N-30D 1 g68303n-30d.txt INTERNATIONAL 1 [GRAPHIC: PHOTO COLLAGE WITH CELL PHONE] Nations International Value Fund Nations International Equity Fund Nations Marsico International Opportunities Fund Nations Emerging Markets Fund INTERNATIONAL STOCK FUNDS ANNUAL REPORT FOR THE YEAR ENDED MARCH 31, 2001 [NATIONS FUNDS LOGO] 2 This Report is submitted for the general information of shareholders of Nations Funds. This material must be preceded or accompanied by a current Nations Funds prospectus. Nations Funds distributor: Stephens Inc., which is not affiliated with Bank of America N.A., is not a bank, and securities offered by it are not guaranteed by any bank or insured by the FDIC. Stephens Inc., member NYSE, SIPC. Nations Funds Investment adviser: Banc of America Advisors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 3 PRESIDENTS' MESSAGE Dear Shareholder: The 12-month period ending March 31, 2001 marked one of the most difficult periods for investors in recent memory. As an investor, you've probably asked yourself many times over "When will it end?" The U.S. stock market has taken investors on a very wild ride during the past year and, more so, during the first quarter of 2001. After reaching all-time highs in early 2000, each of the three major stock market indexes -- the Dow Jones Industrial Average, Standard & Poor's 500 Composite Stock Price Index (S&P 500) and Nasdaq Composite Index (Nasdaq)(1) -- all ended the year 2000 in negative territory. To make matters worse, after some modest gains in January 2001, each of these indexes declined to levels not seen since 1998. It was the first time in a long time that both the S&P 500 and Nasdaq entered bear market territory -- defined by a loss of more than 20% from an index's 52-week high. International stock markets also felt the impact of the U.S. economic slowdown. The year 2000 marked the first time since 1992 that international stocks -- represented by the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index(2) -- finished the year in the minus column, down 14%. Bond investors were the only group to have anything to cheer about, as bonds -- represented by the Lehman Aggregate Bond Index(3) -- ended 2000 ahead of the S&P 500 by more than 20%. Not only that, it was the first time in a decade that bonds outperformed stocks. Now more than ever we need to be reminded of the fact that investing generally is a long-term proposition -- one that requires patience and perseverance during volatile times. With that long-term view in mind, here are some points to note. DOWNTURNS CAN ALSO EQUAL OPPORTUNITY While many stocks were flying high in 1999 and 2000, especially in the technology sector, several Wall Street experts were warning that many of these stocks were overvalued. This warning has now come to fruition, as many of these high-flying growth stocks of yesterday now appear to be today's value opportunities. We've always been told to "buy low" and now may be a good opportunity to buy some of the most widely regarded companies in corporate America at a discount. DIVERSIFICATION IS KEY A carefully selected portfolio of stocks, bonds and money market instruments is a sensible way to reduce some of the risk associated with investing. Since different investments respond differently to the same economic conditions, we believe it makes even more sense to maintain a diversified portfolio through uncertain times. It's times like these that can prove the effectiveness of asset allocation. (1)The Dow Jones Industrial Average is a price-weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange. The Standard & Poor's 500 Composite Stock Price Index is an index consisting of 500 widely held common stocks. The Nasdaq Composite Index tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System traded foreign stocks and ADRs. All indexes are unmanaged and unavailable for investment. (2)The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern markets. It is unavailable for investment. (3)The Lehman Aggregate Bond Index is an unmanaged index composed of the Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index, and includes U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed issues. It includes reinvestment of dividends and is unavailable for investment. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 4 PRESIDENTS' MESSAGE CONTINUED... BRIGHTER DAYS MAY BE AHEAD The U.S. economy has been slowing down and we think it will continue to do so for the near future. In addition, the markets will continue to be rocked by reports of lower corporate earnings. However, the Federal Reserve Board has done its part in aiding the economy by reducing interest rates aggressively this year. The markets react to this sort of news almost instantly, but it's important to note that rate cuts take time to have a lasting effect on the economy -- some times up to four quarters before any real impact can be measured. Please read through your report to see what your Managers of Distinction have to say about the markets, the economy and how your investment in Nation Funds has fared over the past 12 months. We encourage you to then have a conversation with your investment professional to discuss how you can take advantage of the current market environment as it relates to your long-term investment goals. We remain committed to providing you with world-class investment management and competitive products to help you reach your long-term goals. Should you have any questions or comments on your annual report, please contact your investment professional or call us at 1.800.321.7854. You can also visit us online at www.nations-funds.com. Thank you for being a part of the Nations Funds family. Sincerely, /s/ A. Max Walker A. MAX WALKER PRESIDENT AND CHAIRMAN OF THE BOARD NATIONS FUNDS /S/ ROBERT H. GORDON ROBERT H. GORDON PRESIDENT BANC OF AMERICA ADVISORS, INC. March 31, 2001 5 TABLE OF CONTENTS INTERNATIONAL MARKET OVERVIEW 3 PORTFOLIO COMMENTARY Nations International Value Fund 6 Nations International Equity Fund 13 Nations Marsico International Opportunities Fund 19 Nations Emerging Markets Fund 24 FINANCIAL STATEMENTS Statements of net assets 29 Statements of operations 37 Statements of changes in net assets 38 Schedules of capital stock activity 40 Financial highlights 44 Notes to financial statements 52 Statement of net assets -- Nations Master Investment Trust 62 Nations International Value Master Portfolio 62 Nations International Equity Master Portfolio 65 Statement of operations 70 Statement of changes in net assets 71 Supplementary data 71 Notes to financial statements 72
------------------------------------------------------------------------------ NATIONS FUNDS [DALBAR LOGO] RECOGNIZED FOR OUTSTANDING DALBAR, Inc., is a well-respected INTERMEDIARY AND research firm that measures SHAREHOLDER SERVICE customer service levels and establishes benchmarks in the IN RECOGNITION OF ITS COMMITMENT TO financial services industry. PROVIDE INVESTMENT PROFESSIONALS AND SHAREHOLDERS WITH THE HIGHEST LEVEL OF SERVICE IN THE MUTUAL FUND INDUSTRY, NATIONS FUNDS RECEIVED BOTH THE DALBAR INTERMEDIARY SERVICE AWARD AND MUTUAL FUND SERVICE AWARD IN 2000. ------------------------------------------------------------------------------
6 [This page intentionally left blank.] 7 INTERNATIONAL MARKET OVERVIEW GARTMORE GLOBAL PARTNERS International stock markets over the 12-month period ended March 31, 2001 fell after a strong run during the previous reporting year. Growth stocks in particular had a difficult ride as economic activity decelerated and the corporate earnings outlook worsened. Rising oil prices combined with higher interest rates to put some pressure on inflation, but inflation rates were never at levels high enough to cause central bankers undue concern -- and monetary policies generally began to ease toward the end of the period. On the whole, economies outside the U.S. fared better than the U.S., with European growth, for example, rising above 3% while Brazil and Mexico saw growth rates of 4% or higher (Mexico achieved an annualized rate of 7% during the third quarter). Japan remained the outsider, with growth hovering around the zero mark. U.S. economic activity, by comparison, grew less than 2% during the period. There were two severe financial crises in the minor markets of Argentina and Turkey later in the period, but the overriding concern throughout was the sell-off in technology and telecommunications stocks, triggered in part last April by the collapse of the Microsoft settlement talks. (It should be noted that since then Microsoft's share price has staged a remarkable recovery, ending the first quarter of 2001 as one of the top performing U.S. stocks.) International equity markets as measured by the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index* fell by less than the Standard & Poor's 500 Composite Stock Price Index (S&P 500)** when measured in local currency terms (-16.4% versus -22.6%, respectively). However, U.S. dollar strength, particularly against the yen and the Euro, meant that the MSCI EAFE Index returned -25.9% in U.S. dollar terms, thus underperforming the S&P 500. Looking forward, we believe that equity markets are pricing in an exceptionally poor environment for corporate earnings growth, one which implies an earnings collapse globally. For earnings expectations to deteriorate further, we would need to see global recession or an extended depression in the profits cycle. We believe a less adverse environment may emerge; the growth slowdown may diminish later in the year and short-term interest rates may continue to decline. In this environment, we hope to see a recovery in global equity markets. The pace of economic growth in Continental Europe seemed promising during the first quarter of the period under review, with key economic indicators pointing to rising production and robust retail sales levels. The positive effects of restructuring along with the weak Euro underpinned corporate earnings growth. But by September the luster had begun to fade as oil prices rose sharply higher and the economic pendulum started to swing in the opposite direction. The slowdown in the U.S. continued to take its toll, although the gross domestic product (GDP) growth rate in Europe remained firm (3% or better). The rout in the technology-laden Nasdaq Composite Index*** overshadowed Europe's relative economic strength, as * The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian, and Far Eastern markets. It is unavailable for investment. ** The Standard & Poor's 500 Composite Stock Price Index is a market-capitalization weighted index that measures the market value of 400 industrial stocks, 60 transportation and utility company stocks and 40 financial issues. It is unmanaged and unavailable for investment. *** The Nasdaq Composite Index tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System traded foreign stocks and ADRs. It is unmanaged and unavailable for investment. Source for all statistical data -- Gartmore Global Partners PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 3 8 INTERNATIONAL MARKET OVERVIEW GARTMORE GLOBAL PARTNERS questions over the Euro as well as a perception that the mobile telecoms' story may have been overly optimistic combined to unsettle investor sentiment. The other big detractor in terms of investor sentiment was the enormous cost incurred by mobile operators as a result of government auctions for third generation licenses. The technology/telecommunications sell-off led to a rotation into defensive sectors, such as pharmaceuticals and food manufacturing, and value stocks raced ahead of growth stocks. During the year, the European Central Bank tightened the monetary reins, raising interest rates from 3.5% to 4.75% over the period. The U.K. kept rates on hold at 6% for most of the period, lowering them to 5.75% during March. While the Pound Sterling was strong against the Euro, it fell against the U.S. dollar. The Euro fell to a record low level against the U.S. dollar in October and has since recovered; however, it remained below the 0.90 level at the end of the period. The Japanese economy showed signs of life over the past 12 months, but the economic background remained difficult. An unhelpful political environment marked by disputes between the Bank of Japan (BoJ) and the Finance Ministry over the appropriate course of action produced what amounted to economic stasis. For example, last August the BoJ ignored pleas from the government and raised its key overnight call rate to 0.25% from near zero. It justified the move by arguing that the deflation risk was over and the economy was showing clear signs of recovery. This did not prove to be the case and the BoJ effectively returned to a zero interest rate policy during March. This signalled what was hoped to be the beginning of a concerted attempt by both the bank and the government to improve the economic environment. However, the outlook was not particularly encouraging. At the same time, the tendency by the ruling Liberal Democratic Party to underwrite corporate supporters via the already overburdened banking sector remains a cause of concern. Economic growth in the Pacific and Emerging Markets also slowed during the past 12-month period, as exporters fell victim to slowing demand in the U.S. and Europe. Volatility remained a key characteristic of this equity market asset class over the period, with Argentina's fiscal crisis and Turkey's devaluation having a ripple effect on investor sentiment during the first quarter of 2001, albeit mostly limited to their respective regions. Encouragingly, in both Turkey and Argentina, the governments have moved toward resolution of their problems. Within Latin America, the markets we favor -- Brazil and Mexico -- continued to show robust growth, although economic activity has come down from peak levels achieved last year. We continue to be encouraged by the underlying economic progress in both countries, marked by the steady decline of inflation and interest rates for most of the period (in Brazil this trend seems to have recently reversed) and government targeting of domestically-oriented growth. In the Pacific region, technology stocks made a rebound during January from extremely depressed levels late last year. 4 9 INTERNATIONAL MARKET OVERVIEW GARTMORE GLOBAL PARTNERS While that has been a welcome development, we remain somewhat cautious of the region given its vulnerability to the weak yen. The past twelve months have proved that events don't always go according to plan. We, along with many fund managers, expected most markets to rise modestly. Most have gone down sharply. With the advantage of hindsight, we underestimated the extent of the slowdown in corporate earnings growth, and we overestimated the support provided by the shift to monetary easing. But is this a reason to sell, to go short? We don't think so, for two main reasons. First, we believe the driving force pushing markets lower has been the concern, and more recently panic, over profit expectations. We believe that profit expectations have now collapsed. To be strategically bearish from here, you have to be a believer in global recession, or a sustained profit problem. We do not believe this will happen. In our view, the slowdown in global growth is a function of a number of developments that occurred last year--rising interest rates, higher oil prices and a supply-side shock to technology. These appear to be in the process of being unwound. It is therefore reasonable, in our opinion, to suggest that there will be better news later this year and into 2002; that markets may react to this news before it emerges; and that given the depressed starting point for expectations, there is the potential for a meaningful recovery in equities. Are there risks? Of course. And are we gifted enough to time precisely when a recovery may emerge? No. Does this make the current period rather difficult? Yes. And should we forget that there is light at the end of the tunnel? No. For long-term investors from the U.S., we continue to believe that international markets offer the prospect of unexpected earnings growth as well as diversification through investments uniquely placed in their respective regions and sectors. STEPHEN WATSON CHIEF INVESTMENT OFFICER GARTMORE GLOBAL PARTNERS March 31, 2001 5 10 PORTFOLIO MANAGEMENT The Fund is managed by the Large Cap Investment Committee of Brandes Investment Partners L.P., investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging markets countries. PERFORMANCE REVIEW For the 12-month period ended March 31, 2001, Nations International Value Fund Investor A Shares provided shareholders with a total return of -0.72%.** NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY* IN THE FOLLOWING INTERVIEW, THE COMMITTEE SHARES ITS VIEWS ON NATIONS INTERNATIONAL VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2001 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S PHILOSOPHY AND STYLE. Nations International Value Fund is managed using a Graham-and-Dodd value discipline to select international equities. We search the world on a company-by-company basis seeking stocks that are undervalued, often for irrational reasons. Upon purchase of such stocks, we typically plan to hold them for three-to-five years to allow them to achieve what we believe is their long-term, or intrinsic value. A focus on individual security selection -- also known as bottom-up research and analysis -- drives country and sector allocation. We make no "top-down" predictions. We will not, for example, buy energy stocks because we think oil prices may rise. Instead of speculating on macroeconomic factors, we focus on the fundamental strengths of thousands of individual companies and select only those meeting our strict investment criteria. As value investors, we see opportunity in periods characterized by extremes and believe markets soaring to unprecedented highs or enduring sharp losses reflect investors' overreaction to short-term events. We viewed global markets' tenuous environment during much of the prior 12 months as an opportunity to add to existing positions or make new investments in companies selling at steep discounts from what we believe to be their intrinsic values. Over time, we believe that the market will recognize the underlying value of these stocks and the prices will rise. We believe that by purchasing stocks at discounts from their perceived long-term value, a margin of safety against price declines is created -- thus reducing risk while providing the opportunity for capital appreciation. PLEASE COMMENT ON FUND PERFORMANCE FOR THE PERIOD. Nations International Value Fund (Investor A Shares) returned -0.72% for the period, substantially outperforming the benchmark, the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index,*** which fell in excess of 25%. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. Performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern markets. It is unavailable for investment. Source for all statistical data -- Brandes Investment Partners, L.P. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISK, RISKS ASSOCIATE WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH THE FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 6 11 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued WHAT WERE INTERNATIONAL ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD? Throughout the 12-month period ending March 31, 2001, a number of factors contributed to a difficult environment for many international markets: - Steep declines among technology stocks - Rising oil prices - Escalating concerns over the potential for global economic slowing - Worries about eroding corporate profits These factors weighed on investor confidence and conspired to drag equity prices lower throughout much of the world. Reflecting the rugged terrain for equities during the period, the MSCI EAFE Index fell 25.88%. Stocks in emerging markets also endured sharp declines. The Morgan Stanley Capital International Emerging Market Free (MSCI EMF) Index+ lost 37.3% during the period. While stock prices tended to decline in the period, many value stocks proved less vulnerable than their peers did. A recent Wall Street Journal article captures the essence of the shift in investor preference that unfolded over the past 12 months. The article states that in the past, investors bought stocks in companies they believed would excel in the market, without a consideration of price. Conversely, today's investors consider price important as well as earnings, and place less of an emphasis on future growth. Given some investors' renewed focus on the relationship between a company's underlying value and its stock price, many value stocks demonstrated their mettle. Illustrating the resilience many value stocks showed during the period, the Morgan Stanley Capital International Europe, Australasia, Far East Value (MSCI EAFE Value) Index++ fell 13.4% while the Morgan Stanley Capital International Europe, Australiasia, Far East Growth (MSCI EAFE Growth) Index+++ shed 38.7%. Losses among high-priced technology stocks were the primary contributor to sharper declines for the MSCI EAFE Growth Index. During the fourth quarter of 2000, oil prices jumped to a 10-year high, raising concerns that higher prices for crude would crimp worldwide economic growth. Higher oil prices had their greatest negative influence on emerging markets, where many countries are net importers of oil. In addition, because many emerging nations derive a high percentage of Gross Domestic Product (GDP) from exports, the prospect of weaker global demand resulting from higher oil costs weighed on investor confidence. The MSCI EMF fell 13.3% in the fourth quarter. While the European Central Bank (ECB) and Bank of Japan (BoJ) raised short-term interest rates in the third quarter of 2000 to counter inflationary pressures, +The Morgan Stanley Capital International Emerging Market Free (MSCI EMF) Index is an unmanaged, capitalization-weighted index that tracks stocks traded in twenty-three countries. It is unavailable for investment. ++ / +++The MSCI EAFE Value Index and The MSCI EAFE Growth Index cover the full range of developed, emerging and All Country MSCI indices, including Free indices where applicable. The indices use Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into two sub-indices: Value and Growth. All securities are classified as either "value" securities (low price-to-book value securities) or "growth" securities (high price-to book value securities), relative to each MSCI country index. In this manner, the definition of value and growth is relative to each individual market as represented by the MSCI index. 7 12 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued interest rates in much of the world would fall later in the period as evidence of economic weakness surfaced. Like the Federal Reserve Board, the Bank of England cut interest rates in the first quarter of 2001 and the BoJ flooded the banking system with extra funds through purchases of government bonds. The BoJ's move was aimed at curtailing two years of falling prices and supporting the rapidly weakening economy. Despite evidence of economic sluggishness in Europe, the ECB kept interest rates unchanged in 2001. Following a meeting in late March of this year, Wim Duisenberg, president of the ECB, said the central bank concluded that inflation risks are "more balanced." Doubts regarding the stability of the banking system in Japan also damaged investor confidence. During the first quarter of 2001, the Nikkei Index++++ dropped to a 16-year low before rebounding toward the end of March amid reports of a more accommodating stance by the central bank and new pledges to shore up the banking system. WHAT COUNTRY OR REGIONAL DECISIONS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Declining prices for Japanese holdings and significant weighting in Japan had a significant influence on the Fund's modest decline during the period. Declines among holdings in Germany, Brazil, and South Korea also had a measurable negative impact. WHAT COUNTRY OR REGIONAL DECISIONS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Overall, the fund's performance benefited from exposure to select companies in the United Kingdom and Canada. There were a number of encouraging developments in the United Kingdom during the period. Retail sales rose more than expected in February 2001, unemployment fell to its lowest level since 1975 in March, and early in 2001, the Bank of England cut interest rates to insulate the nation from a perceived global economic slowdown. More important than these macroeconomic factors is our conviction of the fundamental strengths of portfolio holdings. In general, our consistent focus on purchasing and holding companies with what we believe is a "margin of safety," or those selling at a discount to our estimates of their intrinsic value, proved its merit during the period. While the MSCI EAFE lost 25.88% and the MSCI EAFE Value fell 13.4%, Nations International Value Fund declined just 0.72%. WHAT SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?+++++ By far, the greatest negative influence on Fund returns during the period was declining holdings in the telecommunications industry. Throughout the period, telecom stocks fell in tandem with technology stocks. Investors perceived economic slowing and profit warnings by leading telecom firms as signs that business ++++The Nikkei Index is an index of more than 200 leading stocks traded on the Tokyo Stock Exchange. Similar to the Dow Jones Industrial Average, it is made up of representative blue chip companies. +++++Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 8 13 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued prospects were deteriorating. Among the worst-performing telecom holdings during the period were British Telecommunications plc (United Kingdom), Telefonos de Mexico (Mexico), and Telebras (Brazil). As many telecom holdings climbed to levels consistent with our estimation of their underlying values early in the period, we sold shares and booked profits. Later in the period, as telecoms tumbled, we used the downturn as an opportunity to purchase shares selectively in various telecom companies we see as attractive, long-term investment opportunities. Reflecting our conviction for the telecom stocks we hold, the Fund's exposure in the telecom industry remains its greatest sector of concentration. WHAT SECTORS AND STOCKS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Helping to offset losses among telecom holdings were gains in positions in the beverages & tobacco, insurance, and food & household products industries. Among the best-performing holdings for the period were Zurich Financial Services AG (Switzerland -- insurance), De Beers (South Africa -- miscellaneous materials & mining), and BASF AG (Germany -- chemicals). Share prices for De Beers were boosted in February by the announcement of a bid to purchase the company, the world's largest diamond miner, for $17.6 billion. WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE? As oil prices jumped during the period, the Euro hit new lows against the U.S. dollar before gaining some ground late in 2000. The Japanese yen also weakened, reflecting investors' lack of conviction in a strong Japanese economic recovery. In Brazil, the central bank hiked short-term interest rates by 50 basis points in March 2001, the first rate increase in two years, following a report about inflation hovering above the central bank's 4.0% target. The Brazilian real fell to a two-year low during March. Weakness in the Euro, yen, and Brazilian real adversely affected Fund performance. However, we believe these short-term developments do not present major risks to long-term investors in a diversified portfolio. We maintain our philosophy of not hedging positions for currency risk. One of the main reasons to invest internationally is to gain the benefits of diversification, a significant part of which, in our view, is provided by the currency component. WHAT IS YOUR INTERNATIONAL ECONOMIC AND MARKET OUTLOOK FOR THE YEAR AHEAD? As a "bottom-up" manager, we do not make any "top-down" projections for countries, regions, economies, or interest rates. We choose companies based on a comprehensive review of their fundamental strengths designed to give us a firm understanding of their businesses and intrinsic values. Applied globally, our investment process continues to uncover promising opportunities among developed and emerging markets. We believe the strengths of Fund holdings inspire optimism for long-term outperformance. In our opinion, long-term investors will be rewarded for their patience as stock markets evolve to more accurately reflect companies' underlying values. 9 14 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THIS ENVIRONMENT? HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE OPPORTUNITIES? During the period, the complexion of the Fund did not change significantly. As a result of stock-specific purchases and sales, we reduced exposure to the insurance industry and increased our weighting among telecommunications companies. The telecom industry now represents the Fund's heaviest area of exposure. With respect to countries, we trimmed exposure on a company-by-company basis in various countries and increased our weighting in Japan. The Fund retains its greatest exposure to the United Kingdom. Although there is significant negative sentiment on the investment prospects for the United Kingdom and Japan, we view current pessimism as a chance to take advantage of what we believe to be attractive, company-specific opportunities in these countries and others around the world. 10 15 NATIONS INTERNATIONAL VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/01) [PIE CHART] South Korea 3.00 Mexico 3.20 Hong Kong 3.20 Switzerland 3.30 Germany 6.00 Brazil 6.40 Spain 6.70 France 7.10 Other 18.00 Japan 17.40 United Kingdom 25.70
TOP 10 HOLDINGS ------------------------------------------------- 1 Repsol YPF SA, ADR 3.1% ------------------------------------------------- 2 Diageo plc, ADR 2.9% ------------------------------------------------- 3 Telefonos de Mexico SA de CV 'L', ADR 2.6% ------------------------------------------------- 4 Marks & Spencer plc, ADR 2.3% ------------------------------------------------- 5 BAE Systems plc, ADR 2.3% ------------------------------------------------- 6 British American Tobacco plc, ADR 2.2% ------------------------------------------------- 7 Unilever plc, ADR 2.2% ------------------------------------------------- 8 Matsushita Electric Industrial Company Ltd., ADR 2.2% ------------------------------------------------- 9 Mitsubishi Heavy Industries, Ltd. 2.1% ------------------------------------------------- 10 Nippon Telegraph and Telephone Corporation, ADR 2.1% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2001, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 11 16 NATIONS INTERNATIONAL VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (12/27/95 through 3/31/01) 16.53% 15.23%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations International Value Fund from the inception of the share class. The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern markets. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. It is not possible to invest in the Index or Lipper Average. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [INVESTOR A SHARES AT MOP* RETURN CHART] [CHART LEGEND]
NATIONS INTERNATIONAL VALUE LIPPER INTERNATIONAL FUNDS FUND $21,080 MSCI EAFE INDEX $12,292 AVERAGE $13,464 -------------------- ----------------------- -------------------------- Dec. 27 1995 9425 10000 10000 1995 9374 10000 10000 9591 10297 10448 10184 10468 10829 10043 10463 10783 1996 10809 10637 11223 11436 10478 11353 12936 11846 12620 13496 11770 12794 1997 13012 10856 11814 15353 12461 13547 14518 12602 13647 12112 10819 11449 1998 14550 13064 13333 15623 13255 13539 17810 13591 14302 17865 14188 14863 1999 22180 16599 18689 21226 16582 18825 22862 15925 17835 21905 14640 16494 2000 22839 14248 15710 Mar. 31 2001 21080 12292 13464
[INVESTOR A SHARES AT NAV** RETURN CHART]
NATIONS INTERNATIONAL VALUE LIPPER INTERNATIONAL FUNDS FUND $22,365 MSCI EAFE INDEX $12,292 AVERAGE $13,464 -------------------- ----------------------- -------------------------- Dec. 27 1995 10000.00 10000.00 10000.00 1995 9946.00 10000.00 10000.00 10176.00 10297.00 10448.00 10806.00 10468.00 10829.00 10655.00 10463.00 10783.00 1996 11468.00 10637.00 11223.00 12134.00 10478.00 11353.00 13726.00 11846.00 12620.00 14320.00 11770.00 12794.00 1997 13806.00 10856.00 11814.00 16289.00 12461.00 13547.00 15403.00 12602.00 13647.00 12851.00 10819.00 11449.00 1998 15438.00 13064.00 13333.00 16576.00 13255.00 13539.00 18897.00 13591.00 14302.00 18955.00 14188.00 14863.00 1999 23533.00 16599.00 18689.00 22521.00 16582.00 18825.00 24256.00 15925.00 17835.00 23241.00 14640.00 16494.00 2000 24231.00 14248.00 15710.00 Mar. 31 2001 22365.00 12292.00 13464.00
TOTAL RETURN (AS OF 3/31/01)
INVESTOR A INVESTOR B+ INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/27/95 12/27/95 5/22/98 6/15/98 --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -0.50% -0.72% -6.45% -1.42% -6.00% -1.45% -2.36% --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 11.16% 11.13% 8.96% 10.32% 9.49% -- -- 5 YEARS 17.22% 17.06% 15.68% 16.54% 16.33% -- -- SINCE INCEPTION 16.71% 16.53% 15.23% 16.05% 15.95% 16.00% 16.00%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. +Investor B Shares commenced operations on May 22, 1998 and have no performance prior to that date. Performance prior to May 22, 1998 is that of Investor A Shares at NAV, which reflect 12b-1 fees of 0.25%. If Investor B Shares 12b-1 fees had been reflected, total returns would have been lower. Inception date for Investor A Shares is December 27, 1995. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 12 17 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY* PORTFOLIO MANAGEMENT IN THE FOLLOWING INTERVIEW, THE TEAMS SHARE THEIR VIEWS ON The Fund is a "multi-manager" NATIONS INTERNATIONAL EQUITY FUND'S PERFORMANCE FOR THE fund, meaning that it is managed 12-MONTH PERIOD ENDED MARCH 31, 2001 AND THEIR OUTLOOK FOR by more than one sub-adviser. Each THE FUTURE. sub-adviser manages approximately PLEASE DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY AND STYLE. one-third of the Fund's assets. Nations International Equity Fund's intention is to seek The three sub-advisers to the Fund long-term growth by investing in equity securities of are Gartmore Global Partners, companies located outside the U.S. The Fund is an extended INVESCO Global Asset Management EAFE vehicle, meaning that in addition to investing in the N.A., Inc., and Putnam Investment countries contained in the Morgan Stanley Capital Management, LLC. International Europe, Australasia and Far East (MSCI EAFE) INVESTMENT OBJECTIVE Index,*** it also invests in lesser-developed countries. The The Fund seeks long-term capital Fund is designed to be a core international holding with a growth by investing primarily in strong tilt toward growth. equity securities of non-United The Fund features: States companies in Europe, -- A combination of "top-down" regional allocation and Australia, the Fear East and other "bottom-up" stock selection; regions, including developing -- Large capitalization securities; and countries. -- Extended EAFE exposure to enhance performance through PERFORMANCE REVIEW investments in emerging markets. For the 12-month period ended Gartmore considers its primary objective to be identifying March 31, 2001, Nations opportunities for unexpected above-average future earnings International Equity Fund Investor growth. The team seeks to achieve this by researching A Shares provided shareholders regions, countries, sectors and individual stocks to with a total return of -27.54%.** determine areas of emphasis to achieve earnings growth that is higher than consensus forecasts or persists for longer periods. By combining active regional allocations with theme-based sector and stock selection, the team seeks to maintain a portfolio that strategically emphasizes growing markets. At the same time, Gartmore seeks to avoid those markets with less favorable prospects. The process is driven by fundamental research that combines analysis from the macroeconomic to the individual company level. The Putnam team considers its primary objective to be seeking consistent, above-average returns and low relative risk by investing in a diversified portfolio of non-U.S. companies which Putnam believes are selling significantly below their long-term worth. To achieve this, Putnam uses a style-neutral, systematic approach that
*The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasia and Far Eastern Markets. It is unavailable for investment. Source for all statistical data -- Gartmore Global Partners, INVESCO and Putnam. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 13 18 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY continued blends "top-down" country and sector allocation and "bottom-up" stock selection driven by valuation, fundamental research, and quantitative analysis. The INVESCO portion of the Fund uses a "bottom-up" style of management with a primary focus on stock selection. INVESCO favors what it believes to be high-quality, stable growth companies that are attractively priced based on a discounted-cash flow approach to investing. To seek predictability and consistency of returns, INVESCO also strives for broad diversification. HOW DID THE FUND PERFORM? Nations International Equity Fund (Investor A Shares) provided shareholders with a return of -27.54%, slightly underperforming its benchmark, the MSCI EAFE Index, which returned -25.88%. WHAT WAS THE INVESTMENT ENVIRONMENT FOR INTERNATIONAL EQUITY INVESTING DURING THE FISCAL YEAR? International stock markets over the past 12-month period fell after a strong run during the previous reporting year. Growth stocks in particular had a difficult ride as economic activity decelerated and the corporate earnings outlook worsened. Rising oil prices combined with higher interest rates put some pressure on inflation. However, inflation rates were never at levels high enough to cause central bankers undue concern, and monetary policies generally began to ease toward the end of the period. Against this background, the MSCI EAFE Index fell 25.88% in U.S. dollar terms. On the whole, economies outside the U.S. fared better than the U.S., with European growth, for example, rising above 3%, while Brazil and Mexico saw growth rates of 4% or higher (Mexico achieved an annualized rate of 7% during the third quarter). Japan remained the outsider, with growth hovering around the zero mark. Europe started the period with promising growth, but the slowdown in the US began to take its toll and the earnings outlook took a turn for the worse later in the period. The rout on the Nasdaq Composite Index (Nasdaq)+ and continued questions over the Euro added to negative sentiment, as well as a perception that the mobile telecommunications story may have been overly optimistic. The technology/telecommunications sell-off led to a rotation into defensive sectors, such as pharmaceuticals and financials, and value stocks raced ahead of growth stocks. The Japanese economy showed signs of life over the past 12-month period, but the economic background remained difficult. An unhelpful political environment marked by disputes between the Bank of Japan and the Finance Ministry over the appropriate course of action produced what amounted to economic stasis. The market struggled against negative momentum within Japan as well as from the global downturn, ending the period substantially lower than the MSCI EAFE Index. Economic growth in the Pacific and Emerging Markets also slowed during the last 12 month period, as exporters fell victim to slowing demand in the U.S. and Europe. Volatility remained a key characteristic of this equity market asset class, although within Latin America, Brazil and Mexico continued to show robust growth.
+The Nasdaq Composite Index tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System traded foreign stocks and ADRs. It is unmanaged and unavailable for investment 14 19 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY continued WHAT COUNTRY OR REGIONAL DECISIONS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Underweighted positions in both Japan and Pan-Europe proved favorable to Fund performance over the period. WHAT COUNTRY OR REGIONAL DECISIONS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? An overweighted stance in the Pacific and emerging markets detracted from performance. WHAT SECTORS AND STOCKS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?++ Investments in financials, pharmaceuticals and other growth-oriented defensives proved favorable to Fund performance during the period under review. Leading contributors included: Canada Life Financial Corporation (insurance), Novo Nordisk (Sweden pharmaceuticals), Nissan Motor Company Ltd. (Japan automotive), Sanofi-Synthelabo SA (France pharmaceuticals) and Canadian National Railway Company. Oil and resource stocks also did well, including Petro-Canada and Anglo American PLC (South Africa mining). WHAT SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Technology and telecommunication stocks proved unfavorable to Fund performance during the period under review. Leading detractors included Colt Telecom (UK mobile), Nortel Networks Company (Canada telecoms equipment), Ericsson (Swedish telecoms infrastructure), Fujitsu Support and Service Inc. (Japan technology), and Deutsche Telekom AG (German telecoms). WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE? The U.S. dollar strengthened against the world's major currencies during the period under review. This meant that local currency returns were higher than U.S. dollar returns. For example, the MSCI EAFE returned -16.4% in local currency returns versus -25.88% in U.S. dollar terms. In this respect, the Fund was impacted negatively by weaker international currencies. WHAT IS THE OUTLOOK FOR THE YEAR AHEAD? In Gartmore's view, equity markets are pricing in an exceptionally poor environment for corporate earnings growth, one which implies a potential earnings collapse globally. For earnings expectations to deteriorate further, it may be necessary to see global recession or an extended slow down that is believed to depress the profits cycle. It is believed a less adverse environment may emerge. The growth slowdown may diminish later in the year, and short-term interest rates may continue to decline. In this environment, Gartmore hopes to see a recovery in global equity markets and maintain a growth bias and continue to invest in companies with franchises that Gartmore believes are strong enough to thrive in a difficult environment. From a regional asset allocation standpoint, a slight emphasis is being maintained toward Europe and Latin America at the expense of Japan and Pacific ex-Japan.
++Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 15 20 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY continued Putnam believes international equity markets may remain extremely volatile, as confidence in earnings growth is suspect for the foreseeable future. As a result, the portfolio remains in a defensive posture, as reflected by overweighted positions in the health-care and energy sectors. While it is unclear how quickly the U.S. economy will recover, Putnam believes its recovery -- which may hold the key to an improvement in global economic growth -- may take longer than investors are anticipating. The period of "workout" in the technology area could last a few more quarters. The firm believes that the clash of disappointing earnings with falling global interest rates may further pull equity markets swiftly and suddenly in different directions. As INVESCO looks to the remainder of the year, it believes that the two main risks facing global markets are the poor visibility of corporate earnings and the historical values of share prices. This valuation risk appears to have been reduced materially by the sell-off in share prices over the past year. On the positive front, INVESCO believes that the inflationary and interest rate backdrop is quite benign, and many of the excesses in market behavior of recent years may have been eliminated.
16 21 NATIONS INTERNATIONAL EQUITY FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/01) [PIE CHART] Hong Kong 2.90 Canada 2.90 Spain 3.00 Italy 4.60 Germany 5.90 Switzerland 6.00 Netherlands 8.20 France 11.80 Japan 16.10 United Kingdom 21.90 Other 16.70
TOP 10 HOLDINGS -------------------------------- 1 Total Fina Elf SA 'B' 3.1% ------------------------------------------------- 2 ING Groep NV 2.6% ------------------------------------------------- 3 Glaxosmithkline plc 2.3% ------------------------------------------------- 4 Shell Transport and Trading Company 2.1% plc ------------------------------------------------- 5 Nestle SA (REGD) 2.0% ------------------------------------------------- 6 AstraZeneca plc 1.7% ------------------------------------------------- 7 BP Amoco plc 1.7% ------------------------------------------------- 8 Vodafone Group plc 1.7% ------------------------------------------------- 9 Nippon Telegraph and Telephone 1.4% Corporation ------------------------------------------------- 10 Novartis AG (REGD) 1.4% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2001, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 17 22 NATIONS INTERNATIONAL EQUITY FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (6/3/92 through 3/31/01) 5.86% 5.16%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations International Equity Fund from the inception of the share class. The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern markets. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. It is not possible to invest in the Index or Lipper Average. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [INVESTOR A SHARES AT MOP* RETURN CHART] [CHART LEGEND]
NATIONS INTERNATIONAL LIPPER INTERNATIONAL FUNDS EQUITY FUND $15,584 AVERAGE $18,285 MSCI EAFE INDEX $18,354 --------------------- -------------------------- ----------------------- Jun. 3 1992 10000.00 10000.00 10000.00 9187.00 9725.00 9529.00 8961.00 9279.00 9682.00 1992 8590.00 9157.00 9317.00 9067.00 9946.00 10443.00 9362.00 10446.00 11502.00 10201.00 11361.00 12272.00 1993 10902.00 12434.00 12387.00 10800.00 12342.00 12828.00 11053.00 12474.00 13492.00 11460.00 12870.00 13514.00 1994 11142.00 12365.00 13385.00 10643.00 12179.00 13645.00 10878.00 12689.00 13755.00 11660.00 13307.00 14340.00 1995 12057.00 13581.00 14932.00 12713.00 14189.00 15376.00 12920.00 14707.00 15631.00 12872.00 14644.00 15623.00 1996 13038.00 15242.00 15884.00 12850.00 15418.00 15646.00 14336.00 17139.00 17689.00 14008.00 17376.00 17576.00 1997 13173.00 16045.00 16210.00 14876.00 18398.00 18608.00 15124.00 18535.00 18818.00 13025.00 15549.00 16155.00 1998 15332.00 18108.00 19508.00 15409.00 18387.00 19792.00 15959.00 19424.00 20295.00 16613.00 20185.00 21186.00 1999 21332.00 25381.00 24786.00 21500.00 25566.00 24761.00 20412.00 24221.00 23780.00 18673.00 22400.00 21861.00 2000 18069.00 21836.00 21275.00 Mar. 31 2001 15584.00 18285.00 18354.00
[INVESTOR A SHARES AT NAV** RETURN CHART]
NATIONS INTERNATIONAL LIPPER INTERNATIONAL FUNDS EQUITY FUND $16,530 AVERAGE $18,285 MSCI EAFE INDEX $18,354 --------------------- -------------------------- ----------------------- Jun. 3 1992 10000.00 10000.00 10000.00 9748.00 9725.00 9529.00 9508.00 9279.00 9682.00 1992 9115.00 9157.00 9317.00 9620.00 9946.00 10443.00 9933.00 10446.00 11502.00 10823.00 11361.00 12272.00 1993 11567.00 12434.00 12387.00 11459.00 12342.00 12828.00 11727.00 12474.00 13492.00 12159.00 12870.00 13514.00 1994 11822.00 12365.00 13385.00 11292.00 12179.00 13645.00 11542.00 12689.00 13755.00 12372.00 13307.00 14340.00 1995 12792.00 13581.00 14932.00 13488.00 14189.00 15376.00 13708.00 14707.00 15631.00 13657.00 14644.00 15623.00 1996 13834.00 15242.00 15884.00 13634.00 15418.00 15646.00 15211.00 17139.00 17689.00 14862.00 17376.00 17576.00 1997 13976.00 16045.00 16210.00 15784.00 18398.00 18608.00 16047.00 18535.00 18818.00 13820.00 15549.00 16155.00 1998 16267.00 18108.00 19508.00 16349.00 18387.00 19792.00 16933.00 19424.00 20295.00 17627.00 20185.00 21186.00 1999 22633.00 25381.00 24786.00 22812.00 25566.00 24761.00 21650.00 24221.00 23780.00 19806.00 22400.00 21861.00 2000 19165.00 21336.00 21275.00 Mar. 31 2001 16530.00 18285.00 18354.00
TOTAL RETURN (AS OF 3/31/01)
INVESTOR A INVESTOR B INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/2/91 6/3/92 6/7/93 6/17/92 --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -27.40% -27.54% -31.72% -28.11% -31.40% -28.22% -28.87% --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 1.73% 1.55% -0.42% 0.64% -0.08% 0.58% 0.58% 5 YEARS 4.36% 4.15% 2.92% 3.27% 2.99% 3.36% 3.36% SINCE INCEPTION 6.25% 5.86% 5.16% 5.57% 5.57% 5.41% 5.41%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 18 23 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY* IN THE FOLLOWING INTERVIEW, MR. GENDELMAN SHARES HIS VIEWS ON NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND'S PERFORMANCE FOR THE PERIOD FROM INCEPTION ON AUGUST 1, 2000 TO MARCH 31, 2001 AND HIS OUTLOOK FOR THE FUTURE. PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY AND STYLE. The Fund is managed by James G. Gendelman of Marsico Capital Nations Marsico International Opportunities Fund is a Management, LLC, investment diversified portfolio and invests primarily in common stocks sub-adviser to the Fund. of foreign companies that are selected for their long-term growth potential. The Fund may invest in companies of any INVESTMENT OBJECTIVE size throughout the world. The Fund normally invests in The Fund seeks long-term growth of issuers from at least three different countries, not capital. including the United States, and maintains a core position of between 35 and 50 common stocks. From time to time, the PERFORMANCE REVIEW Fund may invest in common stocks of companies operating in From the Fund's inception on emerging markets. August 1, 2000 to March 31, 2001, Nations Marsico International WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE Opportunities Fund Investor A REPORTING PERIOD? Shares provided shareholders with a total return of -19.90%.** In a nutshell, there were very few places to hide, particularly for growth-oriented investment styles. Market volatility continued to be high, and many technology and other higher-multiple companies were under pressure during the year. Many non-technology sectors sold off. We also were in an environment where many investors appeared to be engaged in a high level of rotational trading at both the country and economic sector level. Currency was a significant story, largely masking the fact that as the fiscal year wound down, international equities as a whole outperformed the U.S. stock market in local currency terms. After staging a mild rally in the latter stages of calendar year 2000, the Euro declined in value by approximately 7% during the quarter and the dollar rose. WHAT IS YOUR INVESTMENT PROCESS? We believe strongly that the Marsico investment approach works well in the overseas market. In our opinion, there is no substitute for direct, comprehensive and disciplined research. We do not rely on computer-based screening techniques, ratio-driven analysis or Wall Street in order to generate investment ideas. Rather, we
*The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. Source for all statistical data -- Marsico Capital Management, LLC. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 19 24 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY continued foster creative, innovative thinking, which in turn may lead to promising areas that frequently are not well followed or well understood by other investors. In research, our investment team looks for information from a variety of sources. One source of information is direct -- we speak regularly with company management to get its perspective. But we also go outside the company, surveying customers, competitors, suppliers and distributors for independent sources of information. In this process, our central purpose is to uncover information and relationships that are not obvious under conventional analytical techniques. Our goal is to be able to act early by using this independent information when it can provide the maximum benefit to the Fund's investors. PLEASE COMMENT ON THE FUND'S PERFORMANCE.*** For the 8-month period since the Fund's inception to March 31, 2001, the Fund (Investor A Shares) declined 19.90%. This return compares to the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index+, the Fund's primary benchmark, which was down 19.44% during the period. While it may seem somewhat disingenuous to discuss positive factors regarding performance in the context of a negative return, diversification helped investment results. A number of the Fund's holdings -- spanning a variety of sectors and industries -- held up quite well in the face of a difficult market environment. These included select health care-related holdings such as Elan Corporation (a drug delivery company), and two pharmaceutical companies: Shire Pharmaceuticals Group, PLC and Aventis SA. Additionally, Heineken Holding NV, Canadian National Railway Company, AMB Aachener & Muenchener (a German specialty insurance company) and Embraer Aircraft either posted positive returns for the Fund or declined by less than the MSCI EAFE Index. Late in the year, we invested selectively in several areas in Japan. This was after largely avoiding investments in the country earlier in the year. Positions included financial services and industrial companies. Essentially, it is fair to categorize these investment decisions as being "macro-oriented." We believe there are some signs that Japan appears prepared to engage in significant broad-based financial and economic reform. With the benefit of hindsight, it appears that we were somewhat overly optimistic with respect to an increased tactical weighting in the technology sector. Late in the fiscal year, we took some steps to raise the Fund's overall growth profile largely through the purchases of several technology companies. We believed that the Federal Reserve Board's two interest rate cuts in January, coupled by rate cuts by the European Central Bank, would help provide a more favorable strategic backdrop for technology investing in non-U.S. markets. As it turned out, we were somewhat
***Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. +The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian, and Far Eastern markets. It is unavailable for investment. 20 25 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY continued premature in this repositioning. Technology companies in non-U.S. markets were under pressure during the year due to concerns over valuations, inventory and capacity issues, and the possible negative effects that might result from a protracted global economic slowdown. Check Point Software Technologies, Ltd., one of the Fund's largest holdings, registered sharp losses during the last quarter of the year. Some of the Fund's larger financial services positions -- including Bank of Ireland and ING Groep NV -- were weak performers as well. Similar to many U.S.-domiciled financial services companies, despite a number of interest rate cuts by central banks, our holdings were pressured by the potential negative effects of a global economic slowdown. Technology and telecommunications stocks were particularly hard-hit, while more defensive strategies such as investing in energy tended to perform well. The Fund, while having a relatively modest allocation to technology, still was adversely affected by its holdings in this sector, particularly telecommunications equipment companies such as JDS Uniphase, and Nortel Networks Corporation. In addition, the Fund was somewhat underweighted in Europe, which modestly detracted from its returns as compared to the MSCI EAFE Index. That was partly due to a mild rally in the Euro, which appreciated by nearly 6% at the end of the fiscal year. Another aspect was what we perceived to be a "flight to safety" by some investors, which benefited certain large-capitalization, high-quality companies domiciled in Europe. WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST OF 2001? We feel there is no question that many non-U.S. markets are showing signs of decelerating growth and that many corporations are feeling this slowdown in the form of potentially reduced earnings expectations and valuation-related pressures on their stock prices. What remains unclear is the slowdown's overall magnitude and duration. Our general view is that lower interest rates, over time, could help create a more favorable environment for growth-oriented investment styles. However, it will most likely take some period of time for interest rate reductions to be felt, perhaps six to twelve months. Having said that, it is important to stress that we believe that there are a considerable number of long-term positive macroeconomic factors, in addition to lower interest rates, that we believe will benefit equities. Relative (as compared to the U.S.) economic growth remains quite strong in a number of countries. Energy prices have stabilized. European companies continue to engage in significant restructuring, which may create a number of compelling investment opportunities in a variety of industries. In Japan, we believe there now is some credible evidence that the government is intent on significant structural reform. Admittedly, this reform, as it moves forward, will be taking place in the context of a weak economic basis. However, we believe that the Japanese government understands how essential it is for the country's economy to be revitalized. I would close by saying that, while there no doubt are abundant challenges for non-U.S. equity investors to contend with near-term, our long-term view for non-U.S. equity investments remains positive. We continue to find a substantial number of interesting investment opportunities spanning a wide variety of economic sectors and industries.
21 26 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/01) [PIE CHART] United Kingdom 11.30 Other 16.10 Japan 20.50 Ireland 9.60 Netherlands 8.90 Canada 8.20 Belgium 2.10 Spain 3.50 Brazil 4.10 Germany 5.20 France 10.50
TOP 10 HOLDINGS ------------------------------------------------- 1 Embraer-Empresa Brasileira de Aeronautica SA, ADR 4.1% ------------------------------------------------- 2 ING Groep NV 3.3% ------------------------------------------------- 3 Aventis SA 3.3% ------------------------------------------------- 4 Bank of Ireland 3.3% ------------------------------------------------- 5 Elan Corporation plc, ADR 2.8% ------------------------------------------------- 6 Axa 2.7% ------------------------------------------------- 7 Ryanair Holdings plc, ADR 2.7% ------------------------------------------------- 8 Vodafone Group plc 2.7% ------------------------------------------------- 9 Heineken Holding NV 'A' 2.6% ------------------------------------------------- 10 Grupo Auxiliar Metalurgico SA 2.6% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2001, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 22 27 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT CUMULATIVE TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (8/1/00 through 3/31/01) -19.90% -24.51%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Marsico International Opportunities Fund from the inception of the share class. The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern markets. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. It is not possible to invest in the Index or Lipper Average. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [INVESTOR A SHARES AT MOP* RETURN CHART] [CHART LEGEND]
NATIONS MARSICO INTERNATIONAL OPPORTUNITIES LIPPER INTERNATIONAL FUNDS FUND $7,549 MSCI EAFE INDEX AVERAGE --------------------------- --------------- -------------------------- 08/01/2000 10000 10000 10000 09/30/2000 9444 9596 9589 12/31/2000 8822 9339 9134 03/31/2001 7549 8057 7827
[INVESTOR A SHARES AT NAV** RETURN CHART]
NATIONS MARSICO INTERNATIONAL OPPORTUNITIES LIPPER INTERNATIONAL FUNDS FUND $8,010 MSCI EAFE INDEX $8,057 AVERAGE --------------------------- ---------------------- -------------------------- 08/01/2000 10000 10000 10000 09/30/2000 10020 9596 9589 12/31/2000 9360 9339 9134 03/31/2001 8010 8057 7827
TOTAL RETURN (AS OF 3/31/01)
INVESTOR A INVESTOR B INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 8/1/00 8/1/00 8/1/00 8/1/00 --------------------------------------------------------------------------------------------------------------------------------- CUMULATIVE RETURNS SINCE INCEPTION -19.70% -19.90% -24.51% -20.30% -24.29% -20.30% -21.10%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expenses reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 23 28 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY* IN THE FOLLOWING INTERVIEW, THE MR. PALMER SHARES HIS VIEWS ON NATIONS EMERGING MARKETS FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2001 AND ITS OUTLOOK FOR THE FUTURE. PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY AND STYLE. Christopher Palmer is Principal The Fund's primary objective is to invest in growth Portfolio Manager of Nations opportunities in emerging market equities. We believe this Emerging Markets Fund and is a is best accomplished by identifying companies whose rates of senior investment manager on the earnings growth will exceed market expectations. Sources of Emerging Markets Team for Gartmore unexpected growth may include strong national or regional Global Partners, investment franchises, strategies, management and the ability to sub-adviser to the Fund. finance business objectives. The markets in which the Fund INVESTMENT OBJECTIVE invests are generally those where economic and political The Fund seeks long-term capital conditions provide an acceptable level of risk and, at a growth by investing primarily in macro-economic level, will attract rising expectations of equity securities of companies in growth. emerging market countries, such as HOW WOULD YOU DESCRIBE THE ECONOMIC AND MARKET CONDITIONS IN those in Latin America, Eastern EMERGING MARKETS DURING THE FISCAL YEAR? Europe, the Pacific Basin, the Far After a strong performance during the previous 12-month East and India. reporting period, emerging markets retraced some of the PERFORMANCE REVIEW gains over the 12 months ended March 31, 2001, with the For the 12-month period ended Standard & Poor's/IFC (International Finance Corporation) March 31, 2001, Nations Emerging Investables Index*** down 34.75% in U.S. dollar terms. There Markets Fund Investor A Shares are three principal reasons for the poor performance. provided shareholders with a total Firstly, global growth expectations were downgraded during return of -43.38%.** the second half of last year, while corporate earnings forecasts tended to be worse than forecast. Secondly, there was an increasing absence of surplus liquidity as reflected by an expansion in yield spreads for below-investment grade debt securities. Finally, the sharp downgrades of technology and telecommunications stocks globally have hurt emerging equities as hardware, telecommunications and software now make up more than 30% of the asset class as compared with less than 15% four years ago. Against this background, Latin American markets once again outperformed the Index, although Latin America declined in absolute terms. Encouragingly, the governments in Brazil and Mexico continued their reforming efforts, with prospects
*The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may be charged on purchases of Investor A Shares. For standardized performance, please refer to the Performance table. Performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Standard & Poor's/IFC (International Finance Corporation) Investables Index is an unmanaged, capitalization-weighted index, which tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. It is unavailable for investment. Source for all statistical data -- Gartmore Global Partners. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 24 29 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY continued in Mexico improved following the Presidential election last July. Interest rates in both countries have continued to fall over the year and companies have produced generally better than forecast results. Growth rates in Brazil were 4% or better over the period, while Mexican economic activity proved even stronger, with the annualized Gross Domestic Product (GDP) rate peaking at 7% during the third quarter of 2000. A fiscal crisis in Argentina detracted from the region's overall attractiveness, but the government moved quickly to counter the problem, recalling Domingo Cavallo, the highly regarded original architect of the country's currency convertibility plan. This helped bolster investor sentiment and the Argentine economy. Elsewhere, the technology/telecoms sell-off took its greatest toll in Asia where Korea and Taiwan both fell steeply over the period. Within the past quarter, however, both markets have risen from depressed levels, reflecting a perception that they were oversold. India has also suffered from the technology/telecoms sell-off, although the country's economic fundamentals remained solid. The EMEA (Europe, Middle East, Africa) region has fallen roughly in line with the Index, with Turkey down sharply following an economic and currency crisis in the country. Turkey's problems had a negative effect on its neighbors, particularly Hungary, which fell steeply. WHAT COUNTRY OR REGIONAL DECISIONS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE PAST 12 MONTHS? The Fund's overweight stance in Latin America contributed positively to performance, as did an emphasis on Brazil and Mexico, both of which outperformed the Index. Within the EMEA region, the Fund avoided the worst effects of the crisis in Turkey by being underweighted in the Turkish market. Overall country allocation contributed positively to performance. WHAT COUNTRY OR REGIONAL DECISIONS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? The two biggest detractors in terms of country allocation were an underweight position in South Africa and an overweight stance in Korea. WHAT SECTORS AND STOCKS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?+ Defensive sectors such as retail, resources and banking were favorable to performance over the past 12 months. Among the Fund's best performing individual stocks over the period were Ambev Cia De Bebid (Brazil beverages), DeBeers (South African diamonds), Anglo American Platinum Corporation Ltd. (South African platinum), Wal-Mart de Mexico (retail), Vale Rio Doce (Brazil mining) and Banco Bradesco (Brazil bank). WHAT SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Technology and telecoms stocks proved unfavorable to Fund performance during the
+Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 25 30 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY continued last 12 months, as well as stocks affected by the crisis in Turkey. Among the Fund's worst performing stocks were Satyam Infoway Ltd. (India Internet), Hyundai Electronics Industries Company Ltd. (South Korea technology), Yapi Kredi Bankasi (Turkey bank) and LG Electronics Inc. (South Korea technology). WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE? The U.S. dollar strengthened against the world's major currencies during the last 12 months. This had a negative effect on emerging market currencies, which generally declined marginally against the U.S. dollar, and had the effect of marginally reducing the Fund's overall performance in U.S. dollar terms. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM? Despite the slowdown in global growth and some deteriorating earnings reports and forecasts over the last 12 months, our forecasts suggest that the global economy will continue to expand with what we believe to be little indication of a global recession, global growth prospects going forward remain intact. With further monetary easing in the pipeline and bearing in mind that emerging markets act as a leading indicator to Organization of Economic Cooperation and Development industrial production, we believe that current valuations in the asset class on the whole offer potentially strong upside. In our view, markets such as China, Russia and Mexico should benefit from relatively strong domestically driven GDP growth together with improving domestic political conditions. The combination of these two factors may translate into strong stock market returns. In these countries, we will focus on real economy sectors such as oil, banking, retail and other cyclicals. Although we remain overweighted in Brazil, we have slightly reduced exposure, reflecting our less positive view of the dominant telecoms sector where we think capital expenditure will prove higher than forecast. However, recent gains in local purchasing power should prove positive for the consumer/retail and beverages sectors. In South Korea and Taiwan we believe that further banking consolidation will help to underpin the markets, although the interest rate environment in South Korea and current stock market valuations in Taiwan are a concern. In India we believe the economic fundamentals for long-term growth remain intact. Across these markets, stock selection will continue to be the crucial component of Fund performance.
26 31 NATIONS EMERGING MARKETS FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/01) [PIE CHART] Russia 2.9 Thailand 3.1 Hong Kong 4.5 South Africa 5.7 Malaysia 2.8 India 6.7 Other 27.9 South Korea 11.9 Mexico 14.8 Brazil 11.6 Taiwan 8.1
TOP 10 HOLDINGS ------------------------------------------------- 1 Carso Global Telecom, ADR 4.0% ------------------------------------------------- 2 AO Tatneft, ADR 2.9% ------------------------------------------------- 3 Samsung Electronics 2.9% ------------------------------------------------- 4 ICICI Limited, ADR 2.7% ------------------------------------------------- 5 Reliance Industries Ltd., GDR 2.6% ------------------------------------------------- 6 SK Telecom Company Ltd., ADR 2.5% ------------------------------------------------- 7 China Mobile (Hong Kong) Ltd., ADR 2.5% ------------------------------------------------- 8 Taiwan Semiconductor Manufacturing Company Ltd., ADR 2.5% ------------------------------------------------- 9 Hyundai Motor Company Ltd., GDR 2.3% ------------------------------------------------- 10 Shinhan Bank, GDR 2.2% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2001, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 27 32 NATIONS EMERGING MARKETS FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (6/30/95 through 3/31/01) -1.65% -2.65%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Emerging Markets Fund from the inception of the share class. The Standard & Poor's/IFC (International Finance Corporation) Investables Index (S&P/IFC Investibles Index) is an unmanaged, capitalization-weighted index which tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. Funds in the Lipper Emerging Markets Funds Average seek long-term capital appreciation by investing at least 65% of total assets in emerging market (defined by a country's GNP per capita) equity securities. It is not possible to invest in the Index or Lipper Average. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [INVESTOR A SHARES AT MOP* RETURN CHART] [CHART LEGEND]
NATIONS EMERGING MARKETS LIPPER EMERGING MARKETS IFC INVESTABLES INDEX FUND $8567 FUNDS AVERAGE $8965 $7920 ------------------------ ----------------------- --------------------- June 30 1995 9425 10000 10000 9302 10123 9966 1995 9209 9824 9874 9727 10617 10620 10120 11246 11074 9780 10936 10825 1996 9992 11099 10797 10870 12175 11826 11901 13468 12539 11545 13131 11408 1997 9672 10950 9201 10153 11540 9855 8176 9267 7764 6193 7089 6079 1998 7180 8035 7176 7828 8665 7949 9947 10845 9839 9502 10128 9528 1999 14080 13799 11976 15134 14343 12136 13351 12612 10875 10826 11052 9466 2000 9108 9580 8336 Mar 31 2001 8567 8965 7920
[INVESTOR A SHARES AT NAV** RETURN CHART]
NATIONS EMERGING MARKETS LIPPER EMERGING MARKETS IFC INVESTABLES INDEX FUND $9,090 FUNDS AVERAGE $8,965 $7,920 ------------------------ ----------------------- --------------------- June 30 1995 10000 10000 10000 9870 10123 9966 1995 9770 9824 9874 10320 10617 10620 10737 11246 11074 10377 10936 10825 1996 10602 11099 10797 11534 12175 11826 12627 13468 12539 12249 13131 11408 1997 10263 10950 9201 10773 11540 9855 8675 9267 7764 6571 7089 6079 1998 7618 8035 7176 8306 8665 7949 10554 10845 9839 10083 10128 9528 1999 14939 13799 11976 16058 14343 12136 14165 12612 10875 11486 11052 9466 2000 9663 9580 8336 Mar 31 2001 9090 8965 7920
TOTAL RETURN (AS OF 3/31/01)
INVESTOR A INVESTOR B INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 6/30/95 6/30/95 6/30/95 6/30/95 --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -43.21% -43.38% -46.62% -43.73% -46.55% -43.73% -44.29% --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -5.22% -5.50% -7.33% -6.17% -7.11% -6.14% -6.14% 5 YEARS -2.25% -2.51% -3.66% -3.21% -3.59% -3.10% -3.10% SINCE INCEPTION -1.38% -1.65% -2.65% -2.36% -2.53% -2.24% -2.24%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 28 33 NATIONS FUNDS Nations International Value Fund STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE (000) -------------------------------------------------------------- INVESTMENT COMPANIES -- 98.8% Investment in Nations Master Investment Trust, International Value Master Portfolio*............ $1,626,809 ---------- TOTAL INVESTMENTS............. 98.8% 1,626,809 ---------- OTHER ASSETS AND LIABILITIES (NET)........... 1.2% Receivable for Fund shares sold...... $ 26,013 Payable for Fund shares redeemed..... (5,042) Administration fee payable........... (234) Shareholder servicing and distribution fees payable.......... (183) Accrued Trustees' fees and expenses........................... (24) Accrued expenses and other liabilities........................ (355) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................. 20,175 ---------- NET ASSETS.................... 100.0% $1,646,984 ========== NET ASSETS CONSIST OF: Undistributed net investment income............................. $ 8,633 Accumulated net realized gain on investment......................... 13,151 Net unrealized depreciation of investment......................... (61,386) Paid-in capital...................... 1,686,586 ---------- NET ASSETS........................... $1,646,984 ========== PRIMARY A SHARES: Net asset value, offering and redemption price per share (1,163,899,143 / 67,263,478 shares outstanding)....................... $17.30 ------ ------ INVESTOR A SHARES: Net asset value and redemption price per share (353,645,821 / 20,491,203 shares outstanding)................ $17.26 ------ ------ Maximum sales charge................. 5.75% Maximum offering price per share..... $18.31 INVESTOR B SHARES: Net asset value and offering price per share+ (80,654,534 / 4,724,528 shares outstanding)................ $17.07 ------ ------ INVESTOR C SHARES: Net asset value and offering price per share+ (48,784,307 / 2,857,418 shares outstanding)................ $17.07 ------ ------
--------------- * The financial statements of the International Value Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the International Value Fund's financial statements. + The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 29 34 NATIONS FUNDS Nations International Equity Fund STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE (000) ------------------------------------------------------------- INVESTMENT COMPANIES -- 98.5% Investment in Nations Master Investment Trust, International Equity Master Portfolio*............ $781,520 -------- TOTAL INVESTMENTS.............. 98.5% 781,520 -------- OTHER ASSETS AND LIABILITIES (NET)............ 1.5% Receivable for Fund shares sold....... $ 32,847 Payable for Fund shares redeemed...... (20,707) Administration fee payable............ (120) Shareholder servicing and distribution fees payable........................ (29) Accrued Trustees' fees and expenses... (87) Accrued expenses and other liabilities......................... (169) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................... 11,735 -------- NET ASSETS..................... 100.0% $793,255 ======== NET ASSETS CONSIST OF: Distributions in excess of net investment income................... $(10,231) Accumulated net realized loss on investment.......................... (41,233) Net unrealized depreciation of investment.......................... (59,154) Paid-in capital....................... 903,873 -------- NET ASSETS............................ $793,255 ========
VALUE ------------------------------------------------------------- ------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share (724,572,256 / 65,154,153 shares outstanding)........................ $11.12 ------ ------ INVESTOR A SHARES: Net asset value and redemption price per share (46,769,839 / 4,272,434 shares outstanding)................. $10.95 ------ ------ Maximum sales charge.................. 5.75% Maximum offering price per share...... $11.62 INVESTOR B SHARES: Net asset value and offering price per share+ (20,747,153 / 1,965,131 shares outstanding)................. $10.56 ------ ------ INVESTOR C SHARES: Net asset value and offering price per share+ (1,165,394 / 113,113 shares outstanding)........................ $10.30 ------ ------
--------------- * The financial statements of the International Equity Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the International Equity Fund's financial statements. + The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 30 35 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ COMMON STOCKS -- 86.4% BELGIUM -- 2.1% 1,031 Dexia................................ $ 152 -------- BRAZIL -- 4.1% 7,868 Embraer-Empresa Brasileira de Aeronautica SA, ADR++.............. 298 -------- CANADA -- 8.2% 4,885 Canadian National Railway Company.... 184 4,966 Canadian Natural Resources Ltd. ..... 144 3,500 Exfo Electro-Optical Engineering Inc.++(a).......................... 85 15,720 Westjet Airlines Ltd.++.............. 185 -------- 598 -------- FRANCE -- 10.5% 3,094 Aventis SA........................... 240 1,770 Axa.................................. 197 1,132 Total Fina Elf SA. .................. 154 2,783 Vinci SA............................. 172 -------- 763 -------- GERMANY -- 3.7% 1,504 AMB Aachener & Muenchener Beteiligungs AG.................... 153 785 Ergo Versicherungs Gruppe AG......... 116 -------- 269 -------- IRELAND -- 9.6% 28,471 Bank of Ireland...................... 238 3,875 Elan Corporation plc, ADR++(a)....... 202 3,036 Riverdeep Group plc++................ 62 4,372 Ryanair Holdings plc, ADR++.......... 194 -------- 696 -------- ISRAEL -- 2.0% 3,097 Check Point Software Technologies Ltd.++............................. 148 -------- ITALY -- 2.0% 45,078 Pirelli SpA.......................... 149 -------- JAPAN -- 20.5% 16,000 Daiwa Securities..................... 152 1,100 Fast Retailing Company Ltd. ......... 183 10 Fuji Television Network, Inc. ....... 70 14,000 JGC Corporation...................... 106 29,000 Mitsubishi Heavy Industries, Ltd. ... 107 11,000 NEC Corporation...................... 176 9,000 Nomura Securities.................... 161 10 NTT DoCoMo, Inc.(+).................. 174 11,000 Takuma Company, Ltd. ................ 72 17,000 The Bank of Tokyo -- Mitsubishi, Ltd. .............................. 156 1,000 Tokyo Electron Limited............... 66 1,000 Yamada Denki Company, Ltd. .......... 69 -------- 1,492 -------- NETHERLANDS -- 8.9% 3,340 ASM Lithography Holding NV (REGD)++(a)........................ 73 4,822 Heineken Holding NV 'A'.............. 191 3,719 ING Groep NV......................... 243 4,430 Koninklijke Ahold NV................. 138 -------- 645 --------
VALUE SHARES (000) ------------------------------------------------------------ SPAIN -- 3.5% 8,199 Grupo Auxiliar Metalurgico SA++...... $ 186 8,572 Orange SA++.......................... 74 -------- 260 -------- UNITED KINGDOM -- 11.3% 15,074 Bank of Scotland Ord. ............... 150 21,827 Cable & Wireless plc................. 147 36,102 Granada plc(+)....................... 89 11,040 Shire Pharmaceuticals Group plc++.... 169 20,706 Tesco plc............................ 74 70,232 Vodafone Group plc................... 193 -------- 822 -------- TOTAL COMMON STOCKS (Cost $6,253)...................... 6,292 -------- PREFERRED STOCKS -- 1.5% (Cost $127) GERMANY -- 1.5% 38 Porsche AG, Preferred................ 111 -------- PRINCIPAL AMOUNT (000) --------- SHORT TERM INVESTMENTS -- 11.0% (Cost $800) $ 800 Federal Home Loan Bank Discount note 04/02/01............. 800 -------- SHARES (000) --------- INVESTMENT COMPANIES -- 5.9% (Cost $426) 426 Nations Cash Reserves#............... 426 -------- TOTAL INVESTMENTS (Cost $7,606*).............. 104.8% 7,629 -------- OTHER ASSETS AND LIABILITIES (NET)........... (4.8)% Cash................................. 1 Foreign currency (cost $126)......... 126 Receivable for investment securities sold............................... 591 Dividends receivable................. 12 Receivable from investment advisor... 181 Unrealized depreciation on forward foreign exchange contracts......... (7) Collateral on securities loaned...... (359) Payable for Fund shares redeemed..... (9) Administration fee payable........... (181) Shareholder servicing and distribution fees payable.......... (3) Payable for investment securities purchased.......................... (646) Accrued Trustees' fees and expenses........................... (5) Accrued expenses and other liabilities........................ (51) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................. (350) -------- NET ASSETS.................... 100.0% $ 7,279 ========
SEE NOTES TO FINANCIAL STATEMENTS. 31 36 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE (000) ------------------------------------------------------------ NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold, foreign currencies and net other assets.... $ (1,777) Net unrealized appreciation of investments, foreign currencies and net other assets................... 16 Paid-in capital...................... 9,040 -------- NET ASSETS........................... $ 7,279 ======== PRIMARY A SHARES: Net asset value, offering and redemption price per share (1,477,068 / 184,052 shares outstanding)....................... $8.03 ----- ----- INVESTOR A SHARES: Net asset value and redemption price per share (2,797,447 / 349,153 shares outstanding)................ $8.01 ----- ----- Maximum sales charge................. 5.75% Maximum offering price per share..... $8.50 INVESTOR B SHARES: Net asset value and offering price per share+ (2,030,448 / 254,729 shares outstanding)................ $7.97 ----- ----- INVESTOR C SHARES: Net asset value and offering price per share+ (973,560 / 122,102 shares outstanding)................ $7.97 ----- -----
--------------- * Federal Income Tax Information: Net unrealized depreciation of $266 on investment securities was comprised of gross appreciation of $250 and gross depreciation of $516 for federal income tax purposes. At March 31, 2001, the aggregate cost of securities for federal income tax purposes was $7,895. (+) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ++ Non-income producing security. + The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, Inc. A portion of this amount represents cash collateral received from securities lending activity (Note 8). The portion that represents cash collateral is $359. (a) All or a portion of security was on loan at March 31, 2001. The aggregate cost and market value of securities on loan at March 31, 2001 is $337 and $341, respectively. ADR -- American Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. 32 37 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001 At March 31, 2001, sector diversification was as follows: % OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) -------------------------------------------------------------------------------------------------- Common stocks: Commercial banking.......................................... 9.5% $ 696 Pharmaceuticals............................................. 8.4 611 Telecommunications services................................. 8.1 588 Airlines.................................................... 5.2 379 Diversified manufacturing................................... 5.0 364 Insurance................................................... 4.8 350 Investment services......................................... 4.3 313 Aerospace and defense....................................... 4.1 298 Electronics................................................. 3.4 245 Finance -- Miscellaneous.................................... 3.3 243 Software.................................................... 2.9 210 Commercial services......................................... 2.6 191 Railroads, trucking and shipping............................ 2.5 184 Retail -- Specialty......................................... 2.5 183 Construction................................................ 2.4 172 Integrated oil.............................................. 2.1 154 Automotive.................................................. 2.0 149 Exploration and production.................................. 2.0 144 Semiconductors.............................................. 1.9 139 Food and drug stores........................................ 1.9 138 Other....................................................... 7.5 541 ---------- ------------- TOTAL COMMON STOCKS......................................... 86.4 6,292 PREFERRED STOCKS............................................ 1.5 111 SHORT TERM INVESTMENTS...................................... 11.0 800 INVESTMENT COMPANIES........................................ 5.9 426 ---------- ------------- TOTAL INVESTMENTS........................................... 104.8 7,629 OTHER ASSETS AND LIABILITIES (NET).......................... (4.8) (350) ---------- ------------- NET ASSETS.................................................. 100.0% $ 7,279 ---------- ------------- ---------- -------------
SEE NOTES TO FINANCIAL STATEMENTS. 33 38 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ COMMON STOCKS -- 78.6% ARGENTINA -- 2.5% 34,434 Grupo Financiero Galicia SA, ADR++(a)......................... $ 519 31,525 Perez Companc SA, ADR.............. 504 -------- 1,023 -------- BRAZIL -- 7.3% 15,600 Brasil Telecom Participacoes SA, ADR++............................ 611 14,500 Companhia Brasileira de Distribuicao Grupo Pao de Acucar, ADR(a)........................... 451 33,000 Companhia Paranaense de Energia- Copel, ADR....................... 274 29,800 Companhia Vale do Rio Doce, ADR(a)........................... 733 3,000 Embraer-Empresa Brasileira de Aeronautica SA, ADR.............. 114 10,000 Gerdau SA, ADR..................... 89 13,300 Petroleo Brasileiro SA-"A", ADR.... 289 24,002 Tele Norte Leste Participacoes SA, ADR.............................. 391 -------- 2,952 -------- GREECE -- 1.0% 42,000 STET Hellas Telecommunications SA, ADR++............................ 389 -------- HONG KONG -- 4.5% 27,000 Cheung Kong (Holdings) Ltd. ....... 283 45,500 China Mobile (Hong Kong) Ltd., ADR++............................ 1,001 27,600 Hutchison Whampoa.................. 288 151,000 Shanghai Industrial Holdings Ltd.++........................... 246 -------- 1,818 -------- HUNGARY -- 2.7% 12,500 Gedeon Richter, GDR................ 644 30,500 Matav, ADR......................... 445 -------- 1,089 -------- INDIA -- 6.7% 93,400 ICICI Limited, ADR................. 1,097 75,000 Mahanagar Telephone Nigam Ltd., GDR.............................. 426 60,000 Reliance Industries Ltd., GDR...... 1,057 45,100 Satyam Infoway Ltd., ADR++(a)...... 137 -------- 2,717 -------- ISRAEL -- 1.2% 60,500 M-Systems Flash Disk Pioneers Ltd.++........................... 427 63,000 Tioga Technologies Ltd.++.......... 39 -------- 466 -------- MALAYSIA -- 2.8% 595,000 AMMB Holdings Berhad............... 462 140,000 Commerce Asset-Holding Berhad...... 236 190,000 Globetronics Technology Berhad..... 260 180,000 Mesiniaga Berhad................... 190 -------- 1,148 -------- MEXICO -- 14.8% 240,000 Alfa, SA........................... 359 450,000 Carso Global Telecom, ADR++(a)..... 1,625 44,000 Consorcio ARA SA de CV, ADR++(+)... 551 300,000 Grupo Bimbo SA de CV 'A'........... 430
VALUE SHARES (000) ------------------------------------------------------------ MEXICO -- (CONTINUED) 72,000 Grupo Elektra SA de CV, GDR........ $ 596 335,000 Grupo Financiero Banamex Accival SA de CV 'O'........................ 591 40,000 Grupo IMSA SA de CV, ADR++......... 272 194,000 Grupo Modelo SA de CV 'C'.......... 457 57,000 TV Azteca SA de CV, ADR............ 422 31,500 Wal-Mart de Mexico SA de CV, ADR++(a)......................... 734 -------- 6,037 -------- POLAND -- 2.7% 65,918 Polski Koncern Naftowy Orlen SA, GDR.............................. 587 10,000 Prokom Software SA, GDR............ 117 76,000 Telekomunikacja Polska SA, GDR..... 410 -------- 1,114 -------- RUSSIA -- 2.9% 147,500 AO Tatneft, ADR(a)................. 1,167 -------- SOUTH AFRICA -- 5.7% 15,000 Anglo American Platinum Corporation Ltd. ............................ 502 16,500 De Beers, Centenary Linked......... 628 790,000 FirstRand Ltd. .................... 730 26,724 Nedcor Ltd. ....................... 454 -------- 2,314 -------- SOUTH KOREA -- 11.9% 20,000 Ceratech Corporation............... 213 89,000 Hyundai Electronics Industries Company Ltd.++................... 211 119,000 Hyundai Motor Company Ltd., GDR++............................ 946 40,000 LG Electronics Inc. ............... 371 7,400 Samsung Electronics................ 1,157 56,100 Shinhan Bank, GDR.................. 902 67,560 SK Telecom Company Ltd., ADR....... 1,026 -------- 4,826 -------- TAIWAN -- 8.1% 106,000 Acer Communications & Multimedia Inc., GDR++...................... 713 46,434 Advanced Semiconductor Engineering Inc., ADR++...................... 211 48 Asustek Computer Inc., GDR(+)++.... 0 143,000 Asustek Computer Inc., GDR......... 741 100,000 Ritek Corporation++................ 250 51,052 Taiwan Semiconductor Manufacturing Company Ltd., ADR++(a)........... 996 40,000 United Microelectronics Corporation, ADR++(a)............ 374 -------- 3,285 -------- THAILAND -- 3.1% 47,000 Advanced Info Service Public Company Ltd. (Foreign)........... 445 1,524,000 Siam Commercial Bank Public Company Ltd. (Foreign)++................. 821 -------- 1,266 --------
SEE NOTES TO FINANCIAL STATEMENTS. 34 39 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ TURKEY -- 0.7% 3,630,000 Haci Omer Sabanci Holding AS++..... $ 13 93,460,000 Yapi ve Kredi Bankasi AS........... 261 -------- 274 -------- TOTAL COMMON STOCKS (Cost $39,941)................... 31,885 -------- PREFERRED STOCKS -- 4.2% BRAZIL -- 4.2% 2,370,000 Ambev Cia De Bebid, Preferred...... 552 146,890,910 Banco Bradesco SA, Preferred....... 794 16,150 Petroleo Brasileiro SA -- Petrobras, Preferred....... 350 -------- 1,696 -------- TOTAL PREFERRED STOCKS (Cost $2,416).................... 1,696 -------- WARRANTS -- 0.1% BRAZIL -- 0.1% 59,969 Ambev Cia De Bebid Expire 4/30/03................... 21 4,990 Ambev Cia De Bebid Expire 4/30/03................... 1 -------- 22 -------- TOTAL WARRANTS (Cost $3)........................ 22 -------- SHARES (000) ----------- INVESTMENT COMPANIES -- 17.1% 6,490 Nations Cash Reserves#............. 6,490 51 Taiwan Index Fund.................. 421 -------- TOTAL INVESTMENT COMPANIES (Cost $6,969).................... 6,911 -------- TOTAL INVESTMENTS (Cost $49,329*)........... 100.0% 40,514 -------- OTHER ASSETS AND LIABILITIES (NET)..................... 0.0%+ Cash............................... $ 594 Foreign currency (cost $646)....... 645 Receivable for Fund shares sold.... 5,840 Dividends receivable............... 143 Collateral on securities loaned.... (6,490) Payable for Fund shares redeemed... (19) Investment advisory fee payable.... (23) Administration fee payable......... (7) Shareholder servicing and distribution fees payable........ (2) Payable for investment securities purchased........................ (591) Accrued Trustees' fees and expenses......................... (22) Accrued expenses and other liabilities...................... (62) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................ 6 -------- NET ASSETS.................. 100.0% $ 40,520 ========
SHARES VALUE (000) (000) ------------------------------------------------------------ NET ASSETS CONSIST OF: Net investment loss................ $ (49) Accumulated net realized loss on investment....................... (19,287) Net unrealized depreciation of investment....................... (8,819) Paid-in capital.................... 68,675 -------- NET ASSETS......................... $ 40,520 ======== PRIMARY A SHARES: Net asset value, offering and redemption price per share ($34,876,049 / 3,908,196 shares outstanding)..................... $8.92 ----- ----- INVESTOR A SHARES: Net asset value and redemption price per share ($3,851,546 / 435,523 shares outstanding)..................... $8.84 ----- ----- Maximum sales charge............... 5.75% Maximum offering price per share... $9.38 INVESTOR B SHARES: Net asset value and offering price per share+ ($1,727,615 / 200,430 shares outstanding).............. $8.62 ----- ----- INVESTOR C SHARES: Net asset value and offering price per share+ ($64,781 / 7,526 shares outstanding).............. $8.61 ----- -----
--------------- * Federal Income Tax Information: Net unrealized depreciation of $10,840 on investment securities was comprised of gross appreciation of $1,123 and gross depreciation of $11,963 for federal income tax purposes. At March 31, 2001, the aggregate cost of securities for federal income tax purposes was $51,354. (+) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ++ Non-income producing security. + The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. + Amount represents less than 0.1%. ++ Amount represents less than $500. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, Inc. Represents cash collateral received from securities lending activity (Note 8). (a) All or a portion of security was on loan at March 31, 2001. The aggregate cost and market value of securities on loan at March 31, 2001 is $6,714 and $5,946, respectively. ADR -- American Depository Receipt GDR -- Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 35 40 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001 At March 31, 2001, sector diversification was as follows: % OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) -------------------------------------------------------------------------------------------------- Common stocks: Telecommunications services................................. 18.4% $ 7,482 Finance -- Miscellaneous.................................... 8.0 3,225 Commercial banking.......................................... 7.7 3,137 Semiconductors.............................................. 6.5 2,614 Metals and mining........................................... 4.6 1,863 Department and discount stores.............................. 4.4 1,781 Diversified manufacturing................................... 4.2 1,688 Diversified electronics..................................... 3.4 1,375 Exploration and production.................................. 2.9 1,167 Automotive.................................................. 2.3 946 Real estate................................................. 2.1 834 Pharmaceuticals............................................. 1.6 644 Oil refining and marketing.................................. 1.4 587 Oil and gas................................................. 1.2 504 Beverages................................................... 1.1 457 Electronics................................................. 1.1 463 Food products............................................... 1.1 430 Computers and office equipment.............................. 1.1 427 Broadcasting and cable...................................... 1.0 422 Electrical Equipment........................................ 0.9 371 Other....................................................... 3.6 1,468 ---------- ------------- TOTAL COMMON STOCKS......................................... 78.6 31,885 PREFERRED STOCKS............................................ 4.2 1,696 WARRANTS.................................................... 0.1 22 INVESTMENT COMPANIES........................................ 17.1 6,911 ---------- ------------- TOTAL INVESTMENTS........................................... 100.0 40,514 OTHER ASSETS AND LIABILITIES (NET).......................... 0.0+ 6 ---------- ------------- NET ASSETS.................................................. 100.0% $ 40,520 ---------- ------------- ---------- -------------
--------------- + Amount represents less than 0.1%. SEE NOTES TO FINANCIAL STATEMENTS. 36 41 NATIONS FUNDS STATEMENTS OF OPERATIONS For the period ended March 31, 2001 INTERNATIONAL INTERNATIONAL INTERNATIONAL VALUE EQUITY OPPORTUNITIES(a) ---------------------------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $0, $0, $4 and $59, respectively).................................. $ -- $ -- $ 33 Dividends allocated from Portfolio (Net of foreign withholding taxes of $3,038, $1,827, $0 and $0, respectively)+.......................................... 32,283 16,453 -- Interest.................................................. -- -- 39 Interest allocated from Portfolio+........................ 3,168 2,527 -- Securities lending........................................ -- -- 1 Securities lending allocated from Portfolio+.............. 2,659 390 -- Expenses allocated from Portfolio+........................ (12,273) (8,800) -- -------------- -------------- -------------- Total investment income............................... 25,837 10,570 73 -------------- -------------- -------------- EXPENSES: Investment advisory fee................................... -- -- 37 Administration fee........................................ 2,150 1,563 10 Transfer agent fees....................................... 627 280 5 Custodian fees............................................ -- -- 24 Legal and audit fees...................................... 67 61 51 Registration and filing fees.............................. 278 123 68 Trustees' fees and expenses............................... 17 17 12 Amortization of organization costs........................ -- -- -- Interest expense.......................................... -- -- -- Printing expense.......................................... 142 71 72 Other..................................................... -- 20 10 -------------- -------------- -------------- Subtotal.............................................. 3,281 2,135 289 Shareholder servicing and distribution fees: Investor A Shares....................................... 711 107 4 Investor B Shares....................................... 696 268 13 Investor C Shares....................................... 264 12 6 -------------- -------------- -------------- Total expenses........................................ 4,952 2,522 312 Fees waived by investment advisor and/or administrator.... (1,265) -- (220) Fees reduced by credits allowed by the custodian.......... -- -- (1) -------------- -------------- -------------- Net expenses.......................................... 3,687 2,522 91 -------------- -------------- -------------- NET INVESTMENT INCOME/(LOSS).............................. 22,150 8,048 (18) -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions................................... -- -- (1,777) Security transactions allocated from Portfolio+......... 34,032 (29,345) -- Foreign currencies and net other assets................. -- -- 9 Foreign currencies and net other assets allocated from Portfolio+............................................ (40) (639) -- -------------- -------------- -------------- Net realized gain/(loss) on investments................... 33,992 (29,984) (1,768) -------------- -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities (Note 9)..................................... -- -- 23 Securities allocated from Portfolio (Note 9)+........... (103,595) (259,030) -- Foreign currencies and net other assets................. -- -- (7) Foreign currencies and net other assets allocated from Portfolio+............................................ (4) -- -- -------------- -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................. (103,599) (259,030) 16 -------------- -------------- -------------- Net realized and unrealized gain/(loss) on investments.... (69,607) (289,014) (1,752) -------------- -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $ (47,457) $ (280,966) $ (1,770) ============== ============== ============== EMERGING MARKETS ----------------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $0, $0, $4 and $59, respectively).................................. $ 490 Dividends allocated from Portfolio (Net of foreign withholding taxes of $3,038, $1,827, $0 and $0, respectively)+.......................................... -- Interest.................................................. 91 Interest allocated from Portfolio+........................ -- Securities lending........................................ 87 Securities lending allocated from Portfolio+.............. -- Expenses allocated from Portfolio+........................ -- -------------- Total investment income............................... 668 -------------- EXPENSES: Investment advisory fee................................... 476 Administration fee........................................ 105 Transfer agent fees....................................... 15 Custodian fees............................................ 36 Legal and audit fees...................................... 56 Registration and filing fees.............................. 42 Trustees' fees and expenses............................... 17 Amortization of organization costs........................ 8 Interest expense.......................................... 17 Printing expense.......................................... 96 Other..................................................... 17 -------------- Subtotal.............................................. 885 Shareholder servicing and distribution fees: Investor A Shares....................................... 8 Investor B Shares....................................... 24 Investor C Shares....................................... 1 -------------- Total expenses........................................ 918 Fees waived by investment advisor and/or administrator.... (8) Fees reduced by credits allowed by the custodian.......... -- -------------- Net expenses.......................................... 910 -------------- NET INVESTMENT INCOME/(LOSS).............................. (242) -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions................................... (1,547) Security transactions allocated from Portfolio+......... -- Foreign currencies and net other assets................. (80) Foreign currencies and net other assets allocated from Portfolio+............................................ -- -------------- Net realized gain/(loss) on investments................... (1,627) -------------- Change in unrealized appreciation/(depreciation) of: Securities (Note 9)..................................... (26,155) Securities allocated from Portfolio (Note 9)+........... -- Foreign currencies and net other assets................. (4) Foreign currencies and net other assets allocated from Portfolio+............................................ -- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................. (26,159) -------------- Net realized and unrealized gain/(loss) on investments.... (27,786) -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $ (28,028) ==============
--------------- + Allocated from International Value Master Portfolio and International Equity Master Portfolio, respectively. (a) International Opportunities commenced operations on August 1, 2000. SEE NOTES TO FINANCIAL STATEMENTS. 37 42 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL VALUE -------------------------------- YEAR ENDED YEAR ENDED 3/31/01 3/31/00(A) -------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ 22,150 $ 8,617 Net realized gain/(loss) on investments..................... -- 9,685# Net realized gain/(loss) on investments allocated from Portfolio+................................................ 33,992 63,807 Net change in unrealized appreciation/(depreciation) of investments............................................... -- (979)# Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio+..................... (103,599) 38,439 -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ (47,457) 119,569 Distributions to shareholders from net investment income: Primary A Shares.......................................... (9,924) (6,376) Primary B Shares.......................................... -- -- Investor A Shares......................................... (2,896) (1,624) Investor B Shares......................................... (484) (268) Investor C Shares......................................... (167) (77) Distributions to shareholders in excess of net investment income: Primary A Shares.......................................... -- -- Primary B Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- Distributions to shareholders from net realized gain on investments: Primary A Shares.......................................... (47,333) (8,649) Primary B Shares.......................................... -- -- Investor A Shares......................................... (15,320) (2,023) Investor B Shares......................................... (3,941) (477) Investor C Shares......................................... (1,209) (138) Distributions to shareholders in excess of net realized gain on investments: Primary A Shares.......................................... -- -- Primary B Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- Net increase/(decrease) in net assets from Fund share transactions.............................................. 923,753 599,041 -------------- -------------- Net increase/(decrease) in net assets....................... 795,022 698,978 NET ASSETS: Beginning of period......................................... 851,962 152,984 -------------- -------------- End of period............................................... $ 1,646,984 $ 851,962 ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of period......... $ 8,633 $ -- ============== ==============
--------------- # Amount represents results from operations prior to conversion to master-feeder structure. + Allocated from International Value Master Portfolio and International Equity Master Portfolio, respectively. (a) As of October 18, 1999 and October 8, 1999, respectively, International Value and International Equity converted to a master-feeder structure. (b) International Opportunities commenced operations on August 1, 2000. * Amount represents less than $500. SEE NOTES TO FINANCIAL STATEMENTS. 38 43 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) INTERNATIONAL EQUITY INTERNATIONAL OPPORTUNITIES EMERGING MARKETS ------------------------------- ------------------------ ------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED 3/31/01 3/31/00(a) 3/31/01(b) 3/31/01 3/31/00 --------------------------------------------------------------------------------------------------- $ 8,048 $ 5,228 $ (18) $ (242) $ (153) -- 99,696# (1,768) (1,627) 3,874 (29,984) 90,176 -- -- -- -- (20,613)# 16 (26,159) 18,776 (259,030) 104,091 -- -- -- -------------- -------------- -------------- -------------- -------------- (280,966) 278,578 (1,770) (28,028) 22,497 (6,672) (3,424) -- (79) (11) -- -- -- -- -- (230) (85) -- (6) -- (137) (52) -- -- -- (4) (5) -- -- -- -- -- -- (18) -- -- -- -- -- -- -- -- -- (1) -- -- -- -- -- -- -- -- -- -- -- (53,837) (112,315) -- -- -- --* -- -- -- -- (1,868) (4,362) -- -- -- (2,011) (4,558) -- -- -- (68) (143) -- -- -- (7,943) -- -- -- -- --* -- -- -- -- (275) -- -- -- -- (297) -- -- -- -- (10) -- -- -- -- 204,671 3,532 9,049 5,743 16,119 -------------- -------------- -------------- -------------- -------------- (149,647) 157,166 7,279 (22,389) 38,605 942,902 785,736 -- 62,909 24,304 -------------- -------------- -------------- -------------- -------------- $ 793,255 $ 942,902 $ 7,279 $ 40,520 $ 62,909 ============== ============== ============== ============== ============== $ (10,231) $ (4,213) $ -- $ (49) $ (240) ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 39 44 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY
INTERNATIONAL VALUE YEAR ENDED YEAR ENDED MARCH 31, 2001 MARCH 31, 2000 --------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ----------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 46,622 $ 863,368 25,792 $ 444,906 Issued as reinvestment of dividends....................... 1,731 30,888 541 9,269 Redeemed.................................................. (13,064) (241,191) (4,223) (71,784) ------- ---------- ------- --------- Net increase/(decrease)................................... 35,289 $ 653,065 22,110 $ 382,391 ======= ========== ======= ========= INVESTOR A SHARES: Sold...................................................... 56,747 $1,051,494 29,999 $ 523,613 Issued as reinvestment of dividends....................... 763 13,561 196 3,460 Redeemed.................................................. (46,965) (869,653) (20,662) (365,045) ------- ---------- ------- --------- Net increase/(decrease)................................... 10,545 $ 195,402 9,533 $ 162,028 ======= ========== ======= ========= INVESTOR B SHARES: Sold...................................................... 2,235 $ 41,136 2,544 $ 44,056 Issued as reinvestment of dividends....................... 227 3,980 40 704 Redeemed.................................................. (473) (8,581) (147) (2,533) ------- ---------- ------- --------- Net increase/(decrease)................................... 1,989 $ 36,535 2,437 $ 42,227 ======= ========== ======= ========= INVESTOR C SHARES: Sold...................................................... 2,267 $ 41,438 745 $ 12,799 Issued as reinvestment of dividends....................... 62 1,094 11 182 Redeemed.................................................. (208) (3,781) (33) (586) ------- ---------- ------- --------- Net increase/(decrease)................................... 2,121 $ 38,751 723 $ 12,395 ======= ========== ======= ========= Total net increase/(decrease)............................. 49,944 $ 923,753 34,803 $ 599,041 ======= ========== ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 40 45 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERNATIONAL EQUITY YEAR ENDED YEAR ENDED MARCH 31, 2001 MARCH 31, 2000 ----------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ------------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 119,548 $ 1,587,180 15,671 $ 202,540 Issued in exchange for: Assets of Boatmen's Trust Company International Equity Fund (Master Trust Note 7)............................ 2,048 29,129 -- -- Primary A Shares of Nations International Growth Fund (Master Trust Note 7)................................. 1,260 17,669 -- -- Issued as reinvestment of dividends....................... 2,495 34,578 1,405 56,983 Redeemed.................................................. (111,981) (1,479,456) (17,980) (272,131) -------- ----------- ------- --------- Net increase/(decrease)................................... 13,370 $ 189,100 (904) $ (12,608) ======== =========== ======= ========= INVESTOR A SHARES: Sold...................................................... 106,860 $ 1,413,885 53,789 $ 802,774 Issued in exchange for: Investor A Shares of Nations International Growth Fund (Master Trust Note 7)................................. 1,309 18,066 -- -- A Shares of Pacific Horizon International Equity Fund (Note 10)............................................. -- -- 3,095 41,876 Issued as reinvestment of dividends....................... 117 1,593 44 2,789 Redeemed.................................................. (106,625) (1,419,696) (55,232) (830,083) -------- ----------- ------- --------- Net increase/(decrease)................................... 1,661 $ 13,848 1,696 $ 17,356 ======== =========== ======= ========= INVESTOR B SHARES: Sold...................................................... 854 $ 11,428 311 $ 1,322 Issued in exchange for: Investor B Shares of Nations International Growth Fund (Master Trust Note 7)................................. 144 1,921 -- -- B Shares of Pacific Horizon International Equity Fund (Note 10)............................................. -- -- 29 389 Issued as reinvestment of dividends....................... 172 2,294 112 4,442 Redeemed.................................................. (1,202) (14,802) (511) (7,354) -------- ----------- ------- --------- Net increase/(decrease)................................... (32) $ 841 (59) $ (1,201) ======== =========== ======= ========= INVESTOR C SHARES: Sold...................................................... 506 $ 6,177 53 $ 616 Issued in exchange for: Investor C Shares of Nations International Growth Fund (Master Trust Note 7)................................. 30 392 -- -- K Shares of Pacific Horizon International Equity Fund (Note 10)............................................. -- -- 62 808 Issued as reinvestment of dividends....................... 6 81 3 193 Redeemed.................................................. (492) (5,768) (116) (1,632) -------- ----------- ------- --------- Net increase/(decrease)................................... 50 $ 882 2 $ (15) ======== =========== ======= ========= Total net increase/(decrease)............................. 15,049 $ 204,671 735 $ 3,532 ======== =========== ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 41 46 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERNATIONAL OPPORTUNITIES PERIOD ENDED MARCH 31, 2001 ----------------- SHARES DOLLARS ----------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 189 $ 1,855 Issued as reinvestment of dividends....................... -- -- Redeemed.................................................. (5) (43) ---- ------- Net increase/(decrease)................................... 184 $ 1,812 ==== ======= INVESTOR A SHARES:+ Sold...................................................... 524 $ 5,045 Issued as reinvestment of dividends....................... -- -- Redeemed.................................................. (175) (1,586) ---- ------- Net increase/(decrease)................................... 349 $ 3,459 ==== ======= INVESTOR B SHARES:+ Sold...................................................... 272 $ 2,713 Issued as reinvestment of dividends....................... -- -- Redeemed.................................................. (18) (153) ---- ------- Net increase/(decrease)................................... 254 $ 2,560 ==== ======= INVESTOR C SHARES:+ Sold...................................................... 139 $ 1,376 Issued as reinvestment of dividends....................... -- -- Redeemed.................................................. (17) (158) ---- ------- Net increase/(decrease)................................... 122 $ 1,218 ==== ======= Total net increase/(decrease)............................. 909 $ 9,049 ==== =======
--------------- + International Opportunities Primary A, Investor A, Investor B and Investor C Shares commenced operations on August 1, 2000. SEE NOTES TO FINANCIAL STATEMENTS. 42 47 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
EMERGING MARKETS YEAR ENDED YEAR ENDED MARCH 31, 2001 MARCH 31, 2000 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 4,079 $ 44,819 1,968 $ 26,549 Issued as reinvestment of dividends....................... 1 6 --* --* Redeemed.................................................. (3,739) (40,979) (1,065) (11,604) ------ -------- ------ -------- Net increase/(decrease)................................... 341 $ 3,846 903 $ 14,945 ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 1,719 $ 19,992 1,238 $ 15,527 Issued as reinvestment of dividends....................... 1 7 -- -- Redeemed.................................................. (1,482) (17,808) (1,158) (14,764) ------ -------- ------ -------- Net increase/(decrease)................................... 238 $ 2,191 80 $ 763 ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 27 $ 304 66 $ 878 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (53) (594) (37) (429) ------ -------- ------ -------- Net increase/(decrease)................................... (26) $ (290) 29 $ 449 ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 5 $ 46 6 $ 83 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (5) (50) (9) (121) ------ -------- ------ -------- Net increase/(decrease)................................... --* $ (4) (3) $ (38) ====== ======== ====== ======== Total net increase/(decrease)............................. 553 $ 5,743 1,009 $ 16,119 ====== ======== ====== ========
--------------- * Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 43 48 NATIONS FUNDS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET IN EXCESS OF BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT NET INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME INCOME ------------------------------------------------------------------------------------------ INTERNATIONAL VALUE: PRIMARY A SHARES* Year ended 3/31/2001...... $18.78 $0.32 $(0.39) $(0.07) $(0.21) $ -- Year ended 3/31/2000#..... 14.45 0.37 4.73 5.10 (0.28) -- Period ended 3/31/1999#... 15.53.. 0.16 0.28 0.44 (0.18) -- Period ended 5/15/1998.... 13.17 0.09 2.56 2.65 -- -- Year ended 11/30/1997..... 11.29 0.09 1.91 2.00 (0.09) (0.01) Period ended 11/30/1996**............ 10.00 0.06 1.29 1.35 (0.06) -- INVESTOR A SHARES* Year ended 3/31/2001...... $18.77 $0.27 $(0.39) $(0.12) $(0.19) $ -- Year ended 3/31/2000#..... 14.43 0.36 4.72 5.08 (0.25) -- Period ended 3/31/1999#... 15.44 0.14 0.36 0.50 (0.17) -- Period ended 5/15/1998.... 13.13 0.08 2.52 2.60 -- -- Year ended 11/30/1997..... 11.29 0.01 1.91 1.92 (0.01) (0.05) Period ended 11/30/1996**............ 10.00 0.04 1.31 1.35 (0.04) -- INVESTOR B SHARES Year ended 3/31/2001...... $18.64 $0.16 $(0.40) $(0.24) $(0.13) -- Year ended 3/31/2000#..... 14.40 0.22 4.66 4.88 (0.15) -- Period ended 3/31/1999***#........... 14.33 0.06 0.76 0.82...... (0.13) -- INVESTOR C SHARES Year ended 3/31/2001...... $18.65 $0.16 $(0.41) $(0.25) $(0.13) -- Year ended 3/31/2000#..... 14.41 0.21 4.69 4.90 (0.17) -- Period ended 3/31/1999***#........... 13.33 0.06 1.77 1.83 (0.13) -- DISTRIBUTIONS FROM NET REALIZED GAINS ------------- INTERNATIONAL VALUE: PRIMARY A SHARES* Year ended 3/31/2001...... $(1.20) Year ended 3/31/2000#..... (0.49) Period ended 3/31/1999#... (1.34) Period ended 5/15/1998.... (0.29) Year ended 11/30/1997..... (0.02) Period ended 11/30/1996**............ -- INVESTOR A SHARES* Year ended 3/31/2001...... $(1.20) Year ended 3/31/2000#..... (0.49) Period ended 3/31/1999#... (1.34) Period ended 5/15/1998.... (0.29) Year ended 11/30/1997..... (0.02) Period ended 11/30/1996**............ (0.02) INVESTOR B SHARES Year ended 3/31/2001...... $(1.20) Year ended 3/31/2000#..... (0.49) Period ended 3/31/1999***#........... (0.62) INVESTOR C SHARES Year ended 3/31/2001...... $(1.20) Year ended 3/31/2000#..... (0.49) Period ended 3/31/1999***#........... (0.62)
--------------- + 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. * The financial information for the fiscal periods through May 22, 1998 reflect the financial information for the Emerald International Equity Fund Institutional and Retail Shares, which were reorganized into the International Value Primary A and Investor A Shares, respectively, as of May 22, 1998. ** International Value Primary A and Investor A Shares commenced operations on December 27, 1995. *** International Value Investor B and Investor C Shares commenced operations on May 22, 1998 and June 15, 1998, respectively. # Per share net investment income has been calculated using the monthly average shares method. ### Amount represents results prior to conversion to a master-feeder structure. (a) The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 44 49 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS -------------------------------------------------------------------------------------------------------------------- $(1.41) $17.30 (0.50)% $1,163,899 1.13% 1.89% -- 1.23% (0.77) 18.78 36.03 600,589 1.24(a) 2.11 12%### 1.34(a) (1.52) 14.45 1.48 142,546 1.30+ 1.36+ 44 1.39+ (0.29) 15.53 20.54 119,412 1.25+ 2.06+ 88 1.26+ (0.12) 13.17 17.75 54,277 1.21 0.89 29 1.21 (0.06) 11.29 13.47 17,528 0.00+ 0.00+ 50 3.46+ $(1.39) $17.26 (0.72)% $ 353,646 1.38% 1.64% -- 1.48% (0.74) 18.77 35.86 186,649 1.49(a) 1.86 12%### 1.59(a) (1.51) 14.43 1.75 5,960 1.55+ 1.11+ 44 1.64+ (0.29) 15.44 20.22 5,128 1.81+ 1.21+ 88 1.82+ (0.08) 13.13 17.11 4,259 1.73 0.26 29 1.93 (0.06) 11.29 13.54 115 0.00+ 1.83+ 50 57.40+ $(1.33) $17.07 (1.42)% $ 80,655 2.13% 0.89% -- 2.23% (0.64) 18.64 34.51 50,999 2.24(a) 1.11 12%### 2.34(a) (0.75) 14.40 1.25% 4,296 2.30+ 0.36+ 44 2.39+ $(1.33) $17.07 (1.45)% $ 48,784 2.13% 0.89% -- 2.23% (0.66) 18.65 34.64 13,725 2.24(a) 1.11 12%### 2.34(a) (0.75) 14.41 3.98 182 2.30+ 0.36+ 44 2.39+
SEE NOTES TO FINANCIAL STATEMENTS. 45 50 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each year.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET IN EXCESS OF BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT NET INVESTMENT OF YEAR INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME INCOME ------------------------------------------------------------------------------------------ INTERNATIONAL EQUITY: PRIMARY A SHARES Year ended 3/31/2001#...... $16.74 $ 0.12 $(4.47) $(4.35) $(0.11) $ -- Year ended 3/31/2000#...... 14.12 0.10 4.91 5.01 (0.06) -- Year ended 3/31/1999#...... 14.81 0.11 0.39 0.50 (0.12) -- Year ended 3/31/1998#...... 13.13 0.11 1.95 2.06 (0.17) (0.05) Year ended 3/31/1997#...... 13.50 0.08 0.11 0.19 (0.11) (0.00)## INVESTOR A SHARES Year ended 3/31/2001#...... $16.51 $ 0.07 $(4.38) $(4.31) $(0.09) $ -- Year ended 3/31/2000#...... 13.97 0.06 4.86 4.92 (0.05) -- Year ended 3/31/1999#...... 14.67 0.08 0.40 0.48 (0.11) -- Year ended 3/31/1998#...... 13.01 0.07 1.94 2.01 (0.15) (0.04) Year ended 3/31/1997#...... 13.39 0.05 0.11 0.16 (0.09) (0.00)## INVESTOR B SHARES Year ended 3/31/2001#...... $16.06 $ 0.00 $(4.27) $(4.27) $(0.07) $ -- Year ended 3/31/2000#...... 13.75 (0.05) 4.72 4.67 (0.03) -- Year ended 3/31/1999#...... 14.56 (0.03) 0.38 0.35 (0.09) -- Year ended 3/31/1998#...... 12.83 (0.03) 1.92 1.89 -- -- Year ended 3/31/1997#...... 13.27 (0.05) 0.10 0.05 (0.04) (0.00)## INVESTOR C SHARES Year ended 3/31/2001#...... $15.72 $(0.02) $(4.17) $(4.19) $(0.07) $ -- Year ended 3/31/2000#...... 13.52 (0.03) 4.60 4.57 (0.04) -- Year ended 3/31/1999#...... 14.34 (0.03) 0.37 0.34 (0.09) -- Year ended 3/31/1998#...... 12.74 (0.01) 1.89 1.88 (0.10) (0.02) Year ended 3/31/1997#...... 13.13 0.02 0.10 0.12 (0.06) (0.00)## DISTRIBUTIONS FROM NET REALIZED GAINS ------------- INTERNATIONAL EQUITY: PRIMARY A SHARES Year ended 3/31/2001#...... $(1.01) Year ended 3/31/2000#...... (2.33) Year ended 3/31/1999#...... (1.07) Year ended 3/31/1998#...... (0.16) Year ended 3/31/1997#...... (0.42) INVESTOR A SHARES Year ended 3/31/2001#...... $(1.01) Year ended 3/31/2000#...... (2.33) Year ended 3/31/1999#...... (1.07) Year ended 3/31/1998#...... (0.16) Year ended 3/31/1997#...... (0.42) INVESTOR B SHARES Year ended 3/31/2001#...... $(1.01) Year ended 3/31/2000#...... (2.33) Year ended 3/31/1999#...... (1.07) Year ended 3/31/1998#...... (0.16) Year ended 3/31/1997#...... (0.42) INVESTOR C SHARES Year ended 3/31/2001#...... $(1.01) Year ended 3/31/2000#...... (2.33) Year ended 3/31/1999#...... (1.07) Year ended 3/31/1998#...... (0.16) Year ended 3/31/1997#...... (0.42)
--------------- ++ 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 shares method. ## Amount represents less than $0.01 per share. ### Amount represents results prior to conversion to a master-feeder structure. SEE NOTES TO FINANCIAL STATEMENTS. 46 51 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF DISTRIBUTIONS TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING IN EXCESS OF DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO NET REALIZED AND VALUE TOTAL YEAR AVERAGE NET AVERAGE NET TURNOVER AVERAGE GAINS DISTRIBUTIONS END OF YEAR RETURN++ (000) ASSETS ASSETS RATE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------------- $(0.15) $(1.27) $11.12 (27.40)% $724,572 1.15% 0.89% -- 1.16% -- (2.39) 16.74 39.85 866,731 1.14 0.69 129%### 1.18 -- (1.19) 14.12 3.68 743,861 1.13 0.79 146 1.13 -- (0.38) 14.81 16.06 885,329 1.14 0.76 64 1.14 (0.03) (0.56) 13.13 1.32 976,855 1.16 0.62 36 1.16 $(0.15) $(1.25) $10.95 (27.54)% $ 46,770 1.40% 0.64% -- 1.41% -- (2.38) 16.51 39.54 43,111 1.39 0.44 129%### 1.43 -- (1.18) 13.97 3.59 12,785 1.38 0.54 146 1.38 -- (0.35) 14.67 15.77 13,477 1.39 0.51 64 1.39 (0.03) (0.54) 13.01 1.08 9,443 1.41 0.37 36 1.41 $(0.15) $(1.23) $10.56 (28.11)% $ 20,747 2.15% (0.11)% -- 2.16% -- (2.36) 16.06 38.14 32,073 2.14 (0.31) 129%### 2.18 -- (1.16) 13.75 2.65 28,266 2.13 (0.21) 146 2.13 -- (0.16) 14.56 14.93 34,119 2.14 (0.24) 64 2.14 (0.03) (0.49) 12.83 0.28 36,698 2.16 (0.38) 36 2.16 $(0.15) $(1.23) $10.30 (28.22)% $ 1,166 2.15% (0.11)% -- 2.16% -- (2.37) 15.72 38.12 987 2.14 (0.31) 129%### 2.18 -- (1.16) 13.52 2.63 824 2.13 (0.21) 146 2.13 -- (0.28) 14.34 15.05 933 1.97 (0.07) 64 1.97 (0.03) (0.51) 12.74 0.77 988 1.66 0.12 36 1.66
SEE NOTES TO FINANCIAL STATEMENTS. 47 52 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ VALUE NET AND UNREALIZED (DECREASE) IN BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS --------------------------------------------------------------- INTERNATIONAL OPPORTUNITIES PRIMARY A SHARES Period ended 3/31/2001#*................................ $10.00 $ 0.00## $(1.97) $(1.97) INVESTOR A SHARES Period ended 3/31/2001#*................................ $10.00 $(0.01) $(1.98) $(1.99) INVESTOR B SHARES Period ended 3/31/2001#*................................ $10.00 $(0.08) $(1.95) $(2.03) INVESTOR C SHARES Period ended 3/31/2001#*................................ $10.00 $(0.09) $(1.94) $(2.03)
--------------- + 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. * International Opportunities Primary A, Investor A, Investor B and Investor C Shares commenced operations on August 1, 2000. # Per share net investment income/(loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. SEE NOTES TO FINANCIAL STATEMENTS. 48 53 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS ---------------------------------------------------------------------------------------------------- $8.03 (19.70)% $1,477 1.47%+ 0.12%+ 442% 6.28%+ $8.01 (19.90)% $2,797 1.72%+ (0.13)%+ 442% 6.53%+ $7.97 (20.30)% $2,031 2.47%+ (0.88)%+ 442% 7.28%+ $7.97 (20.30)% $ 974 2.47%+ (0.88)%+ 442% 7.28%+
SEE NOTES TO FINANCIAL STATEMENTS. 49 54 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET IN EXCESS OF BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT NET INVESTMENT OF YEAR INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME INCOME ------------------------------------------------------------------------------------------ EMERGING MARKETS: PRIMARY A SHARES Year ended 3/31/2001#..... $15.76 $(0.05) $(6.76) $(6.81) $(0.02) $(0.01) Year ended 3/31/2000#..... 8.14 (0.05) 7.68 7.63 (0.01) -- Year ended 3/31/1999#..... 10.60 0.14 (2.53) (2.39) (0.07) -- Year ended 3/31/1998#..... 11.41 0.04 (0.76) (0.72) (0.09) -- Year ended 3/31/1997#..... 10.34 0.01 1.21 1.22 (0.02) (0.07) INVESTOR A SHARES Year ended 3/31/2001#..... $15.65 $(0.04) $(6.75) $(6.79) $(0.02) $(0.00)## Year ended 3/31/2000#..... 8.09 (0.09) 7.65 7.56 -- -- Year ended 3/31/1999#..... 10.57 0.10 (2.52) (2.42) (0.06) -- Year ended 3/31/1998#..... 11.39 0.01 (0.75) (0.74) (0.08) -- Year ended 3/31/1997#..... 10.32 (0.01) 1.21 1.20 (0.02) (0.05) INVESTOR B SHARES Year ended 3/31/2001#..... $15.32 $(0.17) $(6.53) $(6.70) $ -- $ -- Year ended 3/31/2000#..... 7.99 (0.16) 7.49 7.33 -- -- Year ended 3/31/1999#..... 10.49 0.05 (2.50) (2.45) (0.05) -- Year ended 3/31/1998#..... 11.31 (0.07) (0.75) (0.82) -- -- Year ended 3/31/1997#..... 10.26 (0.09) 1.20 1.11 -- -- INVESTOR C SHARES Year ended 3/31/2001#..... $15.31 $(0.16) $(6.54) $(6.70) $ -- $ -- Year ended 3/31/2000#..... 7.98 (0.14) 7.47 7.33 -- -- Year ended 3/31/1999#..... 10.47 0.05 (2.49) (2.44) (0.05) -- Year ended 3/31/1998#..... 11.34 (0.05) (0.75) (0.80) (0.07) -- Year ended 3/31/1997#..... 10.27 (0.04) 1.20 1.16 (0.01) (0.02) DISTRIBUTIONS FROM NET REALIZED GAINS ------------- EMERGING MARKETS: PRIMARY A SHARES Year ended 3/31/2001#..... $ -- Year ended 3/31/2000#..... -- Year ended 3/31/1999#..... -- Year ended 3/31/1998#..... -- Year ended 3/31/1997#..... (0.06) INVESTOR A SHARES Year ended 3/31/2001#..... $ -- Year ended 3/31/2000#..... -- Year ended 3/31/1999#..... -- Year ended 3/31/1998#..... -- Year ended 3/31/1997#..... (0.06) INVESTOR B SHARES Year ended 3/31/2001#..... $ -- Year ended 3/31/2000#..... -- Year ended 3/31/1999#..... -- Year ended 3/31/1998#..... -- Year ended 3/31/1997#..... (0.06) INVESTOR C SHARES Year ended 3/31/2001#..... $ -- Year ended 3/31/2000#..... -- Year ended 3/31/1999#..... -- Year ended 3/31/1998#..... -- Year ended 3/31/1997#..... (0.06)
--------------- ++ 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 shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset (Note 2) 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%. SEE NOTES TO FINANCIAL STATEMENTS. 50 55 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS RATIO OF NET AND/OR EXPENSE OPERATING REIMBURSEMENTS EXPENSES --------------- RATIO OF INCLUDING RATIO OF RATIO OF TOTAL NET ASSETS OPERATING INTEREST NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO EXPENSE INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL YEAR AVERAGE NET TO AVERAGE AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF YEAR RETURN++ (000) ASSETS NET ASSETS ASSETS RATE NET ASSETS --------------------------------------------------------------------------------------------------------------------------------- $(0.03) $ 8.92 (43.21)% $34,876 1.80% 1.84% (0.40)% 97% 1.86% (0.01) 15.76 93.71 56,234 1.90 1.91 (0.40) 61 2.54 (0.07) 8.14 (22.60) 21,689 1.78(a) (b) 1.66 71 1.98(a) (0.09) 10.60 (6.39) 73,797 1.57 -- 0.36 63 1.57 (0.15) 11.41 11.97 76,483 1.74 -- 0.13 31 1.74 $(0.02) $ 8.84 (43.38)% $ 3,851 2.05% 2.09% (0.65)% 97% 2.11% -- 15.65 93.33 3,087 2.15 2.16 (0.65) 61 2.79 (0.06) 8.09 (22.90) 951 2.03(a) (b) 1.41 71 2.23(a) (0.08) 10.57 (6.60) 652 1.82 -- 0.11 63 1.82 (0.13) 11.39 11.74 894 1.99 -- (0.12) 31 1.99 $ -- $ 8.62 (43.73)% $ 1,728 2.80% 2.84% (1.40)% 97% 2.86% -- 15.32 91.74 3,468 2.90 2.91 (1.40) 61 3.54 (0.05) 7.99 (23.42) 1,579 2.78(a) (b) 0.66 71 2.98(a) -- 10.49 (7.25) 1,247 2.57 -- (0.64) 63 2.57 (0.06) 11.31 10.88 1,499 2.74 -- (0.87) 31 2.74 $ -- $ 8.61 (43.73)% $ 65 2.80% 2.84% (1.40)% 97% 2.86% -- 15.31 91.73 120 2.90 2.91 (1.40) 61 3.54 (0.05) 7.98 (23.37) 86 2.78(a) (b) 0.66 71 2.98(a) (0.07) 10.47 (7.17) 293 2.40 -- (0.47) 63 2.40 (0.09) 11.34 11.34 226 2.24 -- (0.37) 31 2.24
SEE NOTES TO FINANCIAL STATEMENTS. 51 56 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS Nations Reserves ("Reserves") and Nations Funds Trust ("Funds Trust") are each registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment company. At March 31, 2001, Reserves offered sixteen separate portfolios and Funds Trust offered five separate portfolios. These financial statements pertain only to the international stock portfolios of Reserves and Funds Trust: International Value Fund, International Equity Fund, International Opportunities Fund and Emerging Markets Fund (each a "Fund" and collectively, the "Funds"). Financial statements for the other portfolios of Reserves and Funds Trust are presented under separate cover. The Funds currently offer four classes of shares: Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares. Shareholders of a Fund have equal voting rights on matters affecting all shareholders of the Fund. In addition, each class of shares of a Fund has exclusive voting rights on matters that relate solely to that class and separate voting rights on matters in which the interests of one class differ from the interests of any other class. International Value Fund and International Equity Fund (the "Feeder Funds") seek to achieve their investment objectives by investing substantially all of their assets in International Value Master Portfolio and International Equity Master Portfolio, respectively (the "Master Portfolios"), each a series of Nations Master Investment Trust (the "Master Trust"), another open-end management investment company in the Nations Funds family. The Master Portfolios each have the same investment objective as that of its corresponding Feeder Fund. The values of the Feeder Funds' investments in the respective Master Portfolios included in the Statements of net assets reflect the Feeder Funds' proportionate beneficial interests in the net assets of the respective Master Portfolios (91.9% for International Value Master Portfolio and 99.8% for International Equity Master Portfolio at March 31, 2001). The financial statements of the Master Portfolios, including their schedules of investments, are included elsewhere within this report and should be read in conjunction with the Feeder Funds' financial statements. Other funds not registered under the 1940 Act managed by Banc of America Advisors, Inc. ("BAAI"), whose financial statements are not presented here, also invest in the Master Portfolios. On August 1, 2000, the International Opportunities Fund commenced operations in a master-feeder structure. The Fund seeks to achieve its investment objective by investing substantially all of its assets in International Opportunities Master Portfolio of the Master Trust, which has the same investment objective as the Fund. Because the value of the Fund's investment in the International Opportunities Master Portfolio represented substantially all of the beneficial interest in the International Opportunities Master Portfolio for the period August 2, 2000 through March 31, 2001, financial statements of the International Opportunities Master Portfolio have not been prepared and references in this report to International Opportunities Fund should be read to include references to the corresponding Master Portfolio. 1. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. Securities valuation: Securities traded on a recognized exchange or on NASDAQ are valued at the last sale price on the exchange or market on which such securities are primarily traded. Securities traded only over-the-counter are valued at the last sale price, or if no sale occurred on such day, at the mean of the current bid and asked prices. Debt securities are generally valued by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate, maturity and general market conditions. Restricted securities, securities for which market quotations are not readily available, and certain other assets may be valued under procedures adopted by the Board of Trustees. Short-term investments that mature in 60 days or less are valued at amortized cost, which approximates current market value. The valuation of each Feeder Fund's investment in its corresponding Master Portfolio is based on the reported net asset value of that Master Portfolio. The Master Portfolios use valuation policies consistent with those described above. Futures contracts: All Funds may invest in futures contracts. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." 52 57 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect changes in the market value of the contract. When the contract is closed, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, and the possibility that there may not be a liquid secondary market for the contracts, that a change in the value of the contract may not correlate with a change in the value of the underlying securities, or that the counterparty to a contract may default on its obligation to perform. Foreign currency exchanges: The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are exchanged into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are exchanged on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of a Fund and the amounts actually received. The effects of changes in foreign currency exchange rates on securities are not separately identified in the Statements of operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on securities. Forward foreign currency transactions: Generally, each Fund may enter into forward currency exchange contracts only under two circumstances: (i) when a Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, to "lock in" the U.S. exchange rate of the transaction, with such period being a short-dated contract covering the period between transaction date and settlement date; or (ii) when the investment adviser or sub-adviser believes that the currency of a particular foreign country may experience a substantial movement against the U.S. dollar. Forward foreign currency contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by a Fund as an unrealized gain or loss. When the contract is closed or offset with the same counterparty, a Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or offset. Forward foreign currency contracts will be used primarily to protect the Funds from adverse currency movements and will generally not be entered into for terms greater than one year. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of a Fund's investment securities; however, it does establish a rate of exchange that can be achieved in the future. The use of forward foreign currency contracts involves the risk that anticipated currency movements will not be accurately predicted. A forward foreign currency contract would limit the risk of loss due to a decline in the value of a particular currency; however, it also would limit any potential gain that might result should the value of the currency increase instead of decrease. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Statements of net assets. In addition, the Funds could be exposed to risks if counterparties to the contracts are unable to meet the terms of their contracts. The counterparty risk exposure is, therefore, closely monitored and contracts are only executed with high credit quality financial institutions. Securities transactions and investment income: Securities transactions are recorded on trade date. Realized gains and losses are computed based on the specific identification of securities sold. Interest income, adjusted for accretion of discounts and amortization of premiums, is earned from settlement date and recorded on an accrual basis. Dividend income is recorded on ex- dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Funds are informed of the ex-dividend date. Each Fund's investment income and realized and unrealized gains and losses are allocated among its share classes based upon the relative net assets of each class of shares. The Feeder Funds record their share of the investment income and realized and unrealized gains and losses reported by the Master Portfolios on a daily basis. The investment income and realized and unrealized gains and losses are allocated daily to investors in the Master Portfolios based upon the relative value of their investments in the Master Portfolios. 53 58 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Dividends and distributions to shareholders: Distributions from net investment income, if any, are declared and paid each calendar quarter for all Funds except International Value, which declares and pays distributions annually. Each Fund will distribute net realized capital gains (including net short-term capital gains), if any, at least annually after the fiscal year in which the capital gains were earned, unless offset by any available capital loss carryforward. Income distributions and capital gain distributions on a Fund level are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. Certain reclassifications are made to each Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. These reclassifications are due to different book and tax accounting for foreign currency, dividend reclassifications, investments in passive foreign investment companies and use of the tax accounting practice known as equalization. Reclassifications for the year ended March 31, 2001 were as follows:
INCREASE/ (DECREASE) INCREASE/ INCREASE/ UNDISTRIBUTED (DECREASE) (DECREASE) NET ACCUMULATED PAID-IN INVESTMENT NET REALIZED CAPITAL INCOME GAIN/(LOSS) (000) (000) (000) ----------------------------------------- International Value........ $2,794 $ (46) $(2,748) International Equity....... 9,186 (7,023) (2,163) International Opportunities............ (9) 18 (9) Emerging Markets........... (617) 537 80
Federal income tax: Each Fund intends to continue to qualify as a regulated investment company by complying with the applicable requirements of the Internal Revenue Code of 1986, as amended, and by distributing substantially all of its earnings to its shareholders. Therefore, no provision is made for federal income or excise taxes. The Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Funds will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. Expenses: General expenses of Reserves and Funds Trust are allocated to the Funds based upon their relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to a Fund or class of shares are charged to such Fund or class. Emerging Markets Fund bears all costs in connection with its organization, including the fees and expenses of registering and qualifying its shares for distribution under federal and state securities regulations. All such costs are being amortized on a straight line basis over a period of five years from commencement of operations. The Feeder Funds record their share of the expenses reported by the Master Portfolios on a daily basis. The expenses are allocated daily to investors in the Master Portfolios based upon the relative value of the Feeder Funds' investments in the Master Portfolios. 2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED PARTY TRANSACTIONS Each of Reserves and Master Trust has entered into an investment advisory agreement (the "Investment Advisory Agreements") with BAAI, a wholly-owned subsidiary of Bank of America, N.A. ("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, pursuant to which BAAI provides investment advisory services to the Funds. Under the terms of the Investment Advisory Agreements, BAAI is entitled to receive an advisory fee, calculated daily and payable monthly, based on the following annual rates multiplied by the average daily net assets of each Fund:
ANNUAL RATE ----------- International Opportunities................. 0.80% Emerging Markets............................ 1.00%
The Feeder Funds indirectly pay for investment advisory services through their investments in their corresponding Master Portfolios (See Note 2 of Notes to financial statements of the Master Portfolios). Master Trust has, on behalf of the International Opportunities Fund, entered into a sub-advisory agreement with BAAI and Marsico Capital Management, LLC ("Marsico"), a wholly-owned subsidiary of Bank of America, pursuant to which Marsico is entitled to receive a sub-advisory fee from BAAI at the maximum annual rate of 0.45% of the Fund's average daily net assets. Reserves has, on behalf of the Emerging Markets Fund, entered into a sub-advisory agreement (the "Sub-Advisory Agreements") with BAAI and Gartmore Global Partners ("Gartmore"). Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Under the Sub-Advisory Agreements, Gartmore is entitled to receive a sub-advisory fee from BAAI at the maximum annual rate of 54 59 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 0.66 % of the Fund's average daily net assets. Prior to May 15, 2000, Gartmore received a sub-advisory fee from BAAI at the maximum annual rate of 0.85% of the Fund's average daily net assets. The Feeder Funds indirectly pay for sub-advisory services through their investments in their corresponding Master Portfolios (See Note 2 of Notes to financial statements of the Master Portfolios). Stephens Inc. ("Stephens") and BAAI serve as co-administrators of Reserves and Funds Trust. Under the co-administration agreements, Stephens and BAAI are currently entitled to receive a combined fee, computed daily and paid monthly, at the maximum annual rate of 0.22% of the average daily net assets of International Opportunities Fund and Emerging Markets Fund. International Value Fund and International Equity Fund pay a monthly fee at the maximum annual rate of 0.17% of their average daily net assets. The Bank of New York ("BNY") serves as sub-administrator of Reserves and Funds Trust pursuant to agreements with BAAI. For the year ended March 31, 2001, Stephens and BAAI earned 0.04% and 0.11%, respectively, of the Funds' average daily net assets for their co-administration services. BAAI and/or the sub-advisers and Stephens may, from time to time, reduce their fees payable by each Fund. Effective August 1, 2000, BAAI and/or the sub-advisers and Stephens agreed to reimburse expenses and/or waive their fees until July 31, 2001 to the extent that total expenses (excluding shareholder servicing and distribution fees), exceed an annual rate of 1.90% of Emerging Markets Fund's average daily net assets. Prior to that date, BAAI and/or the sub-advisers and Stephens had voluntarily agreed to reimburse expenses and/or waive their fees to maintain this total expense limit. Effective August 2, 2000, BAAI and/or the sub-advisers and Stephens agreed to voluntarily reimburse expenses and/or waive their fees to the extent that total expenses (excluding shareholder servicing and distribution fees) exceed an annual rate of 1.50% of International Opportunities Fund's average net assets. There is no guarantee that this expense limitation will continue for a specified period of time. BNY serves as the custodian of the Reserves' and Funds Trust's assets. For the year ended March 31, 2001, expenses of the Funds were reduced by $770 under expense offset arrangements with BNY. The Funds could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if they had not entered into such arrangements. PFPC Inc. ("PFPC") serves as the transfer agent for the Funds' shares. Bank of America serves as the sub-transfer agent for the Primary A and Primary B Shares of the Funds. For the year ended March 31, 2001, Bank of America earned approximately $14,412 for providing such services. Stephens also serves as distributor of the Funds' shares. For the year ended March 31, 2001, the Funds were informed that the distributor received $3,581,290 in front-end sales charges for sales of Investor A Shares and $399,732 in contingent deferred sales charges from redemption of shares which were subject to such charges. A substantial portion of these fees is paid to affiliates of Bank of America. No officer, director or employee of Bank of America or BAAI, or any affiliate thereof, receives any compensation from Reserves and Funds Trust for serving as Trustee or Officer of Reserves and Funds Trust. Reserves' and Funds Trust's eligible Trustees may participate in non-qualified deferred compensation and retirement plans which may be terminated at any time. All benefits provided under these plans are unfunded and any payments to plan participants are paid solely out of the Funds' assets. Income earned on each plan participant's deferral account is based on the rate of return of the eligible mutual funds selected by the participants or, if no funds are selected, on the rate of return of Nations Treasury Fund, a portfolio of Nations Fund, Inc., another registered investment company in the Nations Funds family. The expense for the deferred compensation and retirement plans is included in "Trustees' fees and expenses" in the Statements of operations. A significant portion of each Fund's Primary A Shares represents investments by fiduciary accounts over which Bank of America has either sole or joint investment discretion. The International Opportunities Master Portfolio has made daily investments of cash balances in the Nations Cash Reserves, a portfolio of Nations Reserves, pursuant to an exemptive order received from the Securities and Exchange Commission. For the year ended March 31, 2001, the Fund earned $723 from such investments, which is included in interest income. 55 60 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. SHAREHOLDER SERVICING AND DISTRIBUTION PLANS Reserves and Funds Trust each has adopted shareholder servicing plans and distribution plans for the Investor A, Investor B and Investor C Shares of each Fund. The shareholder servicing plans permit the Funds to compensate or reimburse servicing agents for shareholder services provided by the servicing agents. The distribution plans, adopted pursuant to Rule 12b-1 under the 1940 Act, permit the Funds to compensate or reimburse the distributor (and for Investor A Shares, the distributor and/or selling agents) for activities or expenses primarily intended to result in the sale of the classes' shares. Payments are made at an annual rate, as a percentage of average daily net assets, set from time to time by the Board of Trustees, and are charged as expenses of each Fund directly to the applicable share class. A substantial portion of the expenses incurred pursuant to these plans is paid to affiliates of Bank of America and BAAI. At March 31, 2001, the annual rates in effect and plan limits, as a percentage of average daily net assets, were as follows:
CURRENT PLAN RATE LIMIT ------------------ INVESTOR A COMBINED SHAREHOLDER SERVICING AND DISTRIBUTION PLAN............................. 0.25% 0.25% INVESTOR B AND INVESTOR C SHAREHOLDER SERVICING PLANS...... 0.25% 0.25% INVESTOR B AND INVESTOR C DISTRIBUTION PLANS............... 0.75% 0.75%
4. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government securities and short-term investments, for the year ended March 31, 2001 were as follows:
PURCHASES SALES (000) (000) -------------------- International Opportunities....... $32,909 $24,748 Emerging Markets.................. 45,176 45,145
There were no purchases or sales of long-term U.S. government securities for the year ended March 31, 2001. 5. FORWARD FOREIGN CURRENCY CONTRACTS At March 31, 2001, the following Master Portfolio had forward foreign currency contracts outstanding:
UNREALIZED VALUE OF CONTRACT VALUE OF CONTRACT MARKET VALUE APPRECIATION/ WHEN OPENED WHEN OPENED OF CONTRACT (DEPRECIATION) LOCAL (LOCAL CURRENCY) (US DOLLARS) (US DOLLARS) (US DOLLARS) DESCRIPTION CURRENCY (000) (000) (000) (000) -------------------------------------------------------------------------------------------------------------------- INTERNATIONAL OPPORTUNITIES: CONTRACTS TO BUY: Expiring September 26, 2001... Japanese Yen 23,551 $ 197 $ 192 $ (5) Expiring September 26, 2001... Japanese Yen 35,357 296 289 (7) ---- Net unrealized depreciation... $(12) CONTRACT TO SELL: Expiring September 26, 2001... Japanese Yen (58,908) (486) (481) 5 ---- Total net unrealized depreciation................ $ (7) ====
6. SHARES OF BENEFICIAL INTEREST As of March 31, 2001, an unlimited number of shares of beneficial interest without par value were authorized for Reserves and Funds Trust. Reserves' and Fund Trust's Declarations of Trust authorize the Boards of Trustees to classify or reclassify any authorized but unissued shares into one or more additional classes or series of shares. See Schedules of capital stock activity. 7. LINES OF CREDIT Reserves and Funds Trust each participate with other Nations Funds in an uncommitted line of credit provided by BNY 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 56 61 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) borrowings is payable at a specified Federal Funds rate plus 0.50% on an annualized basis. Each participating Fund maintains a ratio of net assets (not including amounts borrowed pursuant to the Agreement) to the aggregate amount of indebtedness pursuant to the Agreement of no less than 4 to 1. For the year ended March 31, 2001, borrowings by the Funds under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST FUND (000) RATE ----------------------------------------------------------- Emerging Markets.................. $231 6.88%
The average amount outstanding was calculated based on daily balances in the period. Reserves and Funds Trust also participated with other Nations Funds in a committed line of credit provided by BNY that was terminated on December 7, 2000. Interest on borrowings under the committed line was payable at a specified Federal Funds rate plus 0.50% on an annualized basis. A facility fee of 0.09% per annum of the total amounts available under the line of credit was charged, of which each Fund paid its pro rata share. This fee was paid quarterly in arrears. Each participating Fund was required to maintain an asset coverage ratio of at least 300% under the terms of the arrangement. For the period ended December 7, 2000, there were no borrowings by the Funds under the committed line of credit. 8. SECURITIES LENDING Under an agreement with BNY, the Funds can lend their securities to approved brokers, dealers and other financial institutions. Loans are collateralized by cash, in an amount at least equal to the market value of the securities loaned. The cash collateral received is invested in Nations Cash Reserves. A portion of the income generated by the investment of the collateral, net of any rebates paid by BNY to borrowers, is remitted to BNY as lending agent, and the remainder is paid to the Fund. Generally, in the event of counterparty default, the Fund has the right to use the collateral to offset losses incurred. There would be a potential loss to the Fund in the event the Fund is delayed or prevented from exercising its right to dispose of the collateral. The Fund bears the risk of loss with respect to the investment of collateral. At March 31, 2001, the following Funds had securities on loan:
MARKET VALUE OF MARKET VALUE LOANED SECURITIES OF COLLATERAL FUND (000) (000) --------------------------------------------------------------- International Opportunities............ $ 341 $ 359 Emerging Markets........... 5,946 6,490
9. CAPITAL LOSS CARRYFORWARD At March 31, 2001, the following Funds had available for Federal income tax purposes the following unused capital losses expiring March 31:
2007 2009 FUND (000) (000) ------------------------------------------------------ International Opportunities......... -- $166 Emerging Markets.................... $14,260 --
During the year ended March 31, 2001, Emerging Markets Fund utilized capital losses of $2,999,491. Under the current tax law, capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the tax year ended March 31, 2001, the Funds elected to defer losses occurring between November 1, 2000 and March 31, 2001 as follows:
POST OCTOBER CAPITAL/CURRENCY FUND LOSSES DEFERRED ---------------------------------------------------------- International Value..................... $ 73 International Equity.................... 41,249 International Opportunities............. 1,322 Emerging Markets........................ 3,052
57 62 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. REORGANIZATIONS ACQUISITION OF PACIFIC HORIZON FUNDS On May 14, 1999, the International Equity Fund (the "Acquiring Fund"), acquired the assets and assumed the liabilities of the Pacific Horizon International Equity Fund (the "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity. Net assets and unrealized appreciation as of the reorganization date were as follows:
TOTAL NET ASSETS TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION UNREALIZED APPRECIATION (000) (000) (000) (000) ---------------------------------------------------------------------------------- $43,073 $766,603 $809,676 $5,349
CHANGE OF REGISTERED INVESTMENT COMPANY On August 20, 1999, the International Value, International Equity and Emerging Markets Funds, newly established portfolios of Reserves (the "Successor Funds"), acquired the assets and assumed the liabilities of their predecessor funds, which were series of Nations Fund, Inc., Nations Fund, Inc. and Nations Fund Portfolios, Inc., respectively, pursuant to a plan of reorganization approved by each predecessor fund's shareholders. The predecessor funds had the same name, investment objective and principal investment strategies as the Successor Funds. The acquisition was accomplished by a tax-free exchange of shares of the Successor Funds in an amount equal to the value of the outstanding shares of the predecessor funds. The financial statements of the Successor Funds reflect the historical financial results of the predecessor funds prior to the reorganizations. CONVERSION OF COMMON TRUST FUNDS On May 12, 2000, the International Equity Fund (the "Acquiring Fund"), acquired the assets of Boatmen's Trust Company International Equity Fund, a common trust fund, managed by Bank of America, (the "Acquired Fund"), in a tax-free exchange for shares of the Acquiring Fund. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity. Net assets and unrealized appreciation as of the conversion date were as follows:
TOTAL NET ASSETS TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION UNREALIZED APPRECIATION (000) (000) (000) (000) ---------------------------------------------------------------------------------- $29,129 $868,368 $897,497 $5,808
On September 8, 2000, the International Equity Fund (the "Acquiring Fund"), acquired the assets and assumed the liabilities of Nations International Growth Fund (the "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity. Net assets and unrealized appreciation as of the reorganization date were as follows:
TOTAL NET ASSETS TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION UNREALIZED APPRECIATION (000) (000) (000) (000) ---------------------------------------------------------------------------------- $38,048 $1,023,329 $1,061,377 $8,750
11. SUBSEQUENT EVENT On April 5, 2001, BAAI reorganized into a successor entity named Banc of America Advisors, LLC. The successor entity is organized as a limited liability company under the laws of the State of North Carolina. 58 63 NATIONS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES/DIRECTORS OF NATIONS FUNDS In our opinion, the accompanying statements of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Nations International Value Fund, Nations International Equity Fund, Nations Marsico International Opportunities Fund and Nations Emerging Markets Fund, (portfolios of Nations Reserves or Nations Funds Trust, hereafter referred to as the "Funds") at March 31, 2001, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2001 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial statements of Nations International Value Fund, formerly Emerald International Equity Fund, for the period ended May 15, 1998 and the year ended November 30, 1997 were audited by other independent accountants whose report dated July 1, 1998 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP New York, New York May 16, 2001 59 64 NATIONS FUNDS TAX INFORMATION (UNAUDITED) For the tax year ended March 31, 2000, the amount of long-term capital gain designated by Reserves and Funds Trust were as follows:
FUND TOTAL -------------------------------------------------------------- International Value $28,488,601 International Equity 32,455,856
For the year ended March 31, 2001, the total amount of income received by International Value and International Equity from sources within foreign countries and possessions of the United States was a total of $32,303,092 and $16,258,332, respectively. The total amount of taxes paid by International Value and International Equity to such countries was $3,037,921 and $1,826,871, respectively. 60 65 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio and Nations International Equity Master Portfolio Annual Report MARCH 31, 2001 The following pages should be read in conjunction with Nations International Value and Nations International Equity Funds' Annual Report. 61 66 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ COMMON STOCKS -- 94.6% ARGENTINA -- 0.7% 843,100 Telecom Argentina, ADR(a)......... $ 13,152 ---------- BRAZIL -- 4.4% 2,839,200 Banco Bradesco SA, ADR(a)......... 15,330 241,760 Brasil Telecom Participacoes SA, ADR++(a)........................ 9,465 3,436,250 Centrais Eletricas Brasileiras SA, ADR(a).......................... 32,826 945,600 Brasileiro SA-"A", ADR(a)......... 20,567 ---------- 78,188 ---------- CANADA -- 0.7% 609,000 TELUS Corporation, Non Voting Shares(a)....................... 12,284 ---------- CHINA -- 1.0% 939,000 PetroChina Company Ltd., ADR(a)... 16,902 ---------- DENMARK -- 0.8% 887,650 Den Danske Bank A/S, ADR(a)....... 14,078 ---------- FRANCE -- 7.1% 979,200 Alcatel SA, ADR(a)................ 28,162 1,071,000 Alstom SA, ADR(a)................. 29,667 852,100 Compagnie Generale des Etablissements Michelin......... 27,788 192,333 Eridania Beghin-Say SA............ 16,816 341,170 Total Fina Elf SA, ADR............ 23,183 ---------- 125,616 ---------- GERMANY -- 6.0% 542,000 BASF AG, ADR(a)................... 21,897 858,000 Bayerische Motoren Werke AG(a).... 26,547 151,710 Deutsche Telekom AG(a)............ 3,581 965,600 Deutsche Telekom AG, ADR.......... 22,392 681,900 E.On AG, ADR(a)................... 32,322 ---------- 106,739 ---------- HONG KONG -- 3.2% 6,958,500 CLP Holdings Ltd., ADR............ 36,850 3,159,000 Swire Pacific, Ltd. 'A', ADR(a)... 19,564 ---------- 56,414 ---------- IRELAND -- 2.2% 931,140 Allied Irish Banks plc, ADR(a).... 18,362 609,000 Bank of Ireland, ADR(a)........... 20,097 ---------- 38,459 ---------- ITALY -- 2.8% 484,840 ENI SpA, ADR(a)................... 31,369 184,390 Telecom Italia SpA, ADR(a)........ 18,421 ---------- 49,790 ---------- JAPAN -- 17.4% 2,536,870 Bank of Tokyo-Mitsubishi, Ltd., ADR(a).......................... 24,303 188,000 Daiichi Pharmaceutical Company, Ltd. ........................... 4,335
VALUE SHARES (000) ------------------------------------------------------------ JAPAN -- (CONTINUED) 2,766,000 Daiwa House Industry Company, Ltd.(a)......................... $ 17,900 318,720 Hitachi, Ltd., ADR(a)............. 27,808 4,140 Japan Tobacco, Inc. .............. 27,353 1,230,000 Komatsu Ltd. ..................... 5,653 1,672,950 Komatsu Ltd., ADR(a).............. 30,758 2,112,010 Matsushita Electric Industrial Company Ltd., ADR(a)............ 38,966 10,262,000 Mitsubishi Heavy Industries, Ltd. ........................... 37,750 1,156,980 Nippon Telegraph and Telephone Corporation, ADR(a)............. 37,347 475,000 Sakura Bank, Ltd., ADR(a)......... 21,795 690,700 Tokio Marine & Fire Insurance Company, Ltd., ADR(a)........... 34,708 ---------- 308,676 ---------- MEXICO -- 3.2% 605,850 America Movil SA de CV 'L', ADR++........................... 8,876 1,497,850 Telefonos de Mexico SA de CV 'L', ADR(a).......................... 47,241 ---------- 56,117 ---------- NETHERLANDS -- 0.4% 187,000 Akzo Nobel NV, ADR................ 7,737 ---------- NEW ZEALAND -- 1.0% 935,000 Telecom Corporation of New Zealand Ltd., ADR(a).................... 17,251 ---------- PORTUGAL -- 1.1% 2,359,800 Portugal Telecom, SGPS SA, ADR(a).......................... 20,294 ---------- SINGAPORE -- 1.7% 263,453 DBS Group Holdings Ltd., ADR(a)... 9,514 3,464,100 Jardine Matheson Holdings, Ltd., ADR(a).......................... 19,919 ---------- 29,433 ---------- SOUTH AFRICA -- 1.8% 781,941 De Beers Consolidated Mines, Ltd., ADR(a).......................... 30,056 379,600 South African Breweries plc....... 2,466 ---------- 32,522 ---------- SOUTH KOREA -- 3.0% 3,144,000 Korea Electric Power Corporation, ADR(a).......................... 25,561 1,527,400 Pohang Iron & Steel Company Ltd., ADR(a).......................... 27,416 ---------- 52,977 ---------- SPAIN -- 6.7% 500,000 Altadis, SA....................... 6,188 2,151,633 Banco Bilbao Vizcaya Argentaria SA, ADR(a)...................... 29,047 3,088,000 Repsol YPF SA, ADR................ 54,904 603,749 Telefonica SA, ADR++(a)........... 28,920 ---------- 119,059 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 62 67 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ SWITZERLAND -- 3.3% 22,600 Swisscom AG (REGD)................ $ 5,107 1,216,100 Swisscom AG, ADR.................. 27,849 793,619 Zurich Financial Services AG, ADR++(a)........................ 26,209 ---------- 59,165 ---------- UNITED KINGDOM -- 25.7% 365,000 Allied Domecq plc, ADR............ 2,172 2,299,700 BAE Systems plc, ADR(a)........... 40,869 137,000 BOC Group plc..................... 1,866 2,596,100 British American Tobacco plc, ADR(a).......................... 39,591 1,540,000 British Energy plc, ADR(a)........ 26,103 363,100 British Telecommunications plc, ADR(a).......................... 26,978 868,500 Cadbury Schweppes plc, ADR(a)..... 22,755 1,546,000 Corus Group plc, ADR(a)........... 13,466 1,267,571 Diageo plc, ADR................... 51,274 266,500 HSBC Holdings plc, ADR(a)......... 15,897 878,900 Imperial Chemical Industries plc, ADR(a).......................... 21,630 336,200 Innogy Holdings plc, ADR(a)....... 8,943 9,376,060 Invensys plc, ADR(a).............. 35,791 1,803,465 Marks & Spencer plc, ADR(a)....... 40,998 321,500 PowerGen plc, ADR(a).............. 13,628 2,037,100 Reckitt Benckiser plc............. 26,007 312,000 Rolls-Royce plc, ADR(a)........... 4,846 4,371,416 Safeway plc....................... 20,399 1,352,600 Unilever plc, ADR(a).............. 39,238 ---------- 452,451 ---------- VENEZUELA -- 0.4% 377,900 Cia Anonima Nacional Telefonos de Venezuela, ADR.................. 7,350 ---------- TOTAL COMMON STOCKS (Cost $1,742,080)............... 1,674,654 ---------- PREFERRED STOCKS -- 2.0% BRAZIL -- 2.0% 882,000 Companhia de Bebidas das Americas, Preferred ADR................... 20,595 302,200 Telecomunicacoes Brasileiras SA - Telebras, ADR Pfd. Block(a)..... 14,611 ---------- 35,206 ---------- TOTAL PREFERRED STOCKS (Cost $37,159).................. 35,206 ----------
SHARES VALUE (000) (000) ------------------------------------------------------------ INVESTMENT COMPANIES -- 42.0% (Cost $743,627) 743,627 Nations Cash Reserves#............ $ 743,627 ---------- TOTAL INVESTMENTS (Cost $2,522,866*)....... 138.6% 2,453,487 ---------- OTHER ASSETS AND LIABILITIES (NET)........ (38.6)% Cash.............................. $ 1,373 Receivable for investment securities sold................. 4,876 Dividends receivable.............. 11,517 Interest receivable............... 593 Collateral on securities loaned... (653,337) Investment advisory fee payable... (1,194) Administration fee payable........ (75) Payable for investment securities purchased....................... (47,265) Accrued Trustees' fees and expenses........................ (11) Accrued expenses and other liabilities..................... (52) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................... (683,575) ---------- NET ASSETS................. 100.0% $1,769,912 ==========
--------------- * Federal Income Tax Information: Net unrealized depreciation of $69,379 on investment securities was comprised of gross appreciation of $105,272 and gross depreciation of $174,651 for federal income tax purposes. At March 31, 2001, the aggregate cost of securities for federal income tax purposes was $2,522,866. ++ Non-income producing security. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, Inc. A portion of this amount represents cash collateral received from securities lending activity (Note 6). The portion that represents cash collateral is $653,337. (a) All or a portion of security was on loan at March 31, 2001. The aggregate cost and market value of securities on loan at March 31, 2001 is $677,767 and $612,007, respectively. ADR -- American Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. 63 68 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001 At March 31, 2001, sector diversification was as follows: % OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) -------------------------------------------------------------------------------------------------- Common stocks: Telecommunications services................................. 17.2% $ 306,508 Integrated oil.............................................. 8.3 146,925 Commercial banking.......................................... 8.1 144,120 Heavy machinery............................................. 5.9 103,828 Food products............................................... 4.5 78,809 Tobacco..................................................... 4.1 73,132 Diversified electronics..................................... 4.1 71,792 Diversified manufacturing................................... 3.8 68,113 Department and discount stores.............................. 3.4 60,917 Electric power -- Non nuclear............................... 3.4 59,421 Automotive.................................................. 3.1 54,335 Beverages................................................... 3.0 53,740 Aerospace and defense....................................... 2.6 45,715 Steel....................................................... 2.3 40,882 Insurance................................................... 2.0 34,708 Metals and mining........................................... 1.7 30,056 Chemicals -- Specialty...................................... 1.7 29,634 Networking and telecommunications equipment................. 1.6 28,162 Electrical equipment........................................ 1.6 27,808 Banking..................................................... 1.5 26,209 Other....................................................... 10.7 189,840 ---------- ------------- TOTAL COMMON STOCKS......................................... 94.6 1,674,654 PREFERRED STOCKS............................................ 2.0 35,206 INVESTMENT COMPANIES........................................ 42.0 743,627 ---------- ------------- TOTAL INVESTMENTS........................................... 138.6 2,453,487 OTHER ASSETS AND LIABILITIES (NET).......................... (38.6) (683,575) ---------- ------------- NET ASSETS.................................................. 100.0% $ 1,769,912 ---------- ------------- ---------- -------------
SEE NOTES TO FINANCIAL STATEMENTS. 64 69 NATIONS MASTER INVESTMENT TRUST Nations International Equity Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ COMMON STOCKS -- 96.8% ARGENTINA -- 0.2% 38,700 Grupo Financiero Galicia SA, ADR(a)........................... $ 583 49,100 Telecom Argentina, ADR(a).......... 766 ---------- 1,349 ---------- AUSTRALIA -- 1.9% 282,000 Challenger International Ltd. ..... 495 598,100 National Australia Bank Ltd. ...... 8,352 197,800 Rio Tinto Ltd. .................... 3,134 77,000 The News Corporation Ltd. ......... 584 70,486 The News Corporation Ltd., ADR(a)........................... 2,213 ---------- 14,778 ---------- BELGIUM -- 0.7% 10,425 Dexia.............................. 1,539 106,515 Fortis 'B'......................... 2,801 53,127 Interbrew Strip VVPR++++........... 0 30,008 Interbrew++........................ 769 10,319 RTL Group.......................... 584 ---------- 5,693 ---------- BRAZIL -- 1.0% 271,500 Banco Bradesco SA, ADR(a).......... 1,466 45,000 Companhia Vale do Rio Doce, ADR.... 1,107 52,800 Petroleo Brasileiro SA, ADR(a)..... 1,257 115,000 Petroleo Brasileiro SA-'A', ADR(a)........................... 2,501 75,796 Tele Norte Leste Participacoes SA, ADR.............................. 1,234 26,100 Unibanco Uniao de Bancos Brasileiros SA................... 532 ---------- 8,097 ---------- CANADA -- 2.9% 78,262 Bank of Nova Scotia................ 2,008 200,000 Barrick Gold Corporation........... 2,858 71,400 BCE, Inc........................... 1,607 131,200 Bombardier, Inc. 'B'............... 1,817 93,956 Canada Life Financial Corporation...................... 2,566 35,200 Canadian National Railway Company.......................... 1,329 67,415 Nortel Networks Corporation........ 952 26,400 PanCanadian Petroleum Ltd. ........ 729 62,200 Petro-Canada....................... 1,400 92,700 Royal Bank of Canada............... 2,778 78,295 Sun Life Financial Services of Canada........................... 1,517 56,554 Suncor Energy, Inc. ............... 1,456 77,150 Toronto-Dominion Bank++............ 1,935 ---------- 22,952 ---------- CHINA -- 0.1% 23,100 CNOOC Ltd., ADR++.................. 407 ---------- DENMARK -- 0.3% 91,400 Danske Bank A/S(a)................. 1,450 5,218 Novo Nordisk A/S................... 1,062 ---------- 2,512 ----------
VALUE SHARES (000) ------------------------------------------------------------ FINLAND -- 1.1% 203,544 Nokia Oyj.......................... $ 4,896 159,536 Stora Enso Oyj 'R'................. 1,515 55,722 TietoEnator Oyj(+)................. 1,355 31,742 UPM - Kymmene Oyj.................. 898 ---------- 8,664 ---------- FRANCE -- 11.8% 37,515 Alcatel SA 'A'..................... 1,136 36,046 Alstom............................. 993 111,424 Aventis SA......................... 8,658 30,046 AventisSA.......................... 2,311 27,195 Axa................................ 3,027 63,158 Bouygues SA........................ 2,122 22,276 Carrefour SA....................... 1,217 42,359 Christian Dior SA.................. 1,505 28,812 Compagnie De Saint-Gobain.......... 4,164 90,000 Compagnie Generale des Etablissements Michelin.......... 2,935 39,044 Credit Lyonnais SA................. 1,446 26,748 Danone............................. 3,400 2,241 Essilor International SA........... 644 41,680 France Telecom SA.................. 2,445 153,371 Havas Advertising SA(a)............ 1,852 20,037 L'Oreal SA......................... 1,362 39,423 Lafarge SA......................... 3,485 17,657 Pechiney SA-'A'.................... 764 34,860 Publicis SA........................ 1,063 149,112 Sanofi-Synthelabo SA............... 8,331 12,165 Schneider Electric SA.............. 710 92,460 Societe Generale 'A'............... 5,722 61,539 Societe Television Francaise 1..... 2,113 178,203 Total Fina Elf SA 'B'.............. 24,182 94,561 Usinor SA(a)....................... 1,162 55,000 Vivendi Universal SA............... 3,348 40,909 Vivendi Universal SA, ADR(a)....... 2,481 ---------- 92,578 ---------- GERMANY -- 5.7% 19,516 Allianz AG......................... 5,702 110,000 BASF AG(a)......................... 4,356 117,689 Bayer AG........................... 4,983 27,641 Bayerische Hypo-und Vereinsbank AG............................... 1,503 177,728 Bayerische Motoren Werke AG(a)..... 5,500 22,385 DaimlerChrysler AG (REGD)(a)....... 991 82,385 Deutsche Bank AG (REGD)(a)......... 6,300 66,600 Deutsche Post AG (REGD)++(+)....... 1,175 58,159 Deutsche Telekom AG(a)............. 1,373 24,684 E.On AG............................ 1,178 33,853 Metro AG........................... 1,442 17,878 Muenchener Rueckversicherungs - Gesellschaft AG(+)............... 5,358 12,115 SAP AG............................. 1,387 66,290 SAP AG, ADR(a)..................... 1,921 17,907 Siemens AG......................... 1,852 ---------- 45,021 ---------- HONG KONG -- 2.9% 395,000 Cheung Kong (Holdings) Ltd......... 4,140 1,353,000 China Mobile (HK) Ltd.++........... 5,950 376,000 Hong Kong & China Gas Company Ltd. ............................ 511
SEE NOTES TO FINANCIAL STATEMENTS. 65 70 NATIONS MASTER INVESTMENT TRUST Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ HONG KONG -- (CONTINUED) 356,000 Hong Kong Electric Holdings Limited.......................... $ 1,278 736,128 HSBC Holdings plc (REGD)........... 8,684 149,700 Hutchison Whampoa.................. 1,564 495,000 MTR Corporation Ltd. .............. 803 ---------- 22,930 ---------- HUNGARY -- 0.1% 32,400 Matav, ADR......................... 473 ---------- INDIA -- 0.2% 54,000 ICICI Ltd., ADR.................... 635 70,700 Reliance Industries Ltd., GDR(a)... 1,186 ---------- 1,821 ---------- IRELAND -- 1.5% 109,898 Allied Irish Banks plc............. 1,108 216,897 Bank of Ireland.................... 1,818 75,649 CRH plc, F/P....................... 1,157 302,600 CRH plc............................ 4,654 54,030 Elan Corporation plc++............. 2,914 ---------- 11,651 ---------- ITALY -- 4.6% 38,329 Assicurazioni Generali SpA......... 1,213 56,575 Banca Commerciale Italiana SpA..... 311 63,410 Banca Fideuram SpA................. 630 723,716 Banca Intesa SpA................... 2,777 1,108,928 ENI SpA (REGD)(a).................. 7,254 60,000 ENI SpA, ADR....................... 3,882 15,267 Gucci Group NV(a).................. 1,310 370,932 Olivetti SpA++..................... 712 207,621 San Paolo - IMI SpA................ 2,806 110,329 San Paolo - IMI SpA, ADR(a)........ 2,990 350,524 Telecom Italia Mobile SpA.......... 2,367 794,203 Telecom Italia SpA................. 8,003 337,135 Telecom Italia SpA, RNC............ 1,824 ---------- 36,079 ---------- JAPAN -- 16.0% 8,100 Aiful Corporation.................. 710 334,000 Asahi Bank, Ltd.(a)................ 845 87,000 Asahi Chemical Corporation......... 378 54,000 Asahi Glass Company Ltd. .......... 379 12,800 Asatsu-DK Inc. .................... 284 205,000 CANON Inc. ........................ 7,442 25,700 Capcom Company, Ltd.++............. 734 58,000 Chungai Pharmaceutical Company, Ltd. ............................ 880 81,000 Daiwa Securities++................. 767 124 East Japan Railway Company......... 666 23,000 Eisai Company, Ltd. ............... 573 5,000 Fast Retailing Company Ltd. ....... 830 209,000 Fuji Photo Film Company, Ltd. ..... 7,738 447 Fuji Television Network, Inc. ..... 3,129 22,500 Fujisawa Pharmaceutical Company Ltd.(a).......................... 478 95,800 Fujitsu Ltd. ...................... 1,277 2,500 Fujitsu Support and Service Inc. ............................ 110 390,000 Hitachi, Ltd. ..................... 3,340 68,000 Honda Motor Company Ltd. .......... 2,778 121,000 Ito-Yokado Company, Ltd. .......... 5,870
VALUE SHARES (000) ------------------------------------------------------------ JAPAN -- (CONTINUED) 2 Japan Telecom Company Ltd. ........ $ 36 35,000 Jusco Company, Ltd. ............... 721 14,000 Kao Corporation.................... 353 37,000 Kyocera Corporation................ 3,363 198,000 Marubeni Corporation++............. 354 51,000 Matsushita Electric Industrial Company, Ltd .................... 922 265,000 Mitsubishi Chemical Corporation.... 719 408,000 Mitsubishi Materials Corporation... 925 282 Mizuho Holdings, Inc............... 1,586 15,000 Murata Manufacturing Company, Ltd. ............................ 1,246 67,000 NEC Corporation.................... 1,068 882,000 Nikko Securities Company, Ltd. .... 6,193 35,500 Nintendo Company, Ltd. ............ 5,810 488,000 Nippon Express Company, Ltd. ...... 2,059 420,000 Nippon Steel Corporation........... 697 1,764 Nippon Telegraph and Telephone Corporation...................... 11,260 4,920 Nippon Television Network Corporation...................... 1,531 154,000 Nissan Motor Company, Ltd. ........ 971 192,000 NSK Ltd. .......................... 867 389 NTT DoCoMo, Inc.(+)................ 6,767 24,000 Olympus Optical Company, Ltd. ..... 345 14,000 Omron Corporation.................. 236 15,600 Orix Corporation................... 1,310 3,100 Rohm Company Ltd. ................. 519 85,000 Sankyo Company, Ltd. .............. 1,665 70,000 Sanyo Electric Company, Ltd. ...... 427 12,900 Sanyo Electric Credit Company, Ltd. ............................ 381 18,500 Secom Company Ltd. ................ 1,048 17,000 Seven-Eleven Japan Company, Ltd. ............................ 678 57,700 Sharp Corporation.................. 735 100,000 Shin-Etsu Chemical Company, Ltd. ............................ 3,430 35,000 Shionogi and Company, Ltd. ........ 539 97,000 Shiseido Company, Ltd. ............ 961 200 Softbank Corporation............... 8 111,300 Sony Corporation................... 7,905 700 Sumitomo Corporation............... 4 7,600 Sunkus & Associates Inc. .......... 189 50,000 Takeda Chemical Industries, Ltd. ............................ 2,414 45,000 Takefuji Corporation(+)............ 3,418 55,000 TDK Corporation.................... 3,621 275,000 The Bank of Tokyo - Mitsubishi, Ltd.(a).......................... 2,521 57,000 The Sumitomo Trust & Banking Company, Ltd. ................... 328 51,000 Tokyo Broadcasting System Inc. .... 1,217 22,400 Tokyo Electric Power Company, Inc. ............................ 499 10,800 Tokyo Electron Limited............. 714 57,000 Toshiba Corporation................ 333 89,000 Toyota Motor Corporation........... 3,089 9,000 Trend Micro, Inc.++(a)............. 383 ---------- 125,573 ---------- MEXICO -- 1.3% 95,669 America Movil SA de CV 'L', ADR++............................ 1,402 11,000 Fomento Economico Mexicano SA de C.V., ADR........................ 391
SEE NOTES TO FINANCIAL STATEMENTS. 66 71 NATIONS MASTER INVESTMENT TRUST Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ MEXICO -- (CONTINUED) 36,732 Grupo Televisa SA, ADR++(a)........ $ 1,227 158,169 Telefonos de Mexico SA de CV 'L', ADR.............................. 4,989 85,162 Wal-Mart de Mexico SA de CV, ADR... 1,983 ---------- 9,992 ---------- NETHERLANDS -- 8.2% 307,093 ABN AMRO Holding NV................ 5,628 77,482 Aegon NV........................... 2,285 130,704 Akzo Nobel NV...................... 5,427 38,066 ASM Lithography Holding NV++....... 848 88,093 Fortis (NL) NV..................... 2,311 31,287 Gucci Group NV (REGD)(a)........... 2,617 31,267 Heineken NV........................ 1,639 314,305 ING Groep NV....................... 20,561 262,000 Koninklijke (Royal) Philips Electronics NV................... 7,203 72,656 Koninklijke Ahold NV............... 2,260 93,921 Royal Dutch Petroleum Company++.... 5,230 42,987 TNT Post Group NV++................ 901 125,000 Unilever NV, NY Shares............. 6,580 28,836 Wolters Kluwer NV.................. 726 ---------- 64,216 ---------- PORTUGAL -- 0.7% 214,492 Portugal Telecom, SGPS SA (REGD)... 1,839 410,000 Portugal Telecom, SGPS SA, ADR(a)........................... 3,526 ---------- 5,365 ---------- SINGAPORE -- 0.8% 469,000 Chartered Semiconductor++(a)....... 1,133 260,995 DBS Group Holdings Ltd.(a)......... 2,356 1,001,000 Neptune Orient Lines++............. 715 101,850 Oversea-Chinese Banking Corporation Ltd. ............................ 660 83,000 Singapore Press Holdings, Ltd. .... 910 100,000 Venture Manufacturing (Singapore) Ltd. ............................ 703 ---------- 6,477 ---------- SOUTH AFRICA -- 0.1% 503,100 FirstRand Ltd. .................... 465 ---------- SOUTH KOREA -- 2.2% 61,583 H&CB, ADR(a)....................... 477 402,774 Korea Electric Power Corporation, ADR(a)........................... 3,274 129,163 Korea Telecom Corporation, ADR(a)........................... 2,999 69,474 Pohang Iron & Steel Company Ltd., ADR.............................. 1,247 49,375 Samsung Electronics................ 7,715 81,470 SK Telecom Company Ltd., ADR....... 1,237 ---------- 16,949 ---------- SPAIN -- 3.0% 25,400 Altadis, SA........................ 314 157,369 Banco Bilbao Vizcaya Argentaria SA............................... 2,149 146,329 Banco Popular Espanol SA........... 4,831 358,040 Endesa SA.......................... 5,925
VALUE SHARES (000) ------------------------------------------------------------ SPAIN -- (CONTINUED) 87,215 Iberdrola SA....................... $ 1,240 325,000 Repsol YPF SA, ADR(a).............. 5,779 189,282 Telefonica SA...................... 3,045 ---------- 23,283 ---------- SWEDEN -- 1.2% 187,613 Ericsson AB (LM) 'B'(a)............ 1,027 357,068 Investor AB 'B'(a)................. 4,343 81,893 Sandvik AB(a)...................... 1,499 100,452 Skandia Forsakrings AB(a).......... 900 130,633 Svenska Handelsbanken AB 'A'(a).... 1,880 ---------- 9,649 ---------- SWITZERLAND -- 6.0% 817 Compagnie Financiere Richemont AG 'A'.............................. 1,846 7,142 Credit Suisse Group++.............. 1,264 668 Julius Baer Holding AG 'B'......... 2,999 7,561 Nestle SA (REGD)++................. 15,844 6,997 Novartis AG (REGD)++(a)............ 10,982 164 Roche Holding AG................... 1,188 411 Schweizerische Rueckversicherungs- Gesellschaft (REGD).............. 831 2,001 Serono SA 'B'...................... 1,623 2,645 Swatch Group AG.................... 576 1,772 Swatch Group AG 'B' (REGD)......... 1,853 1,441 Syngenta AG (REGD)++............... 72 4,977 Syngenta AG++...................... 257 10,061 UBS AG (REGD)...................... 1,454 17,652 Zurich Financial Services AG....... 5,829 ---------- 46,618 ---------- TAIWAN -- 0.4% 99,000 Fubon Insurance Company LD, GDR.... 926 140,000 Hon Hai Precision Industry Company, Ltd.............................. 857 341 Taiwan Semiconductor Manufacturing Company Ltd., ADR++(a)........... 7 405,880 Taiwan Semiconductor Manufacturing Company Ltd.++................... 1,094 35,200 United Microelectronics Corporation, ADR++............... 329 ---------- 3,213 ---------- UNITED KINGDOM -- 21.9% 44,355 3i Group plc....................... 708 261,442 Abbey National plc................. 4,178 513,410 Aegis Group plc.................... 916 80,196 Amvescap plc....................... 1,169 12,770 Anglo American plc................. 728 287,079 AstraZeneca plc.................... 13,712 58,000 AstraZeneca plc (REGD)............. 2,760 179,300 BAE Systems plc.................... 800 59,536 Barclays plc....................... 1,858 233,052 BOC Group plc...................... 3,174 1,655,050 BP Amoco plc....................... 13,694 55,000 British Airways plc, ADR........... 2,516 47,527 British Sky Broadcasting Group plc ("BSkyB")++...................... 561 766,002 British Telecommunications plc..... 5,554 104,336 Bunzl plc.......................... 622
SEE NOTES TO FINANCIAL STATEMENTS. 67 72 NATIONS MASTER INVESTMENT TRUST Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001
VALUE SHARES (000) ------------------------------------------------------------ UNITED KINGDOM -- (CONTINUED) 244,773 Cable & Wireless plc............... $ 1,653 131,679 Capita Group plc................... 895 264,535 Carlton Communications plc......... 1,474 458,933 Centrica plc....................... 1,546 118,490 CGNU plc........................... 1,633 38,314 Colt Telecom Group plc++........... 400 758,353 Compass Group plc++................ 5,412 210,000 Corus Group plc, ADR(a)............ 1,829 82,894 Daily Mail and General Trust 'A' NV............................... 854 707,801 Diageo plc......................... 7,114 58,196 Exel plc........................... 695 694,908 Glaxosmithkline plc++.............. 18,187 875,670 Granada plc(+)..................... 2,157 66,875 GWR Group plc...................... 405 231,740 Hays plc........................... 933 233,787 HSBC Holdings plc.................. 2,805 62,400 Imperial Chemical Industries plc... 381 371,600 Invensys plc....................... 708 242,295 Kingfisher plc..................... 1,567 965,000 Marks & Spencer plc................ 3,650 199,889 Misys plc.......................... 1,432 216,053 National Grid Group plc............ 1,670 42,092 Pearson plc........................ 736 300,000 PowerGen plc....................... 3,049 80,474 Prudential plc..................... 861 135,406 Rio Tinto plc (REGD)............... 2,358 345,791 Rolls-Royce plc.................... 1,074 201,384 Royal Bank of Scotland............. 4,578 904,833 Scottish Power plc................. 6,021 106,022 Severn Trent plc................... 1,047 2,171,805 ShellTransport and Trading Company plc.............................. 16,796 71,000 Smith and Nephew plc............... 310 111,447 Smiths Group plc................... 1,223 137,320 Spirent plc........................ 693 985,730 Tesco plc.......................... 3,517 118,353 Unilever plc....................... 854 152,300 United Business Media plc.......... 1,392 4,904,302 Vodafone Group plc................. 13,456 276,551 WPP Group plc...................... 2,938 ---------- 171,253 ---------- TOTAL COMMON STOCKS (Cost $816,061).................. 758,058 ---------- PREFERRED STOCKS -- 0.4% BRAZIL -- 0.1% 35,700 Companhia de Bebidas das Americas, Preferred ADR.................... 834 ---------- GERMANY -- 0.2% 24,166 ProSieben Sat.1 Media AG........... 417 13,355 SAP AG............................. 1,536 ---------- 1,953 ---------- JAPAN -- 0.1% 29,300 Tokyo Broadcasting Company, ADR(+)........................... 738 ---------- NETHERLANDS -- 0.0%+ 3,100 Unilever NV, Cum. Pfd.............. 15 ---------- TOTAL PREFERRED STOCKS (Cost $4,743).................... 3,540 ----------
VALUE SHARES (000) ------------------------------------------------------------ WARRANTS -- 0.0%+ (Cost $280) JAPAN -- 0.0%+ 8,000 Tokyo Broadcasting Company(+)...... $ 202 ---------- SHARES (000) --------- INVESTMENT COMPANIES -- 11.6% (Cost $90,538) 90,538 Nations Cash Reserves#............. 90,538 ---------- TOTAL INVESTMENTS (Cost $911,622*).......... 108.8% 852,338 ---------- OTHER ASSETS AND LIABILITIES (NET)......... (8.8)% Cash............................... 3,051 Cash deposit with broker as collateral for futures contract......................... 243 Receivable for investment securities sold............................. 11,247 Dividends receivable............... 3,099 Interest receivable................ 135 Variation margin/due to broker..... (18) Collateral on securities loaned.... (82,619) Investment advisory fee payable.... (568) Administration fee payable......... (35) Payable for investment securities purchased........................ (3,662) Accrued Trustees' fees and expenses......................... (11) Accrued expenses and other liabilities...................... (93) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................ (69,231) ---------- NET ASSETS.................. 100.0% $ 783,107 ==========
--------------- * Federal Income Tax Information: Net unrealized depreciation of $69,498 on investment securities was comprised of gross appreciation of $29,999 and gross depreciation of $99,497 for federal income tax purposes. At March 31, 2001, the aggregate cost of securities for federal income tax purposes was $921,836. (+) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ++ Non-income producing security. + Amount represents less than 0.1%. ++ Amount represents less than $500. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, Inc. A portion of this amount represents cash collateral received from securities lending activity (Note 6). The portion that represents cash collateral is $82,619. (a) All or a portion of security was on loan at March 31, 2001. The aggregate cost and market value of securities on loan at March 31, 2001 is $86,518 and $78,172, respectively. ADR -- American Depository Receipt GDR -- Global Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. 68 73 NATIONS MASTER INVESTMENT TRUST Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2001 At March 31, 2001, sector diversification was as follows: % OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) -------------------------------------------------------------------------------------------------- Common stocks: Commercial banking.......................................... 12.0% $ 94,234 Telecommunications services................................. 10.8 84,917 Integrated oil.............................................. 10.8 84,567 Pharmaceuticals............................................. 10.0 78,277 Finance -- Miscellaneous.................................... 4.6 36,278 Food products............................................... 4.5 35,609 Insurance................................................... 4.1 31,787 Electronics................................................. 2.7 20,855 Electric power -- Non nuclear............................... 2.4 18,691 Chemicals -- Basic.......................................... 2.3 18,321 Automotive.................................................. 2.1 16,264 Broadcasting and cable...................................... 1.9 15,038 Leisure..................................................... 1.7 13,548 Computers and office equipment.............................. 1.6 12,340 Conglomerates............................................... 1.5 11,753 Publishing and advertising.................................. 1.5 11,671 Semiconductors.............................................. 1.5 11,511 Construction................................................ 1.5 11,418 Metals and mining........................................... 1.4 11,110 Beverages................................................... 1.3 9,913 Other....................................................... 16.5 129,956 ---------- ------------- TOTAL COMMON STOCKS......................................... 96.7 758,058 PREFERRED STOCKS............................................ 0.5 3,540 WARRANTS.................................................... 0.0+ 202 INVESTMENT COMPANIES........................................ 11.6 90,538 ---------- ------------- TOTAL INVESTMENTS........................................... 108.8 852,338 OTHER ASSETS AND LIABILITIES (NET).......................... (8.8)% (69,231) ---------- ------------- NET ASSETS.................................................. 100.0% $ 783,107 ---------- ------------- ---------- -------------
--------------- + Amount represents less than 0.1% SEE NOTES TO FINANCIAL STATEMENTS. 69 74 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF OPERATIONS For the year ended March 31, 2001 INTERNATIONAL INTERNATIONAL VALUE EQUITY MASTER PORTFOLIO MASTER PORTFOLIO ---------------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $3,154 and $1,957, respectively)..................................... $ 33,406 $ 16,591 Interest.................................................... 3,273 2,576 Securities lending.......................................... 2,782 406 ------------------- ------------------- Total investment income................................. 39,461 19,573 ------------------- ------------------- EXPENSES: Investment advisory fee..................................... 11,718 7,606 Administration fee.......................................... 651 475 Custodian fees.............................................. 125 478 Legal and audit fees........................................ 41 54 Trustees' fees and expenses................................. 18 18 Interest expense............................................ 37 93 Other....................................................... 107 124 ------------------- ------------------- Total expenses.......................................... 12,697 8,848 Fees waived by investment advisor........................... (1,302) -- Fees reduced by credits allowed by the custodian............ (66) -- ------------------- ------------------- Net expenses............................................ 11,329 8,848 ------------------- ------------------- NET INVESTMENT INCOME....................................... 28,132 10,725 ------------------- ------------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss) from: Security transactions..................................... 34,111 (26,647) Futures contracts......................................... -- (3,467) Forward foreign exchange contracts, foreign currencies and other net assets........................................ (61) (811) ------------------- ------------------- Net realized gain/(loss) on investments..................... 34,050 (30,925) ------------------- ------------------- Change in unrealized appreciation/(depreciation) of: Securities................................................ (112,357) (245,951) Futures contracts......................................... -- 54 Forward foreign exchange contracts, foreign currencies and other net assets........................................ (55) (103) ------------------- ------------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (112,412) (246,000) ------------------- ------------------- Net realized and unrealized gain/(loss) on investments...... (78,362) (276,925) ------------------- ------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ (50,230) $ (266,200) =================== ===================
SEE NOTES TO FINANCIAL STATEMENTS. 70 75 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF CHANGES IN NET ASSETS International Value International Equity Master Portfolio Master Portfolio --------------------------------- --------------------------------- YEAR ENDED PERIOD ENDED Year ended PERIOD ENDED 3/31/01 3/31/00(a) 3/31/01 3/31/00(b) ----------------------------------------------------------------- (IN THOUSANDS) Net investment income............................... $ 28,132 $ 6,583 $ 10,725 $ 406 Net realized gain/(loss) on investments............. 34,050 63,750 (30,925) 90,616 Net change in unrealized appreciation/(depreciation) of investments.................................... (112,412) 39,265 (246,000) 105,272 -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations........................................ (50,230) 109,598 (266,200) 196,294 Contributions....................................... 2,266,519 1,096,010 3,172,103 1,587,782 Withdrawals......................................... (1,302,473) (349,512) (3,051,242) (855,630) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets............... 913,816 856,096 (145,339) 928,446 NET ASSETS: Beginning of period................................. 856,096 -- 928,446 -- -------------- -------------- -------------- -------------- End of period....................................... $ 1,769,912 $ 856,096 $ 783,107 $ 928,446 ============== ============== ============== ==============
SUPPLEMENTARY DATA
WITHOUT WAIVERS RATIO OF AND/OR EXPENSE OPERATING REIMBURSEMENTS EXPENSES --------------- RATIO OF INCLUDING RATIO OF NET RATIO OF OPERATING INTEREST INVESTMENT OPERATING EXPENSES EXPENSE INCOME/(LOSS) PORTFOLIO EXPENSES TO TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER AVERAGE NET ASSETS NET ASSETS NET ASSETS RATE NET ASSETS --------------------------------------------------------------------- INTERNATIONAL VALUE MASTER PORTFOLIO: Year ended 3/31/2001...................... 0.87%(c) (d) 2.16% 14% 0.97%(c) Period ended 3/31/2000(a)................. 0.88+ -- 2.31+ 22 0.98+ INTERNATIONAL EQUITY MASTER PORTFOLIO: Year ended 3/31/2001...................... 0.92% 0.93% 1.13% 92% 0.93% Period ended 3/31/2000(b)................. 0.92+ 0.94+ 0.10+ 48 0.94+
--------------- + Annualized. (a) International Value Master Portfolio commenced operations on October 18, 1999. (b) International Equity Master Portfolio commenced operations on October 8, 1999. (c) The effect of the custodial expense offset (Note 2) 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%. SEE NOTES TO FINANCIAL STATEMENTS. 71 76 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS Nations Master Investment Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. At March 31, 2001, the Trust offered ten separate portfolios. These financial statements pertain only to International Value Master Portfolio and International Equity Master Portfolio (each a "Master Portfolio" and collectively, the "Master Portfolios"). Financial statements for the other portfolios of the Trust are presented under separate cover. The following investors were invested in the Master Portfolios at March 31, 2001: International Value Master Portfolio: Nations International Value Fund.............. 91.9% Nations International Value Fund (Offshore)... 1.8% Banc of America Capital Management Funds VII - International Value Fund.................... 6.3% International Equity Master Portfolio: Nations International Equity Fund............. 99.8% Nations International Equity Fund (Offshore).................................. 0.2%
1. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Master Portfolios in the preparation of their financial statements. Securities valuation: Securities traded on a recognized exchange or on NASDAQ are valued at the last sale price on the exchange or market on which such securities are primarily traded. Securities traded only over-the-counter are valued at the last sale price, or if no sale occurred on such day, at the mean of the current bid and asked prices. Debt securities are generally valued by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate, maturity and general market conditions. Restricted securities, securities for which market quotations are not readily available, and certain other assets may be valued under procedures adopted by the Board of Trustees. Short-term investments that mature in 60 days or less are valued at amortized cost, which approximates current market value. Futures contracts: A Master Portfolio may invest in futures contracts. Upon entering into a futures contract, a Master Portfolio is required to deposit with the broker and amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Master Portfolio each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect the market value of the contract. When the contract is closed, a Master Portfolio records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts, that a change in the value of the contract may not correlate with a change in the value of the underlying securities, or that the counterparty to a contract may default on its obligation to perform. Foreign currency exchanges: The books and records of the Master Portfolios are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are exchanged into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are exchanged on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of a Master Portfolio and the amounts actually received. The effects of changes in foreign currency exchange rates on securities are not separately identified in the Statements of operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on securities. Forward foreign currency transactions: Generally, each Master Portfolio may enter into forward currency exchange contracts only under two circumstances: (i) when a Master Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, to "lock in" the U.S. exchange rate of the transaction, with such period being a short-dated contract covering 72 77 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) the period between transaction date and settlement date; or (ii) when the investment adviser or sub-adviser believes that the currency of a particular foreign country may experience a substantial movement against the U.S. dollar. Forward foreign currency contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by a Master Portfolio as an unrealized gain or loss. When the contract is closed or offset with the same counterparty, a Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or offset. Forward foreign currency contracts will be used primarily to protect the Master Portfolio from adverse currency movements and will generally not be entered into for terms greater than one year. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of a Master Portfolio's investment securities; however, it does establish a rate of exchange that can be achieved in the future. The use of forward foreign currency contracts involves the risk that anticipated currency movements will not be accurately predicted. A forward foreign currency contract would limit the risk of loss due to decline in the value of a particular currency; however, it also would limit any potential gain that might result should the value of the currency increase instead of decrease. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Statements of net assets. In addition, the Master Portfolios could be exposed to risks if counterparties to the contracts are unable to meet the terms of their contracts. The counterparty risk exposure is, therefore, closely monitored and contracts are only executed with high credit quality financial institutions. The Funds had no forward foreign currency contracts outstanding at March 31, 2001. Securities transactions and investment income: Securities transactions are recorded on trade date. Realized gains and losses are computed based on the specific identification of securities sold. Interest income, adjusted for accretion of discounts and amortization of premiums, is earned from settlement date and recorded on an accrual basis. Dividend income is recorded on ex- dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Master Portfolios are informed of the ex-dividend date. Federal income taxes: The Master Portfolios are treated as partnerships for federal income tax purposes and therefore are not subject to federal income tax. Each investor in the Master Portfolios will be subject to taxation on its allocated share of the Master Portfolio's ordinary income and capital gains. Expenses: General expenses of the Trust are allocated to the Master Portfolios based upon their relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to a Master Portfolio are charged to such Portfolio. The Master Portfolios may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Master Portfolios will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. 2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED PARTY TRANSACTIONS The Trust has entered into an investment advisory agreement (the "Investment Advisory Agreement") with Banc of America Advisors, Inc. ("BAAI"), a wholly- owned subsidiary of Bank of America, N.A. ("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, pursuant to which BAAI provides investment advisory services to the Master Portfolios. Under the terms of the Investment Advisory Agreement, BAAI is entitled to receive an advisory fee, calculated daily and payable monthly, based on the following annual rates multiplied by the average daily net assets of each Master Portfolio:
ANNUAL RATE ----------- International Value Master Portfolio........................ 0.90% International Equity Master Portfolio........................ 0.80%
The Trust has, on behalf on the International Value Master Portfolio, entered into a sub-advisory agreement with BAAI and Brandes Investment Partners, L.P. ("Brandes"), pursuant to which Brandes is entitled to receive a sub-advisory fee from BAAI at the maximum annual rate of 0.50% of the Master Portfolio's average daily net assets. The International Equity Master Portfolio is a "multi-manager" fund, which means that it is managed by more than one sub-adviser. Gartmore Global Partners ("Gartmore"), INVESCO Global Asset Management (N.A.), Inc. ("INVESCO") and Putnam Investment 73 78 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Management, Inc. ("Putnam") each manage approximately one-third of the assets of the Master Portfolio. Pursuant to the sub-advisory agreement, Gartmore, INVESCO and Putnam are entitled to receive a fee from BAAI at the maximum annual rate of 0.65% of the first $60 million, 0.55% of the next $130 million, 0.45% of the next $200 million and 0.40% over $390 million of the Master Portfolios' average daily net assets under management. Prior to May 15, 2000, Gartmore received a sub-advisory fee from BAAI at the maximum annual rate of 0.70% of the Fund's average daily net assets. During the year ended March 31, 2001 and until July 31, 2001, BAAI agreed to waive 0.10% of International Value Master Portfolio's advisory fee. Stephens Inc. ("Stephens") and BAAI serve as co-administrators of the Trust. Under the co-administration agreements, Stephens and BAAI are currently entitled to receive a combined fee, computed daily and paid monthly, at the maximum annual rate of 0.05% of each Master Portfolio's average daily net assets. The Bank of New York ("BNY") serves as sub-administrator of the Trust pursuant to an agreement with BAAI. For the year ended March 31, 2001, BAAI earned 0.05% from the average daily net assets of the Master Portfolios for its co-administration services. BNY serves as the custodian of the Trust's assets. For the year ended March 31, 2001, expenses of the Master Portfolios were reduced by $65,800 under expense offset arrangements with BNY. The Master Portfolios could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if they had not entered into such arrangements. No officer, director or employee of Bank of America or BAAI, or any affiliate thereof, receives any compensation from the Trust for serving as a Trustee or officer of the Trust. The Trust's eligible Trustees may participate in non-qualified deferred compensation and retirement plans which may be terminated at any time. All benefits provided under these plans are unfunded and any payments to plan participants are paid solely out of the Master Portfolios' assets. Income earned on each plan participant's deferral account is based on the rate of return of the eligible mutual funds selected by the participants or, if no funds are selected, on the rate of return of Nations Treasury Fund, a portfolio of Nations Fund, Inc., another registered investment company in the Nations Funds family. The expense for the deferred compensation and retirement plans is included in "Trustees' fees and expenses" in the Statements of operations. The Master Portfolios have made daily investments of cash balances in the Nations Cash Reserves, a portfolio of Nations Reserves, pursuant to an exemptive order received from the Securities and Exchange Commission. For the year ended March 31, 2001, the Master Portfolios earned $5,611,766 in the aggregate from such investments, which is included in interest income. 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government securities and short-term investments, for the year ended March 31, 2001 were as follows:
PURCHASES SALES (000) (000) ------------------------------------------------------ International Value Master Portfolio................... $1,112,209 $171,259 International Equity Master Portfolio................... 944,062 824,545
There were no purchases and sales of long-term U.S. government securities for the year ended March 31, 2001. 4. FUTURES CONTRACTS At March 31, 2001, the following Master Portfolio had futures contracts open:
VALUE OF CONTRACT MARKET VALUE OF UNREALIZED NUMBER OF WHEN OPENED CONTRACTS APPRECIATION DESCRIPTION CONTRACTS (000) (000) (000) ------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY MASTER PORTFOLIO: Topix Index Futures (long position) expiring June 2001(a).................................. 37 $3,704 $3,758 $54
--------------- (a) Cash has been segregated as collateral for the International Equity Master Portfolio for open futures contracts. 74 79 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. LINES OF CREDIT The Trust participates with other Nations Funds in an uncommitted line of credit provided by BNY 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 a specified Federal Funds rate plus 0.50% on an annualized basis. Each participating Master Portfolio maintains a ratio of net assets (not including funds borrowed pursuant to the Agreement) to the aggregate amount of indebtedness pursuant to the Agreement of no less than 4 to 1. At March 31, 2001, there were no loans outstanding under this Agreement. For the year ended March 31, 2001, borrowings by the Master Portfolios under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST (000) RATE ------------------------------------------------------------ International Value Master Portfolio........................ $ 614 5.96% International Equity Master Portfolio........................ 1,357 6.58%
The average amount outstanding was calculated based on daily balances in the period. The Trust also participated with other Nations Funds in a committed line of credit provided by BNY that was terminated on December 7, 2000. Interest on borrowings under the committed line was payable at a specified Federal Funds rate plus 0.50% on an annualized basis. A facility fee of 0.09% per annum of the total amounts available under the line of credit was charged, of which each Master Portfolio paid its pro rata share. This fee was paid quarterly in arrears. Each participating Master Portfolio was required to maintain an asset coverage ration of at least 300% under the terms of the arrangement. For the period ended December 7, 2000, there were no borrowings by the Master Portfolios under the committed line of credit. 6. SECURITIES LENDING Under an agreement with BNY, the Master Portfolios can lend their securities to approved brokers, dealers and other financial institutions. Loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The cash collateral received is invested in Nations Cash Reserves. A portion of the income generated by the investment of the collateral, net of any rebates paid by BNY to borrowers, is remitted to BNY as lending agent, and the remainder is paid to the Master Portfolios. Generally, in the event of counterparty default, the Master Portfolio has the right to use the collateral to offset losses incurred. There would be a potential loss to the Master Portfolio in the event the Master Portfolio is delayed or prevented from exercising its right to dispose of the collateral. The Master Portfolio bears the risk of loss with respect to the investment of collateral. At March 31, 2001, the following Master Portfolios had securities on loan:
MARKET VALUE OF LOANED MARKET VALUE OF SECURITIES COLLATERAL (000) (000) -------------------------------------------------------------- International Value Master Portfolio............... $612,007 $653,337 International Equity Master Portfolio........ 78,172 82,619
75 80 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. REORGANIZATIONS CONVERSION OF COMMON TRUST FUNDS On May 12, 2000, the International Equity Fund (the "Acquiring Fund"), acquired the assets of Boatmen's Trust Company International Equity Fund, a common trust fund, managed by Bank of America, (the "Acquired Fund"), in a tax-free exchange for shares of the Acquiring Fund. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity of the International Equity Fund. The Acquiring Fund contributed the securities and other assets to the International Equity Master Portfolio for an interest in the Portfolios. Net assets and unrealized appreciation as of the conversion date were as follows:
TOTAL NET ASSETS TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND OF ACQUIRED FUND OF ACQUIRING FUND AFTER CONVERSION UNREALIZED APPRECIATION (000) (000) (000) (000) ---------------------------------------------------------------------------------- $29,129 $868,368 $897,497 $5,808
On September 8, 2000, the International Equity Fund (the "Acquiring Fund"), acquired the assets and assumed the liabilities of Nations International Growth Fund (the "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity of the International Equity Fund. The Acquiring Fund contributed the securities and other assets to the International Equity Master Portfolio for an interest in the Portfolios. Net assets and unrealized appreciation as of the reorganization date were as follows:
TOTAL NET ASSETS TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION UNREALIZED APPRECIATION (000) (000) (000) (000) ---------------------------------------------------------------------------------- $38,052 $1,023,391 $1,061,443 $8,750
8. SUBSEQUENT EVENT On April 5, 2001, BAAI reorganized into a successor entity named Banc of America Advisors, LLC. The successor entity is organized as a limited liability company under the laws of the State of North Carolina. 76 81 NATIONS MASTER INVESTMENT TRUST REPORT OF INDEPENDENT ACCOUNTANTS TO THE INVESTORS AND TRUSTEES OF NATIONS MASTER INVESTMENT TRUST In our opinion, the accompanying statements of net assets, and the related statements of operations and of changes in net assets and the supplementary data present fairly, in all material respects, the financial position of Nations International Value Master Portfolio and Nations International Equity Master Portfolio (portfolios of Nations Master Investment Trust, hereafter referred to as the "Portfolios") at March 31, 2001, and the results of each of their operations, the changes in each of their net assets and the supplementary data for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and supplementary data (hereafter referred to as "financial statements") are the responsibility of the Portfolios' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2001 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York May 16, 2001 77 82 THE NATIONS FUNDS FAMILY OF FUNDS A spectrum of fund choices for building a total asset-allocation strategy LOWER RISK/REWARD POTENTIAL MONEY MARKET FUNDS Nations Prime Fund Nations Cash Reserves Nations Money Market Reserves Nations Government Money Market Fund Nations Government Reserves Nations Treasury Fund Nations Treasury Reserves Nations Tax Exempt Fund Nations Municipal Reserves Nations California Tax-Exempt Reserves FIXED INCOME FUNDS INCOME FUNDS Nations High Yield Bond Fund Nations Strategic Income Fund Nations U.S. Government Bond Fund Nations Government Securities Fund Nations Bond Fund Nations Intermediate Bond Fund Nations Short-Intermediate Government Fund Nations Short-Term Income Fund TAX-EXEMPT INCOME FUNDS Nations Municipal Income Fund Nations State-Specific Long-Term Municipal Bond Funds (CA, FL, GA, KS, MD, NC, SC, TN, TX, VA) Nations Intermediate Municipal Bond Fund Nations State-Specific Intermediate Municipal Bond Funds (FL, GA, MD, NC, SC, TN, TX, VA) Nations Short-Term Municipal Income Fund EQUITY FUNDS GROWTH FUNDS Nations Financial Services Fund Nations Small Company Fund Nations Marsico 21st Century Fund Nations MidCap Growth Fund Nations Marsico Focused Equities Fund Nations Aggressive Growth Fund Nations Capital Growth Fund Nations Strategic Growth Fund Nations Blue Chip Fund GROWTH AND INCOME FUNDS Nations Marsico Growth & Income Fund Nations Value Fund Nations Classic Value Fund Nations Equity Income Fund Nations Asset Allocation Fund Nations Balanced Assets Fund Nations Convertible Securities Fund INTERNATIONAL/GLOBAL FUNDS Nations Emerging Markets Fund Nations Marsico International Opportunities Fund Nations International Equity Fund Nations International Value Fund Nations Global Value Fund HIGHER RISK/REWARD POTENTIAL INDEX FUNDS Nations Managed Index Fund Nations LargeCap Index Fund Nations MidCap Index Fund Nations SmallCap Index Fund ASSET ALLOCATION PORTFOLIOS Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Growth Portfolio Nations LifeGoal Income and Growth Portfolio INTSTKAR (3/01)