295 288,643.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Equity Index 208,604 115,828.91
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Emerging Growth 477,588 554,981.41
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital Growth Fund 1,392,418 1,584,909.43
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Managed Index 119,677 24,684.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Value 3,142,078 1,784,504.83
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Balanced Assets 1,207,000 1,965,293.04
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Nations Emerging Markets 284,328 207,518.87
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Equity Income 1,111,460 1,083,187.32
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
International Equity 2,421,975 1,738,165.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
International Growth 1,054,454 0
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Managed Small Cap Value 5,469 0
Index
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Nations Marsico Focused 25,934 0
Equities
- ------------------------------------------------------------------------------
126
<PAGE>
- ------------------------------------------------------------------------------
Nations Marsico Growth & 9,903 0
Income
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Small Company Growth 184,948 0
- ------------------------------------------------------------------------------
During the fiscal periods ended March 31, [1999], 1998, and 1997, NFT and
its Funds did not pay brokerage commissions to NationsBanc Investments, Inc. (or
its predecessors), NationsBanc Capital Markets, Inc., or Stephens. NFT did pay [
] to Nations Montgomery Securities LLC during the fiscal year ended March 31,
1999, for _______________ Fund, which is ____% of the total commissions paid for
________ Fund. During the fiscal year ended March 31, 1999, NFT had total
brokerage transactions for _______________ Fund of $_____. Of this total, ____%
of the brokerage transactions were executed through National Montgomery
Securities, LLC, an affiliated broker.]
[During the fiscal period ended March 31, 1999, 1998, and 1997, NFP did
not pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital Markets, Inc. or
Stephens.]
[During the fiscal years ended March 31, 1999, 1998 and 1997, NFI did not
pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital Markets, Inc. or
Stephens. ]
[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.
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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.
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.
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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.
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.
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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.
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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).
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.
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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.
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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.
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.
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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.
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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.
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.
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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.
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.
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.
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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.
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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
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.
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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.
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.
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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.
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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.
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.
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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.
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.
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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:
Seven Day Yield
Effective
Yield Yield Tax
Without Without Tax Equivalent
Fee Effective Fee Equivalent Yield w/o
Yield Waivers Yield Waivers Yield Waivers
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
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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 Yield Fee Yield Without
Waivers Waivers 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
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%
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
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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.
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.
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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
Tax
Yield Tax Equivalent
Without Equivalent Yield
Yield Fee Yield Without
Waivers Fee
Waivers
Short-Intermediate Government
Fund
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
Investor 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
149
<PAGE>
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
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%
150
<PAGE>
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%
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%
151
<PAGE>
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%
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%.
152
<PAGE>
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:
For the Georgia Intermediate Municipal Bond Fund and Georgia Municipal
Bond Fund:
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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.
153
<PAGE>
For the Maryland Intermediate Municipal Bond Fund and Maryland Municipal
Bond Fund:
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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:
154
<PAGE>
- ---------------------------------------------------------------------
Single $25,351-$60,000 $60,001-$61,400 $61,401-$128,100 $128,101-$278,450
Return (28%, 7%) (28%, 7.75%) (31%, 7.75%) (36%, 7.75%)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Joint $42,351-$100,000 $100,001-$102,300 $102,301-$155,950 $155,951-$278,450
Return (28%, 7%) (28%,7.75%) (31%, 7.75%) (36%, 7.75%)
- ---------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- -------------------------------------------------------------------
4% 5.97% 6.22% 6.28% 6.78%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
5% 7.47% 7.53% 7.86% 8.47%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
6% 8.96% 9.03% 9.43% 10.16%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
7% 10.45% 10.54% 11.00% 11.86%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
8% 11.95% 12.04% 12.57% 13.55%
- -------------------------------------------------------------------
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:
155
<PAGE>
- --------------------------------------------------------
Single $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
Return (28%, 7%) (31%, 7%) (36%,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%
- ------------------------------------------------------
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.
For the Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund:
156
<PAGE>
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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:
157
<PAGE>
- --------------------------------------------------------------------------------
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%
- ------------------------------------------------------
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:
158
<PAGE>
- --------------------------------------------------------------------------------
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%
- ------------------------------------------------------
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.
159
<PAGE>
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.
Thirty Day Yield
Yield Without
Government Securities Fund Yield Fee Waivers
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%
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.
160
<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.
Average Annual Total Returns Inception Inception
Through 3/31/99 Through
Without Sales 3/31/99
Charges Including
Sales Charges
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%
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.
161
<PAGE>
Average Annual Total Return
5 Year Period
One Year Ended 3/31/99 or
Period Ended 3/31/99 Inception
through 3/31/99
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%
Average Annual Total Return
One 10 Year
Year Period
Period 5-year Ended
Ended period 3/31/99
3/31/99 ending or
3/31/99 Inception
through
3/31/99
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%
162
<PAGE>
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%
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%
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%
163
<PAGE>
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%
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%
164
<PAGE>
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%
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%
Aggregate Annual Total Return
<TABLE>
<CAPTION>
5-Year period 5-Year period Inception Inception
FYE FYE ending ending through through
3/31/99 3/31/99 3/31/99 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
Value Fund
<S> <C> <C> <C> <C> <C> <C>
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%
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%
165
<PAGE>
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 4.97% 4.97% 31.53% 31.53% 61.33% 61.33%
Primary A Shares
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%
166
<PAGE>
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%
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%
167
<PAGE>
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%
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%
168
<PAGE>
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%
169
<PAGE>
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>
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.
170
<PAGE>
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.
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).
171
<PAGE>
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.
Cumulative Total Return
<TABLE>
<CAPTION>
10 Year 10 Year
Period Period
Ended Ended
3/31/99 3/31/99
Year or or
Period Year Period Inception Inception
FYE FYE Ended Ended through through
3/31/99 3/31/99 3/31/99 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
Equity Income Fund
<S> <C> <C> <C> <C> <C> <C>
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 -9.87% -15.07% 96.89% 85.54% 165.91% 150.68%
Shares
Investor B -10.49% -14.57% 91.28% 89.28% 95.79% 94.85%
Shares
Investor C -10.28% -11.10% 91.75% 91.75% 124.23% 124.23%
Shares
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 3.59% -2.34% 42.70% 34.54% 63.50% 54.15%
Shares
Investor B 2.65% -2.07% 37.68% 35.68% 53.85% 52.85%
Shares
Investor C 2.63% 1.69% 37.94% 37.94% 60.20% 60.20%
Shares
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 5.16% 0.20% 32.43% 26.11% 61.88% 54.18%
Shares
Investor B 4.53% 0.55% 29.39% 28.40% 28.91% 28.91%
Shares
Investor C 4.52% 3.52% 29.46% 29.46% 36.48% 36.48%
Shares
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>
172
<PAGE>
* 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.
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:
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Prime Fund Bank of America NA Primary A 97.86%
Attn Tony Farrer 2,548,300,292.27;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Bank of America NA Primary B 100%
Attn Tony Farrer (B 13,136,085.23;
Shares) record
1401 Elm Street 11th
Floor
Dallas, TX
75202-2911
National Financial Investor A 73.43%
For the Exclusive 545,820,012.38;
Benefit of our record
Customers
200 Liberty Street
1 World Financial
Center
Attn Mutual Funds
5th Flr
New York, NY 10281
173
<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 10.55%
James L Bowen Jr 20,981.45;
195 Springhill Dr record
Tifton, GA 31794
J David Dalton TTEE Investor A 9.36%
Lowcountry 18,624.05;
Orthopaedics record
Associates P/S/P
Dated 08-05-87
9313 Medical Plaza
Drive Suite 302
Charleston, SC 29406
BNY Cust Rollover Investor A 8.78%
IRA FBO 17,469.28;
James L Payne record
Box 434
Hemphill, TX 75948
Anne Valcourt Gdn Investor A 7.61%
FBO Danyel 15,148.89;
Chaniequa Solange record
Valcourt
c/o H R Chaplin
9930 W Broadview Dr
Bay Harbor Island,
FL 33154
Jean E Kellogg and Investor A 5.21%
Thomas G Kellogg 10,373.79;
JTTEN beneficial
52109 Tara Dr
South Bend, IN 46628
National Financial Daily 99.07%
for the Exclusive Shares
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 Marsico 100%
Group Inc as Agt Class
for Marisco Funds 28,146,272.74;
Inc. record
207 E Buffalo Ste 400
Milwaukee, WI 53202
Treasury Fund Bank of America NA Primary A 98.84%
Attn Tony Farrer 644,048,073.72;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Bank of America NA Primary B 100%
Attn Tony Farrer (B 13,779,548.960;
Shares) record
1401 Elm Street 11th
Floor
Dallas, TX
75202-2911
Hare & Co, Bank of Investor A 93.27%
New York 977,932,242.08;
Attn STIF/Master Note record
One Wall Street 2nd
FL
New York, NY 10286
Hare & Co, Bank of Investor B 42.04%
New York 93,249,284.110;
Attn Stif/Master Note record
One Wall Street 2nd
Fl
New York, NY 10286
Cleburne Texas Isd Investor B 5.53%
General Fund 12,258,876.60;
103 South Walnut beneficial
Cleburne, TX 76031
NFSC FEBO # Investor C 35.10%
W13-635901 71,890.910;
NFSC/FMTC IRA record
FBO John P Nicoson
13147 Ashvale Dr
Fairfax, VA 22033
NFSC FEBO # Investor C 24.73%
W52-725021 50,641.010;
NFSC/FMTC IRA record
FBO Retha C Whitehead
5226 Garfield Av
Kansas City, MO
64130
NFSC FEBO # Investor C 8.58%
W32-608246 17,563.630;
NFSC/FMTC IRA record
FBO Donald E Paul
3407 Shadowod Dr
Valrico, FL 33594
NFSC FEBO W68-959634 Investor C 6.60%
NFSC FMTC IRA 13,523.950;
FBO Thomas J Schultz record
1110 Sycamore Street
Lake Placid, FL
33852-8333
NFSC FEBO # Investor 5.86%
W13-643629 C;
NFSC/FMTC IRA 11,997.800;
FBO Maureen D record
Matricardi
8004 Carrleigh Pkwy
Springfield, VA
22152
NFSC FEBO # Investor C 5.86%
W13-643637 11,997.800;
NFSC/FMTC IRA record
FBO Edmund A
Matricardi Jr
8004 Carrleigh Pkwy
Springfield, VA
22152
174
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 5.10%
W14-607207 10,436.800;
NFSC/FMTC IRA record
Rollover
FBO James A Cox
2015 Ashton Pointe Dr
Dacula, GA 30019
National Financial Daily 64.15%
for the Exclusive Shares
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
Nationsbank SWP Daily 35.19%
Disbursement Inc Shares
Nationsbank 61,500,000.000;
Sweep/Autoborrow record
First Citizens Bldg
128 S Tryon St
NC1-006-08-03
Charlotte, NC 28255
Equity Income Bank of America NA Primary A 99.27%
Fund Attn Tony Farrer 45,515,158.582;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.240;
111 Center Street record
Little Rock, AR
72201
Government Bank of America NA Primary A 97.95%
Securities Fund Attn Tony Farrer 12,196,720.398;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.061;
111 Center Street record
Little Rock, AR
72201
175
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
BA Investment Investor C 31.15%
Services, Inc. 10,460.251;
FBO 435728581 record
185 Berry St.
3rd Floor #12640
San Francisco, CA
94107
Corelink Financial Investor C 18.83%
Inc 6,321.228;
PO Box 4054 record
Concord, CA
94524-4054
BNY Cust IRA FBO Investor C 9.49%
Mary Jane Russo 3,187.553;
8 Maybrook Ct record
Glen Arm, MD 21057
Banc of America Investor C 9.36%
Investment Services 3,141.361;
FBO 436566931 record
3rd Floor #12640
San Francisco, CA
94107
International Bank of America NA Primary A 90.81%
Equity Fund Attn Tony Farrer 48,132,227.524;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B; 100%
Attn: Cindy Cole 0.894;
111 Center Street record
Little Rock, AR
72201
176
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Bank of America NT & Investor A 24.89%
SA 412,936.745;
The Private Bank record
Attn Common Trust
Funds Unit 38329
PO Box 3577
Los Angeles, CA
90051-1577
H Grayson Mitchell Investor C 10.78%
Jr and 6,994.999;
John Rawls TTEE FBO record
Grayson Mitchell Inc
401K Plan
P O Box 128
Emporia, VA 23847
C A Porterfield & Investor C 10.27%
Rosalee Moxley & 6,660.171;
Frank Minton TTEES record
Starmount Company
Capital Accumulation
Plan
PO Box 10349
Greensboro, NC
27404-0349
C A Porterfield & Investor C 10.17%
Rosalee Moxley & 6,600.192;
Frank Minton TTEES record
Starmount Company
Employees
Tax Deferred Savings
Plan
PO Box 10349
Greensboro, NC
27404-0349
E Larry Fonts TTEE Investor C 9.02%
FBO 5,851.765;
Central Dallas record
Association
Profit Sharing Plan
1201 Elm Street
Suite 5310
Dallas, TX 75270
Tatsushi T Kubo, Max
W Dahlgren, & Investor C 8.56%
John Dahlgren TTEES FBO 5,553.362;
EPIC Products International record
Corporation 401(K) Plan
PO Box 5808
Arlington, TX 76005-5808
Corel Ink Financial Investor C 6.20%
Inc 4,019.169;
PO Box 4054 record
Concord, CA
94524-4054
177
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 6.19%
W17-662682 4,016.225;
NFSC/FMTC IRA record
Rollover
FBO Linda G Walker
7 Sally St
Spartanburg, SC
29301
Donald R Atkins and Investor C 5.37%
David R Morgan TTEES 3,480.722;
Lyndon Steel 401K record
Profit Sharing Pl
1947 Union Cross Road
Winston-Salem, NC
27107
International Bank of America NA Primary A 96.77%
Growth Fund Attn Tony Farrer 9,284,952.814;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.355;
111 Center Street record
Little Rock, AR
72201
Kleinwort Benson Investor A 7.70%
Invest Mgt Ltd 112,522.717;
Client Account record
Att Andy Poile
PO Box 191 20
Fenchurch St
London, England EC3P
3DB
NFSC FEBO # Investor C 17.31%
W52-006904 4,750.323;
NFSC/FMTC IRA record
Rollover
FBO Richard E
Snowbarger
PO Box 3884
Telluride, CO 81435
Jean F Baechlin Investor C 6.03%
3775 Modoc Rd #226 1,655.966;
Santa Barbara, CA record and
93105 beneficial
Philworld Inc Investor C 5.40%
Dba Waldo Pizza 1,480.952;
Attn Phil Bourne record and
7433 Broadway St beneficial
Kansas City, MO
64114-1529
Dean Witter Reynolds Investor C 5.11%
Cust 1,403.215;
IRA Rollover FBO record
Evelyn L Baker
847 Aztec Dr
Independence, MO
64056
International Bank of America NA Primary A 74.87%
Value Fund Attn Tony Farrer 9,859,632.501;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
PH Investments LLC Primary A 9.31%
The Pilot House 1,225,490.196;
Lewis Wharf record
Boston, MA 02110 and
beneficial
178
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Charles Schwab & Co Primary A 7.05%
Inc 928,327.273;
Special Custody record
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
Stephens Inc Primary B 100%
Attn Cindy Cole 1.068;
111 Center Street record
Little Rock, AR
72201
FTC & Co Investor A 31.08%
Attn: Dat Alynx #010 344,627.383;
P O Box 173736 record
Denver, CO
80217-3736
Charles Schwab & Co Investor A 24.69%
Inc 273,775.432;
Special Custody record
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
State Street Bank & Investor C 62.58%
Trust Co TTEE 56,845.152;
FBO Coastgear & record
Company
Attn: Kevin Smith
105 Rosemont Ave
Westwood, MA 02090
Merrill Lynch, Investor C 16.28%
Pierce, Fenner & 14,791.191;
Smith Inc for the record
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, Fl
32246
Small Company Bank of America NA Primary A 91.3451%
Growth Fund Attn Tony Farrer 25,738,255.153
1401 Elm Street 11th
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B 100.0000%
Attn: Cindy Cole 1.138
111 Center Street
Little Rock, AR
72201
Roy R Martine & Investor A 19.4547%
Kathleen H Martine 10,893.595
JTWROS
4009 Tottenham Court
Richmond, VA
23233-1771
179
<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%
Sarah A Barlow Trust 3,638.117
U/A Dtd 07/19/1990
8400 Vamo Rd Apt 664
Sarasota, FL 34231
Selma Lifsher Trustee Investor A 5.3458%
Selma Lifsher Trust 2,993.372
Dated 3-2-89
19355 Turnberry Way
Apt PHA
Aventura, FL 33180
J David Dalton TTEE 2,969.664 5.3035%
Lowcountry
Orthopedics
Associates P/S/P
Dated 08-05-87
9313 Medical Plaza
Drive Suite 302
Charleston, SC 29406
Corelink Financial Investor C 9.2933%
Inc 16,528.212
PO Box 4054
Concord, CA
94524-4054
NFSC FEBO # Investor C 7.4139%
W50-724580 13,185.670
Members of
Springdale Policemens
Pension & Relief Fund
c/o Ollen Stepp
201 Spring St
Springdale, AR 72764
NFSC FEBO #W53-641308 Investor C 5.2254%
Dale H Wiewel 9,293.410
200 Liberty Street
1 World Financial
Cntr
New York, NY 10281
U. S. Bank of America NA Primary A 100%
Government Attn Tony Farrer 10,045,256.255;
Bond Fund 1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.116;
111 Center Street record
Little Rock, AR
72201
ISTCO Investor A 16.39%
a Partnership 49,418.791;
PO Box 523 record
Belleville, IL 62222
Virginia United Investor A 7.13%
Methodist Homes Inc 21,485.958;
7113 Three Chopt Rd record and
Ste 300 beneficial
Richmond, VA 23226
Gable & Gotwals Inc Investor A 6.98%
Profit Sharing 21,032.371;
Plan Segregated FBO record
Adwan
Bank of Oklahoma NA
TTEE
PO Box 2180
Tulsa, OK 74101
180
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
BA Investment Investor A 6.78%
Services, Inc. 20,437.445;
FBO 583543251 record
185 Berry St.
3rd Floor #12640
San Francisco, CA
94107
BA Investment Investor A 5.11%
Services, Inc. 15,392.570;
FBO 721753261 record
185 Berry St.
3rd Floor #12640
San Francisco, CA
94107
Commerce Bank N A Investor C 16.79%
FBO Humphrey 23,973.943;
Farrington M/P record
Attn Mutual Fund
Operations
P O Box 13366 TBTS-2
Kansas City, MO
64199-3366
NFSC FEBO # Investor C 13.22%
W53-678562 18,875.364;
Ruth Lee Paar record
P O Box 102
Warsaw, IL 62379
Carla J Worley Investor C 12.86%
CNSV William Cody 18,363.028;
Worley record
HC 62 Box 116
Salem, MO 65560-8705
NFSC FEBO # Investor C 8.01%
W52-004448 11,439.957;
Rodger N Lindgren record
TTEE Roger N Lindgren
Revocable Tru U/A 10/8/98 1203 Geneva
Kearney, MO 64060
NFSC FEBO # Investor C 7.96%
W53-710237 11,370.151;
NFSC/FMTC IRA record
FBO Mildred Deluca
5512 Columbia Av
Saint Louis, MO
63139
NFSC FEBO # Investor C 7.21%
W65-054593 10,287.742;
Art Nachbar record
Gloria Nachbar
PO Box 6789
Winter Springs, FL
32719
181
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Government Bank of America NA Primary A 95.89%
Money Market Attn Tony Farrer 237,776,143.300;
Fund 1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Bank of America NA Primary B 100%
Attn Tony Farrer 1,183,256.940;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
National Financial Investor A 62.54%
For the Exclusive 7,534,113,260;
Benefit of our record
Customers
200 Liberty Street
1 World Financial
Center
Attn Mutual Funds
5th Floor
New York, NY 10281
Bear Stearns Investor A 17.13%
Securities Corp. 2,063,872.600;
FBO 101-47604-23 record
1 Metrotech Center
North
Brooklyn, NY
11201-3859
Bear Stearns Investor A 8.82%
Securities Corp. 1,062,588.640;
FBO 101-47604-23 record
1 Metrotech Center
North
Brooklyn, NY
11201-3859
182
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Fasken Ltd Investor B 20.56%
303 W Wall Ave Ste 18,716,644.720;
1900 record
Midland, TX 79701
Fasken Oil and Ranch Investor B 12.40%
Ltd 11,286,225.200;
303 W Wall Ave Ste record
1900
Midland, TX 79701
Norbert Dickman & Investor B 9.87%
Robert Dickson 8,983,167.280;
Trustees record
Barbara Fasken 1995
Trust
303 West Wall Ave
Ste 1900
Midland, TX 79701
Robert N Herman and Investor B 7.75%
Ann L Herman JTWROS 7,059,295.960;
9601 Eagle Ridge record
Drive
Bethesda, MD 20817
Columbia County Investor B 6.82%
Capital 6,213,425.910;
Project Fund record
Attn Judy Lewis
PO Box 1529
Lake City, FL 32056
American Woodmark Investor B 5.62%
Corp 5,113,355.610;
Attn Laurie Logue record
3102 Shawnee Drive
Winchester, VA 22601
Columbia County Investor B 5.02%
General Fund 4,572,186.000;
Attn Judy Lewis record and
PO Box 1529 beneficial
Lake City, FL
32056-0000
183
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 93.95%
W69-008842 422,056.870;
NFSC/FMTC IRA record
Rollover
FBO Thomas S. Spadaro
6409 Spyglass Lane
Bradenton, FL 34202
National Financial Daily; 97.25%
for the Exclusive 19,011,524.930;
Benefit of our record
Customers
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%
Attn Tony Farrer 1,984,615,440.120;
1401 Elm Street 11th record
Floor
Dallas, TX
75202-2911
Bank of America NA Primary B 99.21%
Attn Tony Farrer (B 10,574,347.220;
Shares) record
1401 Elm Street 11th
Floor
Dallas, TX
75202-2911
National Financial Investor A 86.49%
For the Exclusive 40,698,328.120;
Benefit of our record
Customers
200 Liberty Street
1 World Financial
Center
Attn Mutual Funds
5th Floor
New York, NY 10281
Hare & Co, Bank of Investor B 6.50%
New York 12,296,102.270;
Attn Stif/Master Note record
One Wall Street 2nd
Fl
New York, NY 10286
184
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Michele D Snyder Investor B 6.21%
c/o Susan Johnston 11,751,320.600;
US Trust Company of record
New York
114 West 47th St
New York, NY
10036-1532
NFSC FEBO # Investor C 93.02%
W16-625205 202,539.930;
Calvin H Price record
Dorothy W Price
2900 Old Well Lane
Gastonia, NC 28054
NFSC FEBO # Investor C 6.98%
W67-609994 15,209.000;
Ricardo Serra record
Rua Prof Vital
Palmae Silva 78
Sao Paulo/Sp Brazil
25
Brazil
National Financial Daily; 99.68%
for the Exclusive 166,429,817.880;
Benefit of our record
Customers
200 Liberty St
1 World Financial Ctr
Attn Mutual Funds
5th Flr
New York, NY 10281
Nations Value Bank of America NA Primary A 90.07%
Fund Attn Tony Farrer 92,063,115.941;
1401 Elm Street 11th
record Floor Dallas,
TX 75202-2911
Bank of America TTEE Primary A 5.59%
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%
Attn: Cindy Cole 0.958; 111
Center Street
record Little Rock,
AR 72201
Roy R Martine & Investor A 23.63%
Kathleen H Martine 7,312.692;
Jtwros record 4009
Tottenham Court
Richmond, VA 23233-1771
Sarah A Barlow TTEE Investor A 7.89%
Sarah A Barlow Trust 2,442.178; record
U/A DTD 07/19/1990
8400 Vamo Rd Apt 664
185
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Sarasota, FL 34231
BNY Cust IRA FBO Investor A 7.26%
James L Bowen Jr 2,247.191;record
195 Springhill Dr
Tifton, GA 31794
Selma Lifsher Trustee Investor A 6.49%
Selma Lifsher Trust 2,009.376;
Dated 3-2-89 record and
19355 Turnberry Way beneficial
Apt PHA
Aventura, FL 33180
BNY Cust Rollover Investor A 6.05%
IRA FBO 1,870.965;
James L Payne record
Box 434
Hemphill, TX 75948
Anne Valcourt GDN Investor A 5.24%
FBO Danyel 1,622.451;
Chaniequa Solange record
Valcourt c/o H R Chaplin
9930 W Broadview Dr
Bay Harbor Island, FL 33154
Capital Growth Bank of America NA Primary A 98.01%
Fund Attn Tony Farrer 58,161,517.450;
1401 Elm Street record
11th Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.657;
111 Center Street record
Little Rock, AR 72201
NFSC FEBO #W18-006289 Investor A 5.32%
200 Liberty Street 218,745.572;
1 World Financial record
Cntr
New York, NY 10281
186
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Robert Roberson TTEE Investor C 5.54%
FBO 19,626.556;
Quality Brands Inc record
Employees 401K Plan
680 Main St
Lake Helen, FL 32744
E Larry Fonts TTEE Investor C 5.41%
FBO 19,166.961;
Central Dallas record
Association
Profit Sharing Plan
1201 Elm Street
Suite 5310
Dallas, TX 75270
NFSC FEBO # Investor C 5.41%
W16-719625 19,143.747;
NFSC/FMTC IRA record
FBO James A Hullender
211 Bluebird Rd
Lake Lure, NC 28746
Emerging Bank of America NA Primary A 98.11%
Growth Fund Attn Tony Farrer 12,437,664.868;
1401 Elm Street 11th record
Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.030;
111 Center Street record
Little Rock, AR 72201
Sheryle Isaacs TTEE Investor A 5.29%
Good Buy Sportswear 46,693.181;
401K Saving Plan record
2400 31st St S
St Petersburg, FL 33712
Mountain Star Investor A 5.25%
Partners Limited 46,398.979;
Partnership beneficial
c/o Telluride
Management Corp
PO Box 5430
Incline Village, NY
89450-5430
187
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
C A Porterfield & Investor C 12.35%
Rosalee Moxley 13,878.412;
& Frank Minton TTEES record
FBO
Starmount Company
Employees
Tax Deferred Savings
Plan
PO Box 10349
Greensboro, NC 27404-0349
Tatsushi T Kubo, Max Investor C 11.37%
W Dahlgren, & John 12,770.436;
Dahlgren TTEES FBO record
Epic Products
International
Corporation 401(K)
Plan
PO Box 5808
Arlington, TX 76005-5808
NFSC FBO # W17-613169 Investor C 7.92%
The Robbins Brick & 8,899.937;
Block Inc Em record
Phillip C Robbins
TTEE
Dtd 11011984
3862 US Hwy 221 S
Forest City, NC 28043
Summerville Investor C 6.79%
Pediatrics PA 7,631.017;
Profit Sharing Plan beneficial
312 Midland Parkway
Summerville, SC 29485-8114
H Grayson Mitchell Investor C 6.68%
Jr and 7,501.869;
John Rawls TTEE FBO record
Grayson Mitchell Inc
401K Plan
P O Box 128
Emporia, VA 23847
C A Porterfield & Investor C 6.22%
Rosalee Moxley & 6,993.590;
Frank Minton TTEES record
Starmount Company
Capital Accumulation
Plan
PO Box 10349
Greensboro, NC 27404-0349
188
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Greg Zakarian and Investor C 5.29%
V M Esposito TTEES 5,943.762;
FBO record
Antex Biologics Inc
Employee 401(K) Plan
300 Professional
Drive
Gaithersburg, MD 20879
Anthony M Sfreddo Investor C 5.25%
TTEE 5,901.350;
Triple S Termite & record
Pest
Control 401(K) Plan
7416 Ceatreville Rd
Manassas, VA 20111
Equity Index Bank of America NA Primary A 77.11%
Fund Attn Tony Farrer 29,911,542.123;
1401 Elm Street 11th record
Floor
Dallas, TX 75202-2911
Bank of America TTEE Primary A 21.79%
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%
Attn: Cindy Cole 0.818;
111 Center Street record
Little Rock, AR 72201
NFSC FEBO # Investor A 22.72%
W67-635626 150,730.914;
The Carnival Corp record
Ret Plan TTEE
First Union
Attn: Lowell Zemnick
3655 NW 87 Av
Miami, FL 33178
BA Investment Investor A 6.31%
Services, Inc. 41,852.279;
FBO 883003631 record
185 Berry St.
3rd Floor #12640
San Francisco, CA 94107
189
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Managed Index Bank of America NA Primary A 91.96%
Fund Attn Tony Farrer 31,791,559.881
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Pamela S Keene and Primary B 99.55%
William Steven Keene 231.264
Jtwros
2016 Englewood Dr
Apex, NC 27502
Charles Schwab & Co Investor A 6.94%
Inc 179,636.281
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Muir & Co Investor A 5.95%
c/o Frost National 154,169.851
Bank
PO Box 2479
San Antonio, TX 78298-2479
Managed Bank of America NA Primary A 87.10%
SmallCap Index Attn Tony Farrer 14,283,455.381
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Bank of America NA Primary A 6.87%
TTEE 1,127,155.875
NB 401K Plan
U/A DTD 01/01/1983
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.039
111 Center Street
Little Rock, AR 72201
Charles Schwab & Co Investor A 48.02%
Inc 390,069.921
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
190
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Dade Community Investor A 5.28%
Foundation Inc 42,899.498
200 South Biscayne
Blvd Ste 2780
Miami, FL 33131-2343
Charles Schwab & Co Investor A 63.83%
Inc 129,531.558
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
National Investor Investor A 6.65%
Services Corp 13,489.990
for the Exclusive
Benefit of our
Customers
55 Water Street 32nd
Fl
New York, NY 10041-3299
Managed Value Charles Schwab & Co Primary A 51.66%
Index Fund Inc 220,234.397
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Bank of America NA Primary A 33.93%
Attn Tony Farrer 144,629.516
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Donaldson Lufkin Primary A 5.39%
Jenrette 22,964.070
Securities
Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.066
111 Center Street
Little Rock, AR 72201
191
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Charles Schwab & Co Investor A 48.66%
Inc 101,506.651
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin Investor A 6.55%
Jenrette 13,656.752
Securities
Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-9998
NFSC FEBO # Investor A 5.14%
W55-629405 10,724.760
Connie L Shelton
4242 N Capistrano
#217
Dallas, TX 75287
Managed Charles Schwab & Co Primary A 57.86%
SmallCap Value Inc 197,656.922
Index Fund Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Bank of America NA Primary A 16.47%
Attn Tony Farrer 56,268.690
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Michael Larkin Tr Primary A 5.79%
UA 01-06-98 19,782.552
Courtland P Larkin &
Patricia
F Larkin Irrev
Family Trust
8665 Bay Colony Dr
Apt 702
Naples, FL 34108
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.017
111 Center Street
Little Rock, AR 72201
Nations Bank of America NA Primary A 46.25%
Marsico Growth Attn Tony Farrer 1,687,498.262
& Income Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
192
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Charles Schwab & Co Primary A 23.61%
Inc 861,424.997
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
FTC & Co Primary A 17.51%
Data Lynx House Acct 639,029.562
04/13/98
P O Box 173736
Denver, CO 80217-3736
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.002
111 Center Street
Little Rock, AR 72201
Merrill Lynch, Investor A 52.37%
Pierce, Fenner & 2,035,133.674
Smith Inc for the
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Charles Schwab & Co Investor A 9.88%
Inc 383,826.942
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Merrill Lynch, Investor C 35.03%
Pierce, Fenner & 193,955.889
Smith Inc for the
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Nations Bank of America NA Primary A 57.52%
Marsico Attn Tony Farrer 4,982,086.184
Focused 1401 Elm Street 11th
Equities Fund Floor
Dallas, TX 75202-2911
193
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Charles Schwab & Co Primary A 34.78%
Inc 3,012,311.771
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.012
111 Center Street
Little Rock, AR 72201
Charles Schwab & Co Investor A 17.66%
Inc 3,250,906.913
Special Custody
Account
for Benefit of
Customers
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Merrill Lynch, Investor A 12.68%
Pierce, Fenner & 2,334,255.954
Smith Inc for the
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Merrill Lynch, Investor B 5.35%
Pierce, Fenner & 1,411,308.495
Smith Inc for the
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Merrill Lynch, Investor C 49.51%
Pierce, Fenner & 1,294,556.944
Smith Inc for the
Sole Benefit of its
Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Disciplined Bank of America NA Primary A 85.17%
Equity Fund Attn Tony Farrer 15,477,791.647
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
194
<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 13.50%
NB 401K Plan 2,453,651.259
U/A DTD 01/01/1983
P O Box 2518
Houston, TX 77252-2518
Stephens Inc Primary B 100%
Attn: Cindy Cole 0.889
111 Center Street
Little Rock, AR 72201
Wendel & Co Investor A 5.61%
c/o Bny Mtl Rd Reorg 160,069.991
Dpt
PO Box 1066 Wall
Street Station
New York, NY 10286
NFSC FEBO # Investor C 11.72%
W32-632465 9,911.299
Tom Standifer P/Adm
Lakeland Batteries
Inx P/S/P
Tr Dtd 07011984
1840 S Combee Rd
Lakeland, FL 33801
Summerville Investor C 10.26%
Pediatrics Pa 8,672.579
Profit Sharing Plan
312 Midland Parkway
Summerville, SC 29485-8114
James B Ford and Investor C 5.94%
Joanne W Ford Jtten 5,021.041
25 Century Blvd
Suite 605
Nashville, TN 37214
NFSC FEBO # Investor C 5.29%
W19-659355 4,469.464
Falcon Food Svc Co
Inc
12753 Pineacre Lane
West Palm Bch, FL 33414
Strategic Bank of America NA Primary A 99.74%
Equity Fund Attn Tony Farrer (B 24,377,409.091
Shares)
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Balanced Bank of America NA Primary A 87.87%
Assets Fund Attn Tony Farrer 3,575,841.552
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
195
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
The Bank of New York Primary A 6.73%
TTEE 273,744.559
Hitachi
Semiconductors
Pension Plan
Attn: Stella Brown
One Wall Street 12th
Floor
New York, NY 10286
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.359
111 Center Street
Little Rock, AR 72201
C A Porterfield & Investor C 22.01%
Rosalee Moxley 33,326.831
& Frank Minton TTEES
FBO
Starmount Company
Employees
Tax Deferred Savings
Plan
PO Bxo 10349
Greensboro, NC 27404-0349
C A Porterfield & Investor C 21.83%
Rosalee Moxley 33,060.949
& Frank Minton TTEES
FBO
Starmount Company
Capital Accumulation
Plan
PO Box 10349
Greensboro, NC 27404-0349
Stuart K Colonna TTEE Investor C 13.38%
Bayshore Concrete 20,256.327
Products Corp
Retirement Savings
Plan
1 Bayshore Rd P O
Box 230
Cape Charles, VA 23310
Short-
Intermedia Bank of America NA Primary A 97.63%
Government Attn Tony Farrer 131,495,874.557
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Reliance Trust Co Primary B 99.99%
PO Box 48449 67,539.096
Atlanta, GA 30362
Bank of America NT & Investor A 23.55%
SA 3,443,576.868
The Private Bank
Attn Common Trust
Funds Unit 38329
PO Box 3577
Los Angeles CA 90051-1577
196
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W14-610208 Investor A 6.17%
Burgess Pigment Co 902,351.843
PO Box 349 Deck Blvd
Sandersville, GA 31082
NFSC FEBO # Investor B 7.96%
W17-718840 197,886.631
Rental of Florence
P/Adm
Rntl of Florence Pft
Shring
PO Box 12410
Florence, SC 29504
NFSC FEBO # Investor C 25.51%
W26-653705 62,661.158
True Way
Evangelisticmission
Attn: Wilmure Burden
PO Box 61365
Virginia Bch, VA 23466
BA Investment Investor C 19.15%
Services, Inc. 47,045.023
FBO 435649131
185 Berry St.
3rd Floor #12640
San Francisco, CA 94107
Dorothy L Edwards Investor C 6.72%
3400 Kim Court SW A25 16,498.306
Roanoke, VA 24018
Short-Term Bank of America NA Primary A 94.77%
Income Fund Attn Tony Farrer 38,964,844.054
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.032
111 Center Street
Little Rock, AR 72201
197
<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%
Kenneth D Pezzulla 103,021.916
TTEE
PATS Inc Empl Stock
Ownership
U/A 7/1/94
401 Washington Ave
Suite 301
Towson, MD 21204
Michael D Shea Investor A 7.01%
4770 South Atlanta 101,356.781
Road
Smyrna, GA 30080
Southern Gas Investor A 6.27%
Association 90,722.121
Investment Fund
Attn Dotty Thornhill
3030 LBJ Freeway
#1300 LB 60
Dallas, TX 75234
NFSC FEBO #W17-656283 Investor A 5.59%
Dr George B 80,823.300
Richardson
516 Azalea Lane
Florence, SC 29501
Gator Broadcasting Investor A 5.28%
Corporation 76,321.190
Attn DavidGregg 111
2200 Claredon St
Arlington, VA 22201-3331
NFSC FEBO # Investor B 9.99%
W17-731269 40,758.093
West Anderson Rural
Water &
Sewer Co Inc
2767 Whitehall Rd
Anderson, SC 29625
NFSC FEBO # Investor B 6.44%
W17-730858 26,268.375
NFSC/FMTC IRA
FBO James R Vaughn
234 Cureton Lane
Pickens, SC 29671
NFSC FEBO # Investor B 5.93%
W17-731277 24,170.344
W Anderson Rural
Water & Sewer
Reserve Fund
2767 Whitehall Rd
Anderson, SC 29625
Alden Enterprises Inc Investor C 19.45%
5900 Gulf Blvd 25,588.536
St Pete Beach, FL 33706
198
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 15.50%
W62-019461 20,387.360
Nations Bank
Collateral Acct
FBO C Louise Wilson
2945 Froitzhem Sreet
Callahan, FL 32011
The Lincolnshire Investor C 13.08%
Trust 17,211.104
5208 Lincolnshire
Dallas, TX 75287
James B Clement Investor C 9.21%
P O Box 5C 12,109.606
Lafayette, LA 70505-6003
Erna M Weidner Investor C 6.15%
108 Lariat 8,084.500
San Antonio, TX 78232-1004
BA Investment Investor C 6.06%
Services, Inc. 7,972.973
FBO 435996951
185 Berry St.
3rd Floor #12640
San Francisco, CA 94107
BNY Cust IRA FBO Investor C 5.04%
Don E Bastian 6,623.932
1920 Barron Ct
Charlottesville, VA 22911-7584
Diversified Bank of America NA Primary A 91.80%
Income Fund Attn Tony Farrer 12,572,954.727
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.063
111 Center Street
Little Rock, AR 72201
BNY Cust IRA FBO Investor A 14.55%
James L Bowen Jr. 12,664.419
195 Springhill Dr
Tifton, GA 31794
199
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
J David Dalton TTEE Investor A 8.61%
Lowcountry 7,493.283
Orthopedics
Associates P/S/P
Dated 08-05-87
9313 Medical Plaza
Drive Suite 302
Charleston, SC 29406
Jean E. Kellogg and Investor A 7.19%
Thomas G. Kellogg 6,261.685
JTTEN
52109 Tara Dr
South Bend, IN 46628
BNY Cust Rollover Investor A 6.06%
IRA FBO 5,272.125
James L. Payne
Box 434
Hemphill, TX 75948
BNY Cust IRA FBO Investor A 5.48%
Jeremiah J. Leahy 4,772.866
1101 N Elm St #503
Greensboro, NC 27401
BNY Cust IRA FBO Investor A 5.33%
Cleveland H White 4,652.747
133 George Ln
Bonneau, SC 29431
Anne Valcourt GDN Investor A 5.25%
FBO Danyel 4,571.845
Chaniequa Solange
Valcourt
C/O H R Chaplin
9930 W Broadview Dr
Bay Harbor Island, FL 33154
Bank of America NT Investor A 6.49%
&SA 236,861.105
The Private Bank
Attn Common Trust
Funds Unit 38329
PO Box 3577
Los Angeles, CA 90051-1577
200
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
BA Investment Investor C 11.76%
Services, Inc. 18,205.192
FBO 300181211
185 Berry St.
3rd Floor #12640
San Francisco, CA 94107
NFSC FEBO # Investor C 9.96%
W17-662682 15,425.100
NFSC/FMTC IRA
Rollover
FBO Linda G Walker
7 Sally St
Sprartanburg, SC 29301
Stuart K Colonna TTEE Investor C 6.62%
Bayshore Concrete 10,246.662
Products Corp
Retirement Savings
Plan
1 Bayshore Rd P O
Box 230
Cape Charles, VA 23310
NFSC FEBO # Investor C 6.19%
W15-001520 9,587.622
Clarence G Boehm
136 E Edgewater Dr
Charleston, SC 29407
NFSC FEBO # Investor C 5.73%
W15-005630 8,875.156
Rita C Cook
8405 E Saddlebrook Dr
Charleston, SC 29420
Strategic Bank of America NA Primary A 95.51%
Fixed Income Attn Tony Farrer 175,940,400.921
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.050
111 Center Street
Little Rock, AR 72201
Mercantile Safe Dep Investor A 7.59%
& Trust Co TTEE 222,311.538
Case Communications
Defined 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%
5900 Gulf Blvd 25,172.293
St Pete Beach, FL 33706
Summerville Investor C 17.59%
Pediatrics Pa 20,537.281
Profit Sharing Plan
312 Midland Parkway
Summerville, SC 29485-8114
BNY Cust IRA FBO Investor C 8.24%
James A Blanchard 9,616.933
9 Las Brisas
Austin, TX 78746
Carver Development Investor C 6.96%
Board 8,130.824
Endowment Fund
226 N Hackberry St
San Antonio, TX
78202
201
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Dorothy L Edwards Investor C 5.85%
3400 Kim Court SW A25 6,827.791
Roanoke, VA 24018
Erna M Weidner Investor C 5.21%
108 Lariat 6,087.443
San Antonio, TX
78232-1004
Municipal Bank of America NA Primary A 99.73%
Income Fund Attn Tony Farrer 54,774,310.248
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor B 6.60%
W38-676063 78,253.956
Sid Meier
2 Sheepfold La
Hunt Valley, MD 21030
Denise Maxwell Investor C 21.99%
45 Sallebrook 46,055.756
Houston, TX 77024
NFSC FEBO # Investor C 8.43%
W53-715107 17,644.084
Rosalie Chod TTEE
The Rosalie Chod Rev
Tr
U/A 8/25/89
286 Hewlett Ct
Saint Louis, MO 63141
NFSC FEBO # Investor C 5.87%
W65-633313 12,291.077
College Park
Partners Ltd
a Partnership
117 Spring Chase
Circle
Atlamonte Springs, FL 32714
Emmet David Gelhot Investor C 5.05%
5630 Oleatha Avenue 10,578.066
Saint Louis, MO 63139-1504
Harry Singer Family Investor A 8.90%
LTD 112,324.561
A Colorado LTD
Partnership
2960 Wentworth
Weston, FL 33332
NFSC FEBO #W65-028193 Investor A 7.40%
Thurman D Kitchin 93,419.025
P O Box 1479
Winter Park, FL
32790
Short Term Bank of America NA Primary A 98.89%
Muni.cipal Attn Tony Farrer 6,574,680.212
Income Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
202
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Balsa & Co Investor A 17.89%
c/o Chase Manhattan 612,417.268
Bank
PO Box 1768 Grand
Central Station
New York, NY 10163-1768
Robert Sunderland Investor A 9.16%
PO Box 25900 313,715.126
Shawnee Mission, KS 66225-5900
J Michael Nixon Investor A 6.40%
621 SW Baypoint 219,122.511
Circle
Palm City, FL 34990-1753
NFSC FEBO # Investor A 5.83%
W52-000035 199,401.795
Fred J Nesbit
Linda M Nesbit
415 45th St
Des Moines, IA 50312
NFSC FEBO # Investor A 5.33%
W52-686921 182,426.388
Robert E Esrey TR
Robert E Esrey TTEE
U/A 11/30/94
4435 Main St Ste 1000
Kansas City, MO 64111
NFSC FEBO # Investor B 22.13%
W52-600571 233,712.038
Joseph Carter
Diana Carter
3000 W 117th St
Leawood, KS 66211
NFSC FEBO # Investor B 10.58%
W15-000515 111,692.622
William L Spadoni
Julia S Spadoni
PO Box 1019
Myrtle Beach, SC 29578
NFSC FEBO # Investor B 6.69%
W13-629138 70,605.322
Paragon Assets II
4520 King Street #205
Alexandria, VA 22302
203
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor B 5.90%
W27-709450 62,279.218
James D Yopp Jr
1095 Fieldwood Lane
Winston Salem, NC 27106
NFSC FEBO # Investor B 5.07%
W26-783200 53,542.645
James H Sparks
Karen M Sparks
4006 N Witchduck Rd
Virginia Bch, VA 23455
Donald E Steen & Investor C 38.31%
Trudy K Steen Jtwros 108,365.595
5715 Thames Ct
Dallas, TX 75252
Christopher H Investor C 26.17%
Williams 74,025.169
10 Hampton Hills Lane
Richmond, VA 23226
NFSC FEBO # Investor C 9.66%
W14-689122 27,330.684
Dr Cecil J Waylan
Karen S Waylan
9275 Chandler Bluff
Alpharetta, GA 30022
NFSC FEBO # Investor C 7.10%
W52-686450 20,090.089
Henry F Frigon
Henry F. Frigon TTEE
U/A 03/23/90
PO Box 18
Maysville, MO 64469
NFSC FEBO # Investor C 5.28%
W26-018473 14,933.839
H William Coogan Jr
Susan C Coogan
4712 Charmian Road
Richmond, VA 23226
Intermediate Bank of America NA Primary A 99.66%
Municipal Bond Attn Tony Farrer 87,916,274.555
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Warren Montouri Investor A 17.95%
2440 Virginia Ave NW 385,569.792
Washington, DC 20037-2601
Hometown Bank & Investor A 14.52%
Company 311,904.773
PO Box 2887
Wilson, NC 27894-2887
VATCO Investor A 6.03%
c/o The Trust 129,482.949
Company of Virginia
9030 Stony Point
Pkway Ste 300
Richmond, VA 23235
204
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor A 5.85%
W52-000019 125,552.732
Frank B Comfort
4912 Cedar Drive
West Des Moines, IA 50266
NFSC FEBO # Investor A 5.18%
W18-738263 111,199.566
Edelweiss Corp
Attn: Mary Tyler
Labhart
1445 Ross @ Field
Ste 1500
Dallas, TX 75202
NFSC FEBO # Investor B 9.36%
W14-884685 28,310.447
Win Communication
Corp
Attn: Bob Poole
6755 Jimmy Carter
Blvd
Norcross, GA 30071
NFSC FEBO # Investor B 8.37%
W15-626244 25,321.240
Robert J Evans
Ollie P Evans
Mary Helen Schulte
255 Weatherly Club Dr
Alabaster, AL 35007
NFSC FEBO # Investor B 5.89%
W15-649406 17,804.347
Gustave J Crispyn
TTEE
Joseph A Crispyn Tr
U/A 7/21/97
2382 Cat Tail Pound
Rd
Johns Island, SC 29455
NFSC FEBO # Investor B 5.88%
W15-649414 17,798.304
Mildred M Crispyn
TTEE
Timothy J Crispyn Tr
U/A 7/21/97
2382 Cat Tail Pond Rd
Johns Island, SC 29455
205
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor B 5.17%
W41-673196 15,625,000
Ellen Aston Paull
1407 N Weston Lane
Austin, TX 78733
Gerhard Kleinschmidt Investor C 33.21%
and 62,061.681
Gwendolyn
Kleinschmidt Jtwros
101 Oak Creek Trail
Aledo, TX 76008
Eugene R Allspach and Investor C 27.79%
Joann M Allspach 51,924.795
Jtwros
3760 Darcus St
Houston, TX 77005-3704
Charles W. Doolin Investor C 20.64%
3508 Harvard Ave 38,572.130
Dallas, TX 75205-0000
NFSC FEBO # Investor C 12.33%
W23-627305 23,043.818
Neal S Platzer
Jack W Crosby
Special AC
1410 Lost Ridge Cir
Seabrook, TX 77586
Florida Bank of America NA Primary A 99.87%
Municipal Bond Attn Tony Farrer 7,694,560.720
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
National Finacial Investor A 65.82%
Svs Corp 4,068,852.341
for the Exclusive
Benefit of our
Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
NFSC FEBO # Investor C 87.48%
W64-048550 2,019.621
Thomas W Brown
Rt 20 Box 2130
Lake City, FL 32055
Florida Bank of America NA Primary A 99.92%
Intermediate Attn Tony Farrer 21,375,342.786
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor B 5.03%
W52-739600 23,930.213
Sally Ann Batz TTEE
of The Sally Ann
Batz Living Tr
U/A 10/15/91
88 NE Alice St
Jensen Beach, FL 34957
206
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 74.38%
W60-190306 81,352.549
Ming J Wu and
Fen Fen Wu Jtwros
3371 Hickory Wood Way
Tarpon Springs, FL 34689
Doris R Bomstein and Investor C 8.84%
Sanford 9,672.647
Sanford Bomstein
TTEES
Doris R Bomstein
Trust
U/A/D 08/20/91
3000 S Ocean Blvd
Apt 1201
Boca Raton, FL 33432
NFSC FEBO # Investor C 8.54%
W19-654655 9,336.140
Moshe Ezratti
Rosa Ezratti
1401 University Dr
200
Coral Springs, FL 33071
Sanford and Doris R Investor C 7.03%
Bomstein TTEES 7,688.941
Sanford Bomstein
Trust UAD 11/4/91
3000 South Ocean
Blvd #1201
Boca Raton, FL 33431
Georgia Bank of America NA Primary A 99.99%
Intermediate Attn Tony Farrer 12,048,455.809
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
The Crumpler Investor A 23.05%
Investment LP 399,157.804
Crumpler Investment
Mgt Co LLC/GP
50 Old Vermont Pl
Atlanta, GA 30328-0000
Wachovia Securities, Investor A 8.49%
Inc. 147,075.290
FBO 402-08416-17
P.O. Box 1220
Charlotte, NC 28201-1220
NFSC FEBO #W14-004162 Investor A 7.69%
Alice Hinton Ray 133,188.372
P O Box 415
Dacula, GA 30019
207
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W14-007528 Investor A 5.39%
John W Wilcox Jr 93,406.520
2551 Potomac Ave NE
Atlanta, GA 30305
NFSC FEBO # Investor B 34.32%
W14-009636 254,882.288
Derst Investments LP
a Partnership
258 Varn Drive
Savannah, GA 31405
NFSC FEBO # Investor C 63.88%
W14-652571 51,641.107
Letty C Cagle
Douglas Cagle
Apt 318 8592 Roswell
Rd
Atlanta, GA 30350
NFSC FEBO # Investor C 11.81%
W14-853925 9,544.726
Charles D Davidson
Judith L Davidson
580 Glen Hampton Dr
Alpharetta, GA 30004
Georgia Bank of America NA Primary A 99.97%
Municipal Bond Attn Tony Farrer 992,558.228
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor A 64.22%
W14-004162 143,972.542
Alice Hinton Ray
P O Box 415
Dacula, GA 30019
NFSC FEBO # Investor A 12.18%
W14-749877 27,312.209
Hunter R Hughes III
c/o Rogers & Hardin
229 Peachtree St NW
2700 Cain
Interational Tower
Atlanta, GA 30327
NFSC FEBO # Investor A 11.19%
W14-725382 25,080.278
Edd Price
Lynn Price
AAA Tank Testers
5600 Oakbrook Pkwy
Suite 120
Norcross, GA 30093
Stephens Inc Investor C 100%
Attn: Cindy Cole 287.975
111 Center Street
Little Rock, AR 72201
Maryland Bank of America NA Primary A 100%
Intermediate Attn Tony Farrer 16,786,883.917
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO #W13-061581 Investor A 20.53%
Robert Gladstone 314,858.836
Leslie Gladstone
2468 Belmont Rd NW
Washington, DC 20008
208
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W38-007404 Investor A 5.95%
Vincent L. Salvatori 91,178.519
Carol H Salvatori
2652 Greenbriar Rd
Annapolis, MD 21401
NFSC FEBO #W13-640379 Investor A 5.38%
Carol C House 82,501.641
Peter W House
4210 Leeward Pl
Bethesda, MD 20816
NFSC FEBO # Investor C 13.51%
W13-622168 6,446.650
Donald J Kunkoski
Eileen M. Kunkoski
2180 W March Ct
Frederick, MD 21702
NFSC FEBO # Investor C 11.45%
W13-633313 5,461.084
Albert J Robertazzi
Susan E Franks
11564 W Hill Dr
Rockville, MD 20852
NFSC FEBO # Investor C 8.79%
W13-680141 4,195.166
James Lee Donaldson
Robert W Donaldson
12604 Farnell Dr
Wheaton, MD 20906
NFSC FEBO # Investor C 7.85%
W13-661058 3,745.467
Girard F Stegner
Betty C Stegner
29 Consett Pl
Frederick, MD 21703
NFSC FEBO # Investor C 6.95%
W13-660124 3,316.201
Jessica Udall Gil
Milan D Smith Jr
5610 Wisconsin Av
Chevy Chase, MD 20815
NFSC FEBO # Investor C 6.78%
W13-697036 3,236.448
Frank Baker
Steven L Baker
Teresa L Radi
250 Wyngate Dr
Frederick, MD 21701
NFSC FEBO # Investor C 5.38%
W13-699381 2,568.220
Kwok Luen Lee
Patsy S Lee
2705 Hardy Av
Wheaton, MD 20902
209
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
Maryland Bank of America NA Primary A 99.98%
Municipal Bond Attn Tony Farrer 1,798,369.080
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor A 58.88%
W13-640379 104,033.033
Carol C House
Peter W House
4210 Leeward Pl
Bethesda, MD 20816
NFSC FEBO # Investor A 13.31%
W13-634760 23,517.554
Raymond A Turetsky
Bess H Turetsky
11220 Woodson Av
Kensington, MD 20895
NFSC FEBO # Investor A 7.47%
W13-6567097 13,202.752
Dona L Lechliter
Stephen C Lechliter
4102 Madison Street
Hyattsville, MD 20781
NFSC FEBO # Investor A 6.49%
W13-770442 11,463.769
Richard E Ireland
Mary E Ireland
1423 Grouse Ct
Frederick, MD 21703
NFSC FEBO # Investor C 98.62%
W38-028541 20,549.684
Elizabeth Gregory
PO Box 2327
Ocean City, MD 21843
North Carolina Bank of America NA Primary A 99.73%
Intermediate Attn Tony Farrer 18,217,203.650
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO #X68-061336 Investor A 10.10%
Julia E Clark 95,615.783
4600 Troy's Mtn LN
Durham, NC 27705
210
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W16-714542 Investor A 7.18%
W Frank Dowd Jr. 67,966.953
P O Box 35430
Charlotte,NC 28235
NFSC FEBO # Investor A 6.30%
W26-656267 59,646.179
Eileen M Friars
3516 Foxcroft Road
Charlotte,NC 28211
NFSC FEBO # Investor A 6.25%
PSA-042072 59,191.434
Ron F Robine
Cathy G Robine
18512 Square Sail
Road
Cornelius, NC 28031
NFSC FEBO # Investor B 5.86%
W27-002879 35,348.838
Jack Cartwright
1040 Cantering Rd
High Point, NC 27262
NFSC FEBO # Investor C 26.00%
W27-734004 2,334.746
Barbara B Coyner
513 Lake Boone Trail
Raleigh, NC 27608
NFSC FEBO # Investor C 18.78%
W27-682217 1,686.289
J Robert Stout
Revocab Tr
J Robert Stout
U/A 02/19/97
PO Box 35343
Greensboro, NC 27425
NFSC FEBO # Investor C 12.14%
W27-747360 1,089.840
Anna B Steele
2041 Georgia Avenue
Winston Salem, NC 27104
NFSC FEBO # Investor C 11.18%
W27-745472 1,004.177
W Joseph Selvia
Jay P Selvia
4041 Max Dr
Winston Salem, NC 27106
211
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 6.88%
W27-740810 617.550
Thomas H Blount
Doris J Blount
207 W 11th St
Washington, NC 27889
NFSC FEBO # Investor C 6.82%
W27-002720 612.591
Roger W Simmons
Mary R Simmons
150 River Hill Drive
Advance, NC 27006
North Carolina Bank of America NA Primary A 99.98%
Municipal Bond Attn Tony Farrer 1,702,978.888
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
South Carolina Bank of America NA Primary A 100%
Intermediate Attn Tony Farrer 22,571,450.616
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO #W15-635901 Investor A 11.31%
James T Pearce 215,016.960
P O Box 1986
Greenville, SC 29602
NFSC FEBO #W15-620629 Investor A 9.92%
J C Bernard 188,517.286
Merna D Bernard
110 Dolphin Point Dr
Beaufort, SC 29902
James Markham Investor A 5.08%
99 Birdsong Way 96,557.940
Hilton Head Island,
SC 29926
NFSC FEBO # Investment 9.54%
W15-645788 B
Gustave J Crispyn 79,899.553
Mildred M Crispyn
2382 Cat Tail Pond Rd
Johns Island, SC 29455
NFSC FEBO # Investor B 5.67%
W17-681547 47,497.048
Jimmy Ruppe
Judy Ruppe
1505 Cherokee Av
Gaffney, SC 29340
NFSC FEBO # Investor C 36.44%
W15-645583 112,082.887
Berchtold Corp
1950 Hanahan Rd
Charleston, SC 29406
NFSC FEBO # Investor C 6.95%
W15-659860 21,377.772
Diane Saari Mccall
Mark J Mccall
12 Guerard Rd
Charleston, SC 29407
NFSC FEBO # Investor C 6.23%
W15-654680 19,155.748
Edward Mccloud
Elizabeth M. Robinson
523 Carpenter St
Charleston, SC 29412
212
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 5.98%
W15-624438 18,402.911
Tracy S Harvey
Susan C Harvey
5033 Stone
Plantation Dr
Meggell, SC 29449
South Carolina Bank of America NA Primary A 100%
Municipal Bond Attn Tony Farrer 1,314,561.532
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor A 45.40%
W17-656208 50,417.339
Donna R Cart
1140 Partridge Rd
Spartanburg, SC 29302
NFSC FEBO # Investor A 28.88%
W18-693910 32,069.220
Cuppia Investments LP
P O Drawer 22449
Hilton Head Island, SC 29925
Wachovia Bank NA Investor A 7.94%
Investment Mgr 8,819.040
Charles D. Erb TTEE
for Charles D Erb
Trust U/A Dtd 10/4/88
PO Box 3073
M/C NC-31057
Winston-Salem, NC 27150
Tennessee Bank of America NA Primary A 100%
Intermediate Attn Tony Farrer 4,129,466.991
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO #W25-680427 Investor A 15.45%
Bob G Long 131,222.706
PO Box 266
Hermitage, TN 37076
NFSC FEBO #W25-683256 Investor A 13.76%
Marshall T Polk III 116,836.192
PO Box 90148
Nashville, TN 37209
SunTrust Bank Investor A 7.16%
Chattanooga NA 60,784.510
H Clay Evans Johnson
Rev Trust
U/A Dtd 5/9/85 A/C
40E55700
Attn: Mutual Funds
PO Box 105870 Center
3144
Atlanta, GA 30348
NFSC FEBO #W25-684716 Investor A 6.85%
James R. Kellam III 58,176.257
3605 Sycamore Lane
Nashville, TN 37215
Ralph S Graham TTEE Investor A 6.69%
Ralph S Graham Rev 56,767.294
Liv Trust
U/A Dtd 08/14/1990
PO Box 235
Big Sandy, TN 38221
213
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W25-683388 Investor A 5.75%
Glenn Huff 48,839.773
Honor Huff
509 Mansion Dr
Brentwood, TN 37027
NFSC FEBO #W25-680419 Investor A 5.33%
Joseph L Dilorenzo 45,251.980
310 Watercress Drive
Franklin, TN 37064
NFSC FEBO # Investor B 22.21%
W25-683043 64,399.438
John O Colton
6211 Jocelyn Hollow
Road
Nashville, TN 37205
NFSC FEBO # Investor B 13.60%
W25-684570 39,430.054
Robert R Hayes
Vira E Hayes
400 Bryants Lane
Woodbury, TN 37190
NFSC FEBO # Investor B 5.88%
W25-008028 17,056.616
David A Lockmiller
Carlotta E Lockmiller
4343 Lebanon Rd
Apt#1711
Hermitage, TN 37076
Tennessee Bank of America NA Primary A 99.95%
Municipal Bond Attn Tony Farrer 568,064.620
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor A 41.94%
W25-002658 28,524.330
William W Pugh Jr
106 Orchard Circle
Oak Ridge, TN 37830
NFSC FEBO # Investor A 17.78%
W25-682101 12,089.764
Allene Ellis
Joyce Rose
2544 Bearwallow Rd
Ashland City, TN 37015
NFSC FEBO # Investor A 7.55%
EMP-050393 5,131.742
Louise E Cole
Clifford E Cole
1501 Gale Lane
Nashville, TN 37212
214
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor A 7.40%
W25-673358 5,035.198
Billie L Martin
227 Deer Park Circle
Nashville, TN 37205
NFSC FEBO # Investor A 7.21%
W25-605786 4,905.129
Billy Joe Davis
PO Box 487
Lake City, TN 37769
NFSC FEBO # Investor A 6.17%
W25-682357 4,196.009
Theodore J Novak
3860 West Trace
Creek Road
Waverly, TN 37185
NFSC FEBO # Investor B 15.46%
W25-684350 68,241.749
Miriam F Hildebrand
884 Edmondson Pike
Brentwood, TN 37027
NFSC FEBO # Investor C 60.81%
W25-617954 4,023.391
Frank W Condurelis
Jane E Condurelis
806 Brentview Dr
Nashville, TN 37220
NFSC FEBO # Investor C 34.92%
W25-009660 2,310.268
Donald J Southard Sr
Barbara C Southard
278 Joe Byrd Ln
Clinton, TN 37716
Texas Bank of America NA Primary A 100%
Intermediate Attn Tony Farrer 37,413,724.971
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
NFSC FEBO # Investor B 15.03%
W40-678880 31,172.216
James Robert Mallory
Faith K Mallory
2400 Winton Terr E
Fort Worth, TX 76109
NFSC FEBO # Investor B 10.96%
W18-719404 22,726.776
Montine T Wisdom
6335 W Northwest Hwy
#1318
Dallas, TX 75225
NFSC FEBO # Investor B 8.46%
W41-600997 17,558.892
Oliver Roofing
Systems
PO Box 180191
Austin, TX 78718
215
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor B 7.72%
W40-682470 16,007.825
A G Martin
Nellie L Martin
2011 32nd St
Lubbock, TX 79411
Stephens Inc Investor C 100%
Attn: Cindy Cole 253.066
111 Center Street
Little Rock, AR 72201
Texas Bank of America NA Primary A 99.97%
Municipal Bond Attn Tony Farrer 856,091.141
Fund 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Motco Investor A 59.83%
P O Box 17001-Trust 22,935.780
San Antonio, TX 78217
National Investor Investor A 13.05%
Services Corp 5,002.051
for the Exclusive
Benefit of our
Customers
55 Water Street 32nd
Fl
New York, NY 10041-3299
Edward D Jones & Co Investor A 7.44%
FBO Adolph F Schmidt 2,852.800
& Elvira H Schmidt FM
466
EDJ# 5120611313
P O Box 2500
Maryland Heights, MO 63043-8500
NFSC FEBO # Investor A 7.15%
W40-650790 2,742.706
Seth W Lehmberg
Rose Mary Lehmberg
2201 Meadow Lane
Taylor, TX 76574
Shirley A Wagner Investor A 6.69%
3002 San Paula 2,565.948
Dallas, TX 75228-0000
NFSC FEBO # Investor B 5.99%
W40-609048 40,050.599
Jane M Mccarver Ex
E/O A G Mccarver
901 W Indianna Ste A
Midland, TX 79701
216
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO # Investor C 96.57%
W41-617733 8,104.120
Jay L Willmann
Catherine B Willmann
2918 Kassarine Pass
Austin, TX 78704
Virginia Bank of America NA Primary A 100%
Intermediate Attn Tony Farrer 21,010,064.166
Municipal Bond 1401 Elm Street 11th
Fund Floor
Dallas, TX 75202-2911
Roy R Martine & Investor A 94.87%
Kathleen H Martine 32,074.758
Jtwros
4009 Tottenham Court
Richmond, VA 23233-1771
Dorothy Lee Walshe Investor C 12.48%
5801 Mill Spring Rd 9,351.771
Midlothian, VA 23112
NFSC FEBO # Investor C 5.30%
W26-644269 3,973.958
Richard W Coates
3012 Woodlawn Drive
Suffolk, VA 23434
Virginia Bank of America NA Primary A 100%
Municipal Bond Attn Tony Farrer 1,444,119.904
Fund 1401 Elm Street 11th
Floor
Dallas, TX
75202-2911
Roy R Martine & Investor A 94.96%
Kathleen H Martine 35,317.835
JTWROS
4009 Tottenham Court
Richmond, VA 23233-1771
NFSC FEBO # Investor A 5.10%
W26-643866 3,061.508
Esmond L Dominick Jr
4014 Tanglewood Trail
Chesapeake, VA 23325
Stephens Inc Investor C 100%
Attn: Cindy Cole 291.741
111 Center Street
Little Rock, AR 72201
Merrill Lynch, Investor A 26.67%
Pierce, Fenner 16,000.000
& Smith Inc for the
Sole Benefit
of its Customers
Attention Service
Team
4800 Deer Lake Drive
East 3rd Floor
Jacksonville, FL 32246
Rodney M Carlson and Investor A 13.35%
Joyce L Carson JTTEN 8,010.000
3608 South Creek Ct
Chesapeake, VA 23325
Rebecca C Bell Investor A 11.41%
1092 Oaklawn Dr 6,844.881
Culpeper, VA 22701
Jessie E Spells Investor A 9.97%
1518 Dogwood Road 5,983.121
St Leonard, MD 20685-2710
NFSC FEBO # Investor A 9.80%
W26-636398 5,879.172
Creola M Shearin
2205 Parkside Ave
Richmond, VA 23228
217
<PAGE>
Class;
Amount of
Shares
Owned;
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Fund
---- ---------------- --------- --------- ------------
NFSC FEBO #W68-011398 Investor A 8.46%
Gerald H Moulton Jr 5,075.445
and
Virginia H Moulton
200 Liberty Street
1 World Financial
Cntr
New York, NY 10281
NFSC FEBO # Investor A 6.13%
W13-652342 3,676.356
Jeffery W Hale
Diane A Hale
8618 Woodbine Lane
Annandale, VA 22003
Emerging Bank of America NA Primary A 99.60%
Markets Fund Attn Tony Farrer 2,105,932.400
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Stephens Inc Primary B 100%
Attn: Cindy Cole 1.804
111 Center Street
Little Rock, AR 72201
Walter J Nott Investor A 7.29%
8320 Fulham Ct 7,871.049
Richmond, VA 23227
Hi-Tech Investor C 67.93%
Communications Inc 7,136.720
401(K) Plan
PO Box 1569
League City, TX 77574-1569
Stephens Inc for the Investor C 14.70%
Exclusive Benefit of 1,544.754
our Customers
111 Center Street
Little Rock, AR 72201
NFSC FEBO # Investor C 5.72%
W17-648345 600.743
NFSC/FMTC IRA
FBO Carroll L Terrell
6502 Woodrow Terr
Richmond, VA 23228
The following indicates those persons who owned % or more of the indicated
class of shares as of July 1, 1999. Unless otherwise indicated, the address for
each recordholder of Primary Shares is Bank of America, One Bank of America
Plaza, 33rd Floor, Charlotte, North Carolina 282.
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.
218
<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.
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
A-1
<PAGE>
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.
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
A-2
<PAGE>
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
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
ONE BANK OF AMERICA PLAZA
33rd Floor
Charlotte, NC 28255
1-800-626-2275
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits
All references to the "Registration Statement" in the following list of
Exhibits refer to the Registrant's Registration Statement on Form N-1A (File
Nos. 33-89742; 811-8982)
- --------------------------------------------------------------------------
Exhibit Letter Description
- --------------------------------------------------------------------------
(a) Articles of Incorporation:
(a)(1) Articles of Incorporation, dated January 20, 1995,
incorporated by reference to Post-Effective Amendment
No. 10, filed November 5, 1998.
(a)(2) Articles Supplementary, dated April 20, 1995,
incorporated by reference to Post-Effective Amendment
No. 10, filed November 5, 1998.
(a)(3) Articles Supplementary, dated March 20, 1996,
incorporated by reference to Post-Effective Amendment
No. 10, filed November 5, 1998.
- --------------------------------------------------------------------------
(b) By-Laws:
By-Laws, dated January 25, 1995, incorporated by
reference to Post-Effective Amendment No. 10, filed
November 5, 1998.
- --------------------------------------------------------------------------
(c) Instruments Defining Rights of Securities Holders:
Not Applicable
- --------------------------------------------------------------------------
(d) Investment Advisory Contracts:
(d)(1) Investment Advisory Agreement between Nations Fund
Portfolios, Inc. and NationsBanc Advisors, Inc.,
("NBAI"), incorporated by reference to Post-Effective
Amendment No. 10, filed November 5, 1998.
(d)(2) Sub-Advisory Agreement between NBAI, Gartmore Global
Partners, and Nations Fund Portfolios, Inc. is
incorporated by reference to Post-Effective Amendment
No. 10, filed November 5, 1998.
- --------------------------------------------------------------------------
C-1
<PAGE>
Exhibit Letter Description
- --------------------------------------------------------------------------
(e) Underwriting Contracts:
Distribution Agreement between Nations Fund Portfolios,
Inc. and Stephens Inc., incorporated by reference to
Post-Effective Amendment No. 10, filed November 5, 1998.
- --------------------------------------------------------------------------
(f) Bonus or Profit Sharing Contracts:
Deferred Compensation Plan, to be filed by amendment.
- --------------------------------------------------------------------------
(g) Custodian Agreement:
(g)(1) Custody Agreement between Nations Fund Portfolios, Inc.
and The Bank of New York, incorporated by reference to
Post-Effective Amendment No. 10, filed November 5, 1998.
- --------------------------------------------------------------------------
(h) Other Material Contracts:
(h)(1) Co-Administration Agreement between Nations Fund
Portfolios, Inc., Stephens Inc. and NBAI, to be filed by
amendment.
(h)(2) Sub-Administration Agreement between Nations Fund
Portfolios, Inc., The Bank of New York and NBAI, to be
filed by amendment.
(h)(3) Transfer Agency Agreement, incorporated by reference to
Post-Effective Amendment No. 10, filed November 5, 1998.
Supplement to Transfer Agency Agreement, to be filed by (h)(4)
amendment.
(h)(4) Amendment to Transfer Agency and Services Agreement, to (h)(5)
be filed by amendment.
(h)(3) Shareholder Servicing Plan, Investor B Shares (formerly Investor
N Shares), incorporated by reference to
Post-Effective Amendment No. 10, filed November 5, 1998.
(h)(4) Shareholder Servicing Plan, Investor C Shares,
incorporated by reference to Post-Effective Amendment
No. 10, filed on November 5, 1998.
- --------------------------------------------------------------------------
C-2
<PAGE>
Exhibit Letter Description
- --------------------------------------------------------------------------
(h)(5) Cross Indemnification Agreement between Nations Fund
Portfolios, Inc., Nations Fund, Inc. and Nations Fund
Trust is incorporated by reference to Post-Effective No.
10, dated November 5, 1998.
- --------------------------------------------------------------------------
(i) Legal Opinion
Opinion and Consent of Counsel, filed herewith.
- --------------------------------------------------------------------------
(j) Other Opinions
Consent of Independent Accountant --
PricewaterhouseCoopers LLP
- --------------------------------------------------------------------------
(k) Omitted Financial Statements
Not Applicable
- --------------------------------------------------------------------------
(l) Initial Capital Agreements:
Not Applicable
- --------------------------------------------------------------------------
(m) Rule 12b-1 Plan:
(m)(1) Shareholder Administration Plan, Primary B Shares,
incorporated by reference to Post-Effective Amendment
No. 10, filed November 5, 1998.
(m)(2) Shareholder Servicing and Distribution Plan, Investor A
Shares, incorporated by reference to the Post-Effective
Amendment No. 10, filed November 5, 1998.
(m)(3) Distribution Plan, Investor B Shares (formerly Investor
N Shares), incorporated by reference to Post-Effective
Amendment No. 10 filed November 5, 1998.
(m)(4) Distribution Plan, Investor C Shares, incorporated by
reference to Post-Effective Amendment No. 10, filed
November 5, 1998.
- --------------------------------------------------------------------------
(n) Financial Data Schedule:
Not Applicable
- --------------------------------------------------------------------------
(o) Rule 18f-3 Plan:
Amended Plan entered into by Nations Fund Portfolio,
Inc. pursuant to
C-3
<PAGE>
Exhibit Letter Description
- --------------------------------------------------------------------------
Rule 18f-3 under the Investment Company
Act of 1940, to be filed by amendment.
- --------------------------------------------------------------------------
(p) Powers of Attorney for Edmund L. Benson, Charles B.
Walker, A. Max Walker, Thomas S. Word, Jr., William H.
Grigg, James Ermer and Thomas F. Keller, incorporated by
reference to Registration Statement on Form N1-A filed
February 23, 1995.
Power of Attorney for Carl E. Mundy, Jr., James B.
Sommers and Cornelius J. Pings, to be filed by amendment.
- --------------------------------------------------------------------------
ITEM 24. Persons Controlled by of Under Common Control with the Fund
No person is controlled by or under common control with the Registrant.
ITEM 25. Indemnification
The Registrant has entered into a Cross Indemnification Agreement with
Nations Fund, Inc. (the "Company") and Nations Fund Trust (the "Trust"), dated
June 27, 1995. The Company and or Trust will indemnify and hold harmless the
Registrant against any losses, claims, damages or liabilities, to which the
Registrant may become subject, under the Securities Act of 1933 (the "Act") and
the Investment Company Act of 1940 (the "1940 Act") insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in any Prospectuses, any Preliminary Prospectuses, the
Registration Statements, any other Prospectuses relating to the securities, or
any amendments or supplements to the foregoing (hereinafter referred to
collectively as the "Offering Documents"), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Documents in
reliance upon and in conformity with written information furnished to the
Registrant by the Company and/or Trust expressly for use therein; and will
reimburse the Registrant for any legal or other expenses reasonably incurred by
the Registrant in connection with investigating or defending any such action or
claim; provided, however, that the Company and/or Trust shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Offering Documents in reliance upon
and in conformity with written information furnished to the Company and/or Trust
by the Registrant expressly for use in the Offering Documents.
Promptly after receipt by an indemnified party above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission to so notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified
C-4
<PAGE>
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers, employees, or
agents against any liability to which such person would otherwise be subject by
reason of his/her willful misfeasance, bad faith, gross negligence in the
performance of his/her duties, or by reason of his reckless disregard of the
duties involved in the conduct of his/her office or arising under his/her
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the 1940 Act, as amended, in
connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The following paragraphs of Article VIII of the
Registrant's Articles of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and
officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the
full extent permitted by law, and (2) its other employees and
agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law. The
C-5
<PAGE>
foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such By-Laws, resolutions or contracts implementing such provisions
or such further indemnification arrangements as may be permitted by
law. No amendment of these Articles of Incorporation of the
Corporation shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal. Nothing contained herein shall
be construed to authorize the Corporation to indemnify any Director
or officer of the Corporation against any liability to the
Corporation or to any holders of securities of the Corporation to
which he is subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office. Any indemnification by the Corporation
shall be consistent with the requirements of law, including the
1940 Act.
(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no
Director or officer of the Corporation shall be personally liable
to the Corporation or its stockholders for money damages; provided,
however, that nothing herein shall be construed to protect any
Director or officer of the Corporation against any liability to
which such Director or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment, modification or repeal of this Article VIII shall
adversely affect any right or protection of a Director or officer
that exists at the time of such amendment, modification or repeal.
Under the terms of the Maryland Corporation Law and the
Registrant's Charter and By-Laws, incorporated by reference as
Exhibits (1) and 2 hereto, provides for the indemnification of
Registrant's directors and employees. Indemnification of
Registrant's principal underwriter, custodian, and transfer agent
is provided for, respectively, in the Registrant's:
1. Co-Administration Agreement with Stephens Inc. and
NBAI;
2. Sub-Administration Agreement with The Bank of New
York;
3. Distribution Agreement with Stephens Inc.;
4. Custody Agreement with Bank of New York; and
5. Transfer Agency and Services Agreement with First
Data.
C-6
<PAGE>
ITEM 26. Business and Other Connections of the Investment Adviser
To the knowledge of the Registrant, none of the directors or officers of
NBAI, the adviser to the Registrant's portfolios, or Gartmore, the investment
sub-adviser, except those set forth below, are or have been, at any time during
the past two calendar years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
officers also hold various positions with, and engage in business for, the
company that owns all the outstanding stock (other than directors' qualifying
shares) of NBAI or Gartmore, respectively, or other subsidiaries of Bank of
America Corporation.
(a) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of Bank of
America Corporation. Information with respect to each director and officer of
the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the SEC pursuant to the Investment Advisers Act of 1940, as amended (the
"Advisers Act") (file no. 801-49874).
(b) Gartmore performs investment sub-advisory services for the Registrant
and certain other customers. Gartmore is a joint venture structured as a general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, an indirect, wholly owned subsidiary of Gartmore
Investment Management plc, a UK Company which is the holding company for a
leading UK based international fund management group of companies. Information
with respect to each director and officer of the investment sub-adviser is
incorporated by reference to Form ADV filed by Gartmore with the SEC pursuant to
the Advisers Act (file no. 801-48811).
ITEM 27. Principal Underwriters
(a) Stephens, distributor for the Registrant, does not presently act as
investment adviser for any other registered investment companies, but does act
as principal underwriter for Nations Fund Trust, Nations Fund, Inc., Nations
Institutional Reserves, Nations LifeGoal Fund, Inc., Nations Annuity Trust, the
Overland Express Funds, Inc., Stagecoach Inc., Stagecoach Funds, Inc. and
Stagecoach Trust, and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust, Life & Annuity Trust and Master
Investment Portfolio, all of which are registered open-end management investment
companies, and has acted as principal underwriter for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and the Managed Balanced Target Maturity Fund, Inc.,
closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the SEC pursuant to the Investment Company Act of 1940, as amended (the "1940
Act") (file No. 501-15510).
C-7
<PAGE>
(c) Not applicable.
ITEM 28. Location of Accounts and Records
(1) NBAI, One Bank of America Plaza, Charlotte, NC 28255 (records relating
to its function as Investment Adviser and Co-Administrator).
(2) Gartmore, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as Sub-Adviser).
(3) Stephens, 111 Center Street, Little Rock, AR 72201 (records relating to
its function as Distributor and Co-Administrator).
(4) First Data, 101 Federal Street, Boston, MA 02110 (records relating to
its function as Transfer Agent).
(5) Bank of New York, 90 Washington Street, New York, NY 10286 (records
relating to its function as Custodian and Sub-Administrator)
ITEM 29. Management Services
Not Applicable
ITEM 30. Undertakings
Not Applicable
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Little Rock, State of Arkansas on the
30th day of July, 1999.
NATIONS FUND PORTFOLIOS, INC.
By: *
-----------------------------------
A. Max Walker
President and Chairman
of the Board of Directors
By: /s/ Richard H. Blank, Jr.
------------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE
---------- ------ ----
* President and Chairman July 30, 1999
- ---------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and
- ------------------------ Secretary
(Richard H. Blank, Jr.) (Principal Financial and July 30, 1999
Accounting Officer)
* Director July 30, 1999
- -----------------------
(Edmund L. Benson, III)
* Director July 30, 1999
- -----------------------
(James Ermer)
* Director July 30, 1999
- -----------------------
(William H. Grigg)
* Director July 30, 1999
- -----------------------
(Thomas F. Keller)
* Director July 30, 1999
- -----------------------
(Carl E. Mundy, Jr.)
* Director July 30, 1999
- -----------------------
(Cornelius J. Pings)
* Director July 30, 1999
- -----------------------
(Charles B. Walker)
* Director July 30, 1999
- -----------------------
(Thomas S. Word)
* Director July 30, 1999
- -----------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
- ---------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
EX-99.23.i Opinion and Consent of Counsel
EX-99.23.j Consent of Independent Accountants-PricewaterhouseCoopers LLP
EX-99.23i
[MORRISON & FOERSTER LLP LETTERHEAD]
July 30, 1999
Nations Fund Portfolios, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Capital Stock of
Nations Fund Portfolios, Inc.
-----------------------------
Dear Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 13 and Amendment No. 15 to the
Registration Statement on Form N-1A (SEC File Nos. 33-89742; 811-8982) (the
"Registration Statement") of Nations Fund Portfolios, Inc. (the "Company")
relating to the registration of an indefinite number of Shares in the Company
(collectively, the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit
23i to the Registration Statement.
We have examined such records, documents, instruments, and certificates of
public officials and of the Company, made such inquiries of the Company, and
examined such questions of law as we have deemed necessary for the purpose of
rendering the opinion set forth herein. We have also verified with the Company's
transfer agent the maximum number of shares issued by the Company during the
fiscal year ended March 31, 1999. We have assumed the genuineness of all
signatures and the authenticity of all items submitted to us as originals and
the conformity with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the Funds' dividend reinvestment plan in accordance with the
description set forth in the
<PAGE>
Nations Fund Portfolios, Inc.
July 30, 1999
Page Two
Registration Statement, as amended, the Shares will be validly issued, fully
paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we consent to the use of our name and to the reference to our
Firm under the heading "Counsel" in the Statement of Additional Information.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 28, 1999, relating to the financial
statements and financial highlights appearing in the March 31, 1999 Annual
Report to Shareholders of Nations Emerging Markets Fund, the sole portfolio of
Nations Fund Portfolios, Inc., which is also incorporated by reference into the
Registration Statement. We also consent to the reference to us under the heading
"Financial highlights" in the Prospectuses and under the heading "Independent
Accountants and Reports" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 27, 1999
