N-30D 1 g75300nv30d.txt INSTITUTIONAL RESERVES / NATIONS INTERNATIONAL Nations Global Value Fund Nations International Value Fund Nations International Equity Fund INTERNATIONAL/GLOBAL STOCK FUNDS Nations Marsico ---------------------------------- International Opportunities Annual report for the year ended Fund March 31, 2002 Nations Emerging Markets Fund [NATIONS FUNDS LOGO] 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 Corporation, 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, LLC. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE PRESIDENTS' MESSAGE Dear Shareholder: The 12-month period ending March 31, 2002 marked a year of remarkable volatility, uncertainty and change in the markets. The tragic events of September 11, 2001 -- a terrorist attack of unspeakable magnitude -- shocked the United States and the world, sending markets worldwide into a short-term free fall. These events helped push the already fragile U.S. economy into recession for the first time after almost a decade of uninterrupted economic growth. The debacle of Enron and new concerns about corporate accounting also caused growing investor uncertainty. To aid the sagging economy and begin the recovery process from recession, the Federal Reserve Board cut interest rates a record eight times during this reporting period, bringing them to their lowest level in nearly 40 years. For the 12-month period, 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(1) -- had modest, positive returns. Bond results for the same period, represented by the Lehman Aggregate Bond Index(2), were more muted than the prior 12-month period. Since the start of the year 2002, however, many economic indicators suggest we may be well along the path to recovery. The growth rate of the Gross Domestic Product, for example, increased from 1.7% for the fourth quarter of 2001 to 5.8% for first quarter of 2002, the fastest growth rate in more than two years. OPPORTUNITIES ABOUND One strongly advised investment approach, we believe, is to remain focused on long-term investment goals and not on short-term profits or losses. Investors who see the potential in "buying low" and "selling high" may also see the opportunities that a down or volatile market may present. In our view, now may be a good time to capture value by buying -- at a discount -- stocks or bonds of some of the most widely regarded companies. During these volatile times, buying small-, mid-cap and value prospects, in our view, may be an opportunity to acquire some respected companies at a discount, and corporate bonds appear particularly attractive as credit spreads relative to Treasuries narrow. DIVERSIFICATION AND DISCIPLINE These past two years could not have provided a more vivid example of the importance of having a diversified investment strategy. We believe that a carefully selected portfolio of stocks and bonds is a sensible way to reduce some of the risk associated with investing, particularly during uncertain times. It takes discipline to weather market uncertainty. It may be wise for you to meet with your investment professional to review your long-term financial goals, not just during volatile times, but on a more regular, disciplined basis. --------------- (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 unmanaged index 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. The indices are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. (2)The Lehman Aggregate Bond Index is an unmanaged index made up of the Lehman Government/ Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index and includes U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. Source for all statistical data -- Banc of America Capital Management, LLC PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRESIDENTS' MESSAGE CONTINUED... OUR NEAR-TERM OUTLOOK While the U.S. economy suffered its first downturn in a decade, we look for more positive signs from economic indicators in the coming months, which may provide a favorable backdrop for longer-term equity returns. Interest rates seem to have stabilized, inflation is quiescent and manufacturing data is looking better. We remain cautious, however, realizing that a number of risks could impact the markets, such as the continued war on terrorism, escalating conflict within the Middle East or an increase in oil prices, which has historically been a major contributing factor to the state of global economic conditions. We also continue to look for opportunities on the fixed-income side. With the improving economy, declining default rates and wider spreads, we believe high-yield and corporate bonds may look favorable. INSIGHTS AND ANALYSIS Please read through your annual report to see what your Nations Funds portfolio managers have to say about the markets, the economy and how your investment has fared over the past 12 months. Should you have any questions or comments on your annual report, please contact your investment professional or call us at 1.800.321.7854. If you do not have an investment professional and would like us to put you in contact with one, just let us know. You can visit us online anytime at www.nationsfunds.com for the most current performance and other information about your fund. 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, LLC March 31, 2002 TABLE OF CONTENTS INTERNATIONAL MARKET OVERVIEW 3 PORTFOLIO COMMENTARY Nations Global Value Fund 5 Nations International Value Fund 11 Nations International Equity Fund 17 Nations Marsico International Opportunities Fund 22 Nations Emerging Markets Fund 27 FINANCIAL STATEMENTS Statements of net assets 32 Statements of operations 44 Statements of changes in net assets 46 Schedules of capital stock activity 48 Financial highlights 54 Notes to financial statements 64 Tax information 73 Statements of net assets -- Nations Master Investment Trust 75 Nations International Value Master Portfolio 75 Nations International Equity Master Portfolio 78 Statements of operations 83 Statements of changes in net assets 84 Financial highlights 84 Notes to financial statements 85 Fund governance 91
NATIONS FUNDS [DALBAR LOGO] RECOGNIZED FOR OUTSTANDING DALBAR, Inc. is a well-respected SHAREHOLDER AND research firm that measures INTERMEDIARY SERVICE customer service levels and establishes benchmarks in the IN RECOGNITION OF ITS COMMITMENT financial services industry. TO PROVIDE SHAREHOLDERS AND INVESTMENT PROFESSIONALS WITH THE HIGHEST LEVEL OF SERVICE IN THE MUTUAL FUND INDUSTRY, NATIONS FUNDS RECEIVED THE DALBAR MUTUAL FUND SERVICE AWARD AND THE DALBAR KEY HONORS AWARD IN 2001.
[This page intentionally left blank.] INTERNATIONAL MARKET OVERVIEW MARSICO CAPITAL MANAGEMENT, LLC Even with the benefit of hindsight, it sometimes can be difficult for us to reflect on certain periods of time and offer shareholders conclusive commentary as to why international equity markets traded in a certain way, why certain industries provided market leadership and why others lagged. The past year was no exception. To be sure, there were abundant challenges facing investors at a company-specific level. At the forefront were profit- and accounting-related issues that buffeted many companies. And, while the world economy showed some signs of revival, the potential magnitude of a recovery remained difficult to discern, which in turn sparked questions about the timing and degree of a corporate profit recovery. The fallout from Enron's collapse has been extensive, even outside the U.S. Large conglomerates such as Tyco International and General Electric, among others, were under pressure during the past quarter due to concerns about their accounting practices. This concern also affected non-U.S. companies like Elan Pharmaceuticals, a drug company headquartered in Ireland, that saw its stock price tumble in the wake of questions about the firm's accounting. At a more "macro" level, the situation appears similarly complex. With only seven months having passed since the terrorist attacks on the World Trade Center and the Pentagon, war continuing in Afghanistan, dramatically escalated violence in the Middle East, and persistent questions regarding both the speed and magnitude of a global economic recovery, there clearly remain many challenges to world equity investors. The possibility of another major shock to the capital markets -- perhaps in the form of further terrorist attacks, bioterrorism outbreaks, and/or heightened military conflict in numerous regions of the world -- should not, in our view, be overlooked or discounted. Two major topics our investment team has been discussing relate to future economic growth, particularly catalysts for more buoyant economic activity, and areas of innovation (sometimes referred to as "the next big thing") that could offer attractive investment potential. Our opinion is that the technology and telecommunications industries, in contrast to the 1990s, appear unlikely to serve as leaders in terms of sparking economic growth -- at least for the foreseeable future. We believe, instead, that an improved world economy will be largely influenced by the consumer and possibly by inventory corrections in some economic sectors. While the concept of a "New Economy" has obviously come under fire with the sell-off of many technology stocks over the past two years, we think there are some merits to the notion that technology has altered some aspects of global economic activity. We believe the Internet has been a major catalyst towards creating an information society and that technology has contributed materially to important medical advancements, more productive work forces and more efficient economies. However, we would also submit there is little question that many claims about the Internet's potential, both technological and ideological, were almost amusingly over-hyped, with e-commerce and the "virtual company" perhaps being the poster children for speculative excess that abounded in many technology-related areas. We believe the resiliency of stock prices in a variety of areas -- including the consumer discretionary, consumer staples, select health care and financial services sectors -- could demonstrate that good long-term investment opportunities are available for investors. From a macroeconomic perspective, our view is that there are a number of encouraging factors that create a favorable backdrop for equity PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 3 INTERNATIONAL MARKET OVERVIEW CONTINUED... markets. Interest rates remain low. Inflation continues to be quiescent and may, in fact, decelerate in the future. While we readily acknowledge that there continue to be abundant crosscurrents in the economy to contend with, as well as geopolitical risk, on balance we think the overall macroeconomic outlook is quite good. THOMAS F. MARSICO CHAIRMAN AND CHIEF EXECUTIVE OFFICER MARSICO CAPITAL MANAGEMENT, LLC March 31, 2002 4 NATIONS GLOBAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY* 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 domestic and foreign issuers, including issuers in emerging markets countries. PERFORMANCE REVIEW For the period from the Fund's inception on April 16, 2001 through March 31, 2002, Nations Global Value Fund Investor A Shares provided shareholders with a total return of 4.92%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS GLOBAL VALUE FUND'S PERFORMANCE FOR THE PERIOD FROM INCEPTION TO MARCH 31, 2002 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Global Value Fund is managed using a Graham-and-Dodd value discipline to select equities worldwide. We search globally on a company-by-company basis seeking stocks that are trading (often for irrational reasons) at a discount to what we believe is their intrinsic value. Our focus is on the creation of long-term capital appreciation. Therefore, when we purchase stocks, we plan to hold them for three to five years to allow them to achieve what we believe is their intrinsic value. Our focus on individual security selection -- also known as "bottom-up" research and analysis -- drives our 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 often reflect investors' overreaction to short-term events. We believe that over time the market will recognize the underlying value of the stocks we hold and their prices will rise. We believe that by purchasing stocks at discounts from what we believe is their long-term value, a margin of safety against price declines is created, thus reducing risk while providing the opportunity for capital appreciation. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED SINCE THE FUND'S INCEPTION? The Nations Global Value Fund (Investor A Shares) delivered solid gains since its inception on April 16, 2001 through March 31, 2002, returning 4.92% versus -10.37% for the Morgan Stanley Capital International (MSCI) World Index*** for the same period. --------------- *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. ***The Morgan Stanley Capital International (MSCI) World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Source for all statistical data -- Brandes Investment Partners, L.P. 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. 5 NATIONS GLOBAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued A number of factors contributed to a tenuous environment among developed, non-U.S. markets during the reporting period, including: - mixed reports regarding economic strength - evidence of declining corporate profits - weak consumer confidence - eroding investor sentiment following the terrorist attacks in the U.S. While evidence of economic strengthening bolstered investor confidence and lifted share prices slightly in the first quarter of 2002, the minimal gains in the first three months of the new year did not offset the market's loss incurred over the previous nine months. On several occasions, central banks around the world lowered interest rates during the period with the hope of reviving languishing economies. But for the most part, interest rate cuts failed to show significant signs of reversing slumping economies or reversing declines among global stock markets -- that is, until the first quarter of 2002. Just one day after analysts believed the U.S. Federal Reserve Board laid the foundation for possible future rate hikes in the U.S., the European Central Bank also shifted its tone toward the potential for future tightening. "Risks to price stability to both sides for the time being cannot be identified, but if any, then they are on the upward side and not on the downward side," said Otmar Issing, the European Central Bank's chief economist, according to a recent article in The Wall Street Journal. Reflecting economic strength in the United Kingdom, the Purchasing Managers Index& rose to 50.1 in February from 46.5 in January 2002. It was the first time in 12 months that the index climbed above 50, signaling an expansion. In addition, Halifax PLC, Britain's biggest home lender, reported that February 2002's housing prices in the United Kingdom were 16.9% higher than a year before. Among emerging markets, economic, political and currency tensions in Argentina contributed to a 46.7% decline for that market during the first quarter of 2002. While economists predict Argentina's economy may shrink between 4.0% and 10.0% in 2002, other Latin American countries have not been adversely affected. For example, late in the period, stocks in Mexico climbed to 20-month highs. Overall, the evidence of economic improvement that surfaced in the first quarter lifted expectations for emerging markets. In this uneven environment, many value stocks again showed their mettle. For the most part, the stocks in the portfolio showed greater resilience than the benchmark. Continued strict adherence to our investment philosophy and the resulting margin of safety we have created in the portfolio insulated shareholders in a tumultuous environment and created an opportunity for gains during an otherwise difficult period. WHAT ADJUSTMENTS WERE MADE TO THE FUND, IF ANY, AS A RESULT OF THE STOCK MARKET VOLATILITY IN THE LATTER PART OF THE YEAR? We made no adjustments to the Fund in the wake of the terrorist attacks in the U.S. that preceded a sharp pullback among share prices worldwide. While the attacks --------------- &The Purchasing Managers Index or PMI is a national manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies. 6 NATIONS GLOBAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued that triggered the sell-off in late September 2001 were far different than events we have seen trigger crises in the past, the resulting investor behavior is virtually identical. Since the inception of our firm in 1974, we have witnessed various crises -- both economic and political, including assassinations, recessions, natural disasters, and war -- and the pattern of behavior and market direction has been remarkably similar. Generally, we have viewed the decline in stock prices worldwide as a buying opportunity. As always, we remain focused on evaluating the strengths of existing holdings and comparing current holdings to new opportunities. We continue to seek to manage the portfolio with its long-term best interests in mind and we remain poised to act on opportunities where we believe stock prices have fallen below the underlying value of sound businesses. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE FAVORABLE TO FUND PERFORMANCE SINCE THE FUND'S INCEPTION? Generally solid returns among holdings in the U.S. and a significant weighting to companies domiciled in the U.S. were by far the greatest contributors to the Fund's outperformance during the period. Additionally, strong returns from holdings in the United Kingdom and select emerging markets also boosted results. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE SINCE THE FUND'S INCEPTION? With regard to countries, the single greatest detriment to overall results during the period was the decline among holdings in Japan. A significant weighting in Japan also adversely affected returns. In March, the Japanese government upgraded its economic assessment for the first time since June 2000. While government officials said the Japanese economy remained in "a severe situation," they saw indications that prompted optimism for improvement. We make no predictions regarding the economic prospects in Japan -- or with regard to any other country. We only select companies for the Fund that meet our strict investment criteria. Country weightings, as well as industry weightings, are the direct result of our individual security selection process. WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE? Currency had minimal impact on the Fund's performance during the period. In Japan, where the Fund has some exposure, the currency slumped to a three-year low versus the dollar in late January, then rallied sharply in February and March. While the yen's weakness proved to be a drag on overall performance, we believe such short-term developments do not present major risks to long-term investors in a diversified portfolio. We maintain our philosophy of not hedging positions. One of the main reasons to invest internationally, we believe, is to gain the benefits of diversification, a significant part of which is provided by the currency component. 7 NATIONS GLOBAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE SINCE THE FUND'S INCEPTION?&& Favorable gains were evident across a broad cross section of holdings including positions in the consumer staples sector, aerospace and defense industry, electric utilities and tobacco industries, as well as the financials sector. Among the best- performing holdings were BT Group plc, Boeing Company, Xerox Corporation, Raytheon Corporation and Marks and Spencer Group plc. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE SINCE THE FUND'S INCEPTION? The greatest negative influences on Fund returns during the period were issue-specific declines for holdings in the pharmaceuticals and diversified telecommunications services industries. Examples of weak-performing pharmaceutical holdings include Schering-Plough Corporation, Merck & Company and Sankyo Company. Among the diversified telecommunications services companies that had an unfavorable influence on returns were Telefonica SA, Sprint Corporation and Verizon Communications Inc. Although returns for telecommunications stocks fell in the quarter, we continue to believe these holdings generally possess sound fundamentals and dominant market shares--traits that may contribute to long-term gains. Reflecting upon our conviction for telecommunications holdings, we took advantage of weaker prices in the period to add selectively to existing positions, including each of the companies cited above. The Fund retains its largest industry exposure in this area. WHAT IS THE 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. During the period, the continued application of our company-specific research and analysis dictated the following changes in the complexion of the Fund. We trimmed exposure in the electric utilities and food products industries, as share prices for select holdings either climbed toward our estimate of their underlying business values or we discovered more attractive candidates. We reallocated the proceeds of these sales among existing holdings and new purchases, particularly in the banking industry. With respect to countries, we reduced exposure on a company-specific basis in the United Kingdom and Hong Kong, while increasing our weighting in Japan and Spain. Going forward, our "bottom-up" security selection positions the Fund with its greatest exposure in the banking and diversified telecommunications industries within Japan and the United Kingdom. In our opinion, the strengths of the Fund's holdings inspire optimism for long-term outperformance. We believe long-term investors will be rewarded for their patience as stock markets evolve to more accurately reflect companies' underlying values. --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 8 NATIONS GLOBAL VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 1.9% France 2.0% Italy 2.6% Switzerland 4.7% Mexico 6.0% Germany 6.2% Brazil 6.4% Spain 9.5% United Kingdom 9.9% Japan 43.7% United States 7.1% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Repsol YPF SA 2.9% ------------------------------------------------- 2 Zurich Financial Services AG 2.6% ------------------------------------------------- 3 Schering-Plough Corporation 2.4% ------------------------------------------------- 4 Matsushita Electric Industrial Company, Ltd. 2.2% ------------------------------------------------- 5 SBC Communications Inc. 2.1% ------------------------------------------------- 6 Nippon Telegraph and Telephone Corporation 2.0% ------------------------------------------------- 7 Verizon Communications Inc. 2.0% ------------------------------------------------- 8 Motorola, Inc. 2.0% ------------------------------------------------- 9 Telefonos de Mexico SA de CV 'L', ADR 2.0% ------------------------------------------------- 10 Exelon Corporation 2.0% ------------------------------------------------- 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, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 9 NATIONS GLOBAL VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
LIPPER GLOBAL FUNDS NATIONS GLOBAL VALUE FUND AVERAGE MSCI WORLD INDEX ------------------------- ------------------- ---------------- Apr. 16 2001 9425 10000 10000 6/01 9623 9687 9559 9/01 8709 8137 8185 12/01 9633 9022 8888 Mar. 31 2002 9889 9082 8936
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
LIPPER GLOBAL FUNDS NATIONS GLOBAL VALUE FUND AVERAGE MSCI WORLD INDEX ------------------------- ------------------- ---------------- Apr. 16 2001 10000 10000 10000 6/01 10210 9687 9559 9/01 9240 8137 8185 12/01 10221 9022 8888 Mar. 31 2002 10492 9082 8936
CUMULATIVE TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (4/16/01 through 3/31/02) 4.92% -1.11%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Global Value Fund from the inception of the share class. Figures for the Morgan Stanley Capital International (MSCI) World Index, an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S., include reinvestment of dividends. Funds in the Lipper Global Funds Average invest at least 25% of its portfolio in securities traded outside the United States and that may own U.S. securities as well. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/02)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 04/16/01 04/16/01 04/16/01 04/16/01 ------------------------------------------------------------------------------------------------------------------------------- CUMULATIVE RETURNS SINCE INCEPTION 5.24% 4.92% -1.11% 4.18% -0.82% 4.18% 3.18%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. 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. 10 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY* 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, 2002, Nations International Value Fund Investor A Shares provided shareholders with a total return of -0.46%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS INTERNATIONAL VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2002 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. 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 trading (often for irrational reasons) at a discount to what we believe is their intrinsic value. Our focus is on the creation of long-term capital appreciation. Therefore, when we purchase stocks, we typically plan to hold them for three to five years to allow them to achieve what we believe is their intrinsic value. Our focus on individual security selection -- also known as "bottom-up" research and analysis -- drives our 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 often reflect investors' overreaction to short-term events. We believe that over time the market will recognize the underlying value of the stocks we hold and their prices will rise. We believe that by purchasing stocks at discounts from what we believe is their long-term value, a margin of safety against price declines is created -- thus reducing risk while providing the opportunity for capital appreciation. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? While Nations International Value Fund (Investor A Shares) fell 0.46%, it significantly outpaced the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index,*** which returned -8.08% for the 12-month period ended March 31, 2002. --------------- *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. ***The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. Source for all statistical data -- Brandes Investment Partners, L.P. 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. 11 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued A number of factors contributed to a tenuous environment among developed, non-U.S. markets during the reporting period, including: - mixed reports regarding economic strength - evidence of declining corporate profits - weak consumer confidence - eroding investor sentiment following the terrorist attacks in the U.S. While evidence of economic strengthening bolstered investor confidence and lifted share prices slightly in the first quarter of 2002, the minimal gains in the first three months of the new year did not offset the market's loss incurred over the previous nine months. On several occasions, central banks around the world lowered interest rates during the period with the hope of reviving languishing economies. But for the most part, interest rate cuts failed to show significant signs of reversing slumping economies or reversing declines among global stock markets--that is, until the first quarter of 2002. Just one day after analysts believed the U.S. Federal Reserve Board laid the foundation for possible future rate hikes in the U.S., the European Central Bank also shifted its tone toward the potential for future tightening. "Risks to price stability to both sides for the time being cannot be identified, but if any, then they are on the upward side and not on the downward side," said Otmar Issing, the European Central Bank's chief economist, according to a recent article in The Wall Street Journal. Reflecting economic strength in the United Kingdom, the Purchasing Managers Index& rose to 50.1 in February from 46.5 in January 2002. It was the first time in 12 months that the index climbed above 50, signaling an expansion. In addition, Halifax PLC, Britain's biggest home lender, reported that February 2002's housing prices in the United Kingdom were 16.9% higher than a year before. Among emerging markets, economic, political and currency tensions in Argentina contributed to a 46.7% decline for that market during the first quarter of 2002. While economists predict Argentina's economy may shrink between 4.0% and 10.0% in 2002, other Latin American countries have not been adversely affected. For example, late in the period, stocks in Mexico climbed to 20-month highs. Overall, the evidence of economic improvement that surfaced in the first quarter lifted expectations for emerging markets. In this uneven environment, many value stocks again showed their mettle. For the most part, the stocks in the portfolio showed greater resilience than the benchmark. Continued strict adherence to our investment philosophy and the resulting margin of safety we have created in the portfolio insulated shareholders in a tumultuous environment and created an opportunity for gains during an otherwise difficult period. WHAT ADJUSTMENTS WERE MADE TO THE FUND, IF ANY, AS A RESULT OF THE STOCK MARKET VOLATILITY IN THE LATTER PART OF THE YEAR? We made no adjustments to the Fund in the wake of the terrorist attacks in the U.S. that preceded a sharp pullback among share prices worldwide. While the attacks --------------- &The Purchasing Managers Index or PMI is a national manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies. 12 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued that triggered the sell-off in late September 2001 were far different than events we have seen trigger crises in the past, the resulting investor behavior is virtually identical. Since the inception of our firm in 1974, we have witnessed various crises -- both economic and political, including assassinations, recessions, natural disasters, and war -- and the pattern of behavior and market direction has been remarkably similar. Generally, we have viewed the decline in stock prices worldwide as a buying opportunity. As always, we remain focused on evaluating the strengths of existing holdings and comparing current holdings to new opportunities. We continue to seek to manage the portfolio with its long-term best interests in mind and we remain poised to act on opportunities where we believe stock prices have fallen below the underlying value of sound businesses. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Generally, solid returns among holdings in the United Kingdom and a significant weighting to companies domiciled in that country had a positive influence on portfolio results. In addition, stock-specific gains in emerging markets such as Singapore, South Korea and Mexico also boosted overall results. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? With regard to countries, the single greatest detriment to overall results during the period was the decline among holdings in Japan. A significant weighting in Japan also adversely affected returns. In March, the Japanese government upgraded its economic assessment for the first time since June 2000. While government officials said the Japanese economy remained in "a severe situation," they saw indications that prompted optimism for improvement. We make no predictions regarding the economic prospects in Japan -- or with regard to any other country. We only select companies for the Fund that meet our strict investment criteria. Country weightings, as well as industry weightings, are the direct result of our individual security selection process. WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE? Currency had minimal impact on the Fund's performance during the period. In Japan, where the Fund has its single greatest country exposure, the currency slumped to a three-year low versus the dollar in late January, then rallied sharply in February and March. In the United Kingdom, the Fund's second-largest country exposure, returns in U.S. dollars and local currency were virtually identical. While the yen's weakness proved to be a drag on overall performance, we believe such short-term developments do not present major risks to long-term investors in a diversified portfolio. We maintain our philosophy of not hedging positions. One of the main reasons to invest internationally, we believe, is to gain the benefits of diversification, a significant part of which is provided by the currency component. 13 NATIONS INTERNATIONAL VALUE FUND INVESTMENT COMMITTEE COMMENTARY continued WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?&& Holdings in the banking industry, in general, delivered solid gains in the period. Stock-specific advances within the tobacco and metals & mining industries also contributed to the Fund's gains. Among the best-performing banking companies in the period were DBS Group Holdings Ltd., Banco Bradesco SA, and IntesaBci SpA. Other top performers included British American Tobacco plc and Altadis. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? The greatest negative influences on Fund returns during the period were declines for holdings in the diversified telecommunications services and communications equipment industries. Examples of weak-performing holdings included Alcatel SA and the following diversified telecom services companies: Nippon Telegraph & Telephone Corporation, Telefonica SA, Deutsche Telekom AG, and Telebras. Although returns for telecommunications stocks fell in the quarter, we continue to believe these holdings generally possess sound fundamentals and dominant market shares -- traits that may contribute to long-term gains. Reflecting upon our conviction for telecommunications holdings, we took advantage of weaker prices in the period to add selectively to existing positions, including each of the companies previously mentioned. The Fund retains its second-largest industry exposure in this area following banking. WHAT IS THE 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. During the period, the continued application of our company-specific research and analysis dictated the following changes in the complexion of the Fund. We trimmed exposure in the electric utilities and food products industries, as share prices for select holdings either climbed toward our estimate of their underlying business values or we discovered more attractive candidates. We reallocated the proceeds of these sales among existing holdings and new purchases, particularly in the banking industry. With respect to countries, we reduced exposure on a company-specific basis in the United Kingdom and Hong Kong, while increasing our weighting in Japan and Spain. Going forward, our "bottom-up" security selection positions the Fund with its greatest exposure in the banking and diversified telecommunications industries within Japan and the United Kingdom. In our opinion, the strengths of the Fund's holdings inspire optimism for long-term outperformance. We believe long-term investors will be rewarded for their patience as stock markets evolve to more accurately reflect companies' underlying values. --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 14 NATIONS INTERNATIONAL VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 3.7% Switzerland 3.9% South Korea 4.0% Mexico 4.2% Singapore 5.5% Germany 6.2% Brazil 6.4% France 9.3% Spain 21.1% United Kingdom 20.6% Japan 15.1% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Repsol YPF SA, ADR 3.6% ------------------------------------------------- 2 Zurich Financial Services AG, ADR 3.0% ------------------------------------------------- 3 Telefonos de Mexico SA de CV 'L', ADR 2.8% ------------------------------------------------- 4 BAE Systems plc, ADR 2.7% ------------------------------------------------- 5 Banco Bilbao Vizcaya Argentaria SA, ADR 2.7% ------------------------------------------------- 6 Hitachi, Ltd., ADR 2.4% ------------------------------------------------- 7 Alcatel SA, ADR 2.2% ------------------------------------------------- 8 Imperial Chemical Industries plc, ADR 2.2% ------------------------------------------------- 9 Nippon Mitsubishi Oil Corporation 2.1% ------------------------------------------------- 10 TDK Corporation, ADR 2.0% ------------------------------------------------- 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, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 15 NATIONS INTERNATIONAL VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS INTERNATIONAL VALUE LIPPER INTERNATIONAL FUNDS FUND MSCI EAFE INDEX AVERAGE --------------------------- --------------- -------------------------- Dec. 27 1995 9425.00 10000.00 10000.00 12/95 9374.00 9987.00 10021.00 12/96 10810.00 10591.00 11250.00 12/97 13017.00 10780.00 11867.00 12/98 14555.00 12936.00 13392.00 12/99 22186.00 16423.00 18776.00 12/00 22838.00 14096.00 15847.00 12/01 20099.00 11074.00 12406.00 Mar. 31 2002 20984.00 11181.00 12554.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS INTERNATIONAL VALUE LIPPER INTERNATIONAL FUNDS FUND MSCI EAFE INDEX AVERAGE --------------------------- --------------- -------------------------- Dec. 27 1995 10000.00 10000.00 10000.00 12/95 9946.00 9987.00 10021.00 12/96 11470.00 10591.00 11250.00 12/97 13811.00 10780.00 11867.00 12/98 15443.00 12936.00 13392.00 12/99 23540.00 16423.00 18776.00 12/00 24231.00 14096.00 15847.00 12/01 21325.00 11074.00 12406.00 Mar. 31 2002 22264.00 11181.00 12554.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (12/27/95 through 3/31/02) 13.64% 12.57%
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. Figures for the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index, an unmanaged, capitalization-weighted index that reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets, include reinvestment of dividends. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. 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. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/02)
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 -0.18% -0.46% -6.16% -1.16% -5.96% -1.16% -2.12% -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 10.55% 10.32% 8.17% 9.44% 8.60% 9.46% 9.46% 5 YEARS 13.08% 12.90% 11.58% 12.25% 12.00% -- -- SINCE INCEPTION 13.83% 13.64% 12.57% 13.11% 13.11% 11.20% 11.20%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. 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. 16 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY* PORTFOLIO MANAGEMENT The Fund is a "multi- manager" fund, meaning that it is managed by more than one sub-adviser. Each sub-adviser manages approximately one-third of the Fund's assets. The three sub-advisers to the Fund are Marsico Capital Management, LLC (Marsico Capital), INVESCO Global Asset Management (N.A.), Inc., (INVESCO) and Putnam Investment Management, LLC (Putnam). INVESTMENT OBJECTIVE The Fund seeks long-term capital growth by investing primarily in equity securities of non-United States companies in Europe, Australia, the Far East and other regions, including developing countries. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations International Equity Fund Investor A Shares provided shareholders with a total return of -5.94%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS INTERNATIONAL EQUITY FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2002 AND ITS OUTLOOK FOR THE FUTURE. EFFECTIVE ON JANUARY 15, 2002, MARSICO CAPITAL MANAGEMENT, LLC ASSUMED SUB-ADVISORY RESPONSIBILITY FOR THE PORTION OF THE PORTFOLIO PREVIOUSLY SUB- ADVISED BY GARTMORE GLOBAL PARTNERS. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations International Equity Fund's intention is to seek long-term growth by investing in equity securities of companies located outside the U.S. The Fund is an extended EAFE vehicle, meaning that in addition to investing in the countries contained in the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index,*** it also invests in lesser-developed countries. The Fund is designed to be a core international holding with a strong tilt toward growth. The Fund features: - A combination of "top-down" regional allocation and "bottom-up" stock selection; - Large capitalization securities; and - Extended EAFE exposure to enhance performance potential through investments in emerging markets. The Marsico Capital portion of the Fund invests primarily in common stocks of foreign companies that are selected for their long-term growth potential. Marsico Capital may invest in companies of any size throughout the world. The team normally invests in issuers from at least three different countries not including the U.S. and maintains a core position of between 35 and 50 common stocks. From time to time, the Fund may invest in common stocks of companies operating in emerging markets. Marsico Capital incorporates both a "top down" macroeconomic analysis with a "bottom up" fundamental stock analysis to identify stocks that they believe offer the potential for superior returns --------------- *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. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. Source for all statistical data -- Marsico Capital, INVESCO and Putnam Investments. 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. 17 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY continued 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 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 UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? Nations International Equity Fund (Investor A shares) slipped 5.94% during the fiscal year, outperforming the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index, which declined 8.08%. WHAT WAS THE INVESTMENT ENVIRONMENT FOR INTERNATIONAL EQUITY INVESTING DURING THE FISCAL YEAR? Despite interest rate cuts, fiscal stimulus packages, and corporate downsizing, the U.S. economy sputtered throughout much of the fiscal year. In combination with persistently high oil prices and falling corporate profits, the weak U.S. economy restrained global growth into the third quarter of 2001. Then, the September 11, 2001 terrorist attacks in the United States sent the already reeling international equity markets into free-fall, resulting in the worst quarterly returns (in U.S. dollars) since 1990. Following the massive disruption of the terrorist attacks, international equity markets proved remarkably resilient in the fourth quarter of 2001. Against a backdrop of U.S. military victories in Afghanistan, falling oil prices, central bank easing, and faint signs that the U.S. economy may be nearing its bottom, international equities recovered with unexpected speed. International equity markets were volatile in the final three months of the fiscal year amid mixed signals about the health of the global economy. WHAT COUNTRY OR REGIONAL DECISION PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? The most favorable decision was to put increased emphasis on South Korea and Taiwan during the fourth quarter of 2001. Both markets rose dramatically as semiconductor stocks found favor among international investors. Being underweighted in Japan also helped performance as Japan underperformed during the period. European allocations that contributed to returns included an underweight in Spain and an overweight in France. WHAT COUNTRY OR REGIONAL DECISION PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Overweight stances in the United Kingdom detracted from performance, while underweighting in Australia, Switzerland, Norway and Austria hindered results. 18 NATIONS INTERNATIONAL EQUITY FUND MANAGEMENT TEAMS COMMENTARY continued WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?& From a sector perspective (allocations and stock selection), technology added significantly to results, especially the overweight to Samsung Electronics. The basic materials sector also added to results, as our overweight in this top-performing sector was decidedly positive. Overweighted basic materials stocks that made important contributions to performance included Stora Enso Oyj (Finland), CRH plc (Ireland), and BOC Group plc (United Kingdom). Among additional individual securities aiding results were TotalFinaElf SA, Sanofi-Synthelabo SA, Bayerische Motoren Werke (BMW) AG, Toyota Motor Corporation and AstraZeneca plc. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? During the reporting period telecommunications stocks, like Vodafone Group plc, had a negative impact on performance. Positions in Deutsche Telecom and NTT DoCoMo, Inc. also detracted from performance. Additional stocks contributing negatively to performance include Elan Corporation, Nikko Securities Company, Ltd., IntesaBci SpA, Allianz AG, Julius Baer Holdings Ltd., Nortel Networks and Misys. WHAT IS THE OUTLOOK FOR THE YEAR AHEAD? Marsico Capital believes the resiliency of stock prices in a variety of areas -- including consumer discretionary, consumer staples, select health care, and financial services -- could demonstrate that good long-term investment opportunities are available for investors. From a macroeconomic perspective, Marsico Capital views a number of encouraging factors that may create a favorable backdrop for equity markets. Interest rates remain low. Inflation continues to be quiet and may, in fact, decelerate in the future. While Marsico Capital readily acknowledges that there continues to be abundant crosscurrents in the economy to contend with, as well as geopolitical risk, the overall macroeconomic outlook may be quite good. Putnam's objective is to position the portfolio for a moderate global economic recovery. Given the uneven pace of the recovery and the continued lack of broad investment themes in the near term, stock-specific risk represents the bulk of Putnam's tracking error (risk budget) at the expense of country and sector allocations. Putnam believes Japan will be excluded from the global economic recovery and, consequently, remains underweighted in the Japanese equity market. In Europe, France and Sweden are favored, while the United Kingdom is underweighted. Putnam also believes select emerging-market equities offer less expensive opportunities to benefit from a global recovery. As INVESCO looks to the remainder of 2002, it sees interesting investment opportunities across the spectrum of overseas markets in companies that it believes are undervalued, financially secure and positioned for solid growth in the coming years. However, INVESCO believes investors may need to adjust to the prospects of moderate rises in short-term interest rates and other risks. --------------- &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 19 NATIONS INTERNATIONAL EQUITY FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 2.6% Mexico 3.3% Canada 3.6% Italy 4.0% South Korea 6.9% Switzerland 7.9% Netherlands 8.4% Germany 10.1% France 15.0% Japan 19.4% United Kingdom 18.8% Other
TOP 10 HOLDINGS -------------------------------- 1 TotalFinaElf SA 2.8% ------------------------------------------------- 2 ING Groep NV 2.2% ------------------------------------------------- 3 Shell Transport and Trading Company 2.0% plc ------------------------------------------------- 4 GlaxoSmithKline plc 1.8% ------------------------------------------------- 5 Samsung Electronics 1.7% ------------------------------------------------- 6 Bayerische Motoren Werke (BMW) AG 1.7% ------------------------------------------------- 7 Vodafone Group plc 1.6% ------------------------------------------------- 8 Nestle SA (REGD) 1.6% ------------------------------------------------- 9 AstraZeneca plc 1.5% ------------------------------------------------- 10 Nissan Motor Company, Ltd. 1.5% ------------------------------------------------- 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, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 20 NATIONS INTERNATIONAL EQUITY FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS INTERNATIONAL LIPPER INTERNATIONAL FUNDS EQUITY FUND MSCI EAFE INDEX AVERAGE --------------------- --------------- -------------------------- Jun. 3 1992 9425.00 10000.00 10000.00 12/93 10901.00 11410.00 12559.00 12/94 11141.00 12298.00 12492.00 12/95 12056.00 13676.00 13727.00 12/96 13037.00 14504.00 15410.00 12/97 13173.00 14762.00 16255.00 12/98 15333.00 17714.00 18346.00 12/99 21333.00 22490.00 25720.00 12/00 18063.00 19303.00 21708.00 12/01 14300.00 15165.00 16995.00 Mar. 31 2002 14655.00 15312.00 17197.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS INTERNATIONAL LIPPER INTERNATIONAL FUNDS EQUITY FUND MSCI EAFE INDEX AVERAGE --------------------- --------------- -------------------------- Jun. 3 1992 10000.00 10000.00 10000.00 12/93 11566.00 11410.00 12559.00 12/94 11821.00 12298.00 12492.00 12/95 12791.00 13676.00 13727.00 12/96 13832.00 14504.00 15410.00 12/97 13976.00 14762.00 16255.00 12/98 16268.00 17714.00 18346.00 12/99 22634.00 22490.00 25720.00 12/00 19165.00 19303.00 21708.00 12/01 15172.00 15165.00 16995.00 Mar. 31 2002 15549.00 15312.00 17197.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (6/3/92 through 3/31/02) 4.60% 3.97%
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. Figures for the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index, an unmanaged, capitalization-weighted index that reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets, include reinvestment of dividends. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. 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. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/02)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/2/91 6/3/92 6/7/93 6/17/92 -------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -5.65% -5.94% -11.36% -6.53% -11.21% -6.50% -7.44% -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -1.42% -1.66% -3.58% -2.45% -3.21% -2.50% -2.50% 5 YEARS 2.88% 2.66% 1.46% 1.83% 1.54% 1.82% 1.82% 10 YEARS 5.53% -- -- -- -- -- -- SINCE INCEPTION 5.04% 4.60% 3.97% 4.12% 4.12% 4.12% 4.12%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. 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. 21 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by James G. Gendelman of Marsico Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Marsico International Opportunities Fund Investor A Shares provided shareholders with a total return of 3.87%.** IN THE FOLLOWING INTERVIEW, MR. GENDELMAN SHARES HIS VIEWS ON NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2002 AND HIS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Marsico International Opportunities Fund is a diversified portfolio that invests primarily in common stocks of foreign companies that are selected for their long-term growth potential. The Fund may invest in companies of any size throughout the world. The Fund normally invests in issuers from at least three different countries not including the United States and maintains a core position of between 35 and 50 common stocks. From time to time, the Fund may invest in common stocks of companies operating in emerging markets. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? For the 12-month period ended March 31, 2002, Nations Marsico International Opportunities Fund (Investor A Shares) returned 3.87%. This return compares favorably to the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index,*** the Fund's primary benchmark, which was down 8.08% (for relative outperformance of 11.95%). WHAT ADJUSTMENTS WERE MADE TO THE FUND, IF ANY, AS A RESULT OF THE STOCK MARKET VOLATILITY IN THE LATTER PART OF THE YEAR? Following September 11, 2001, we continued to work diligently to evaluate the overall capital market environment and assess the Fund's holdings. The Fund benefited on two dimensions with respect to its consumer holdings. One was stock selection. The Fund's positions, in the aggregate, rose during the latter part of the year. The second was our decision to overweight the consumer discretionary sectors. The Fund's automobile positions were particularly strong performers. These --------------- *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. ***The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. 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. 22 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY continued positions included Nissan Motor Company, Ltd., Porsche AG and Bayerische Motoren Werke (BMW) AG. At year-end, the Fund's most significant sector/industry allocations were in consumer discretionary (highlighted by automobiles), financial services (primarily banks) and industrials (primarily transportation). While the investment rationale for owning companies in these areas varied, the Fund's first quarter of 2002 overall investment posture, in general terms, echoed the theme that a global economic recovery, in our opinion, is likely to be led by consumer-oriented industries. In terms of specific country distribution, the Fund's major investments during the reporting period were in the United Kingdom, Germany, Japan, the Netherlands and Canada. During the last months of the fiscal year, the Fund's allocation to the consumer discretionary sector increased somewhat, while the allocation to technology was reduced. At fiscal year end, the Fund did not have exposure to several economic sectors, including telecommunications and utilities. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?& Over the 12 months ended March 31, 2002, stocks in the consumer discretionary, financial, industrial and information technology sectors aided the Fund. Industries within these sectors that contributed to this performance were automobiles, retailing, diversified financials and consumer electronics. Country exposure that benefited performance was overweightings in Bermuda, Canada, Germany, Ireland, the Netherlands, Korea and Spain. An underweight in Japan also aided performance. The top-performing stocks over the course of the fiscal year were Accenture Ltd., Westjet Airlines Ltd., Nissan Motor Company, Ltd., Samsung Electronics, Porsche AG, Ryanair Holdings plc, ADR, Wal-Mart de Mexico SA de CV, Canadian National Railway Company and Royal Bank of Scotland. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Over the 12 months ended March 31, 2002, sectors that detracted from performance were primarily in the consumer staples and energy sectors. Adverse performance, however, was found among a diverse group of industries. The poorest-performing stocks over the course of the fiscal year were Fast Retailing, Vodafone Group plc, Axa, Nokia Corporation, NEC Corporation, Allianz AG and Reuters. WHAT IS YOUR OUTLOOK FOR THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? As we move into 2002, we are finding reasons to feel increasingly optimistic about the general outlook for equities. Some of the rampant uncertainty that prevailed in the aftermath of the terrorist attacks -- including the possibility of more attacks, additional anthrax outbreaks, the specific nature of the U.S. response to the attacks and the reaction of the capital markets -- seems to have diminished. From a geopolitical perspective too, there have been some encouraging developments. The --------------- &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 23 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO MANAGER COMMENTARY continued allied coalition against terrorism was formed quickly and effectively, has held together well and appears to have made considerable progress in its campaign against terrorism. To be sure, there are offsets to these positive comments. There is no role for complacency right now. From a global perspective, the ledger is mixed. While the situation in Afghanistan appears to be considerably better than in September 2001 in terms of terrorist operations and facilities being either eradicated or controlled, there is ample cause for concern elsewhere in the world. Violence has flared anew in the Middle East. Tensions between India and Pakistan appear to be potentially quite serious, while Japan's economy continues to struggle. Despite these crosscurrents, we believe the resiliency of stock prices in a variety of areas -- including consumer discretionary, consumer staples, select health care and financial services -- could demonstrate that good long-term investment opportunities are available for investors. From a macroeconomic perspective, our view is that there are a number of encouraging factors that create a favorable backdrop for equity markets. Interest rates remain low. Inflation continues to be quiet and may, in fact, decelerate in the future. While we readily acknowledge that there continues to be abundant crosscurrents in the economy to contend with as well as geopolitical risk, we believe the future overall macroeconomic outlook is good. 24 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 4.1% Italy 4.8% Switzerland 4.9% Mexico 4.9% Ireland 4.9% France 7.4% Canada 9.1% Netherlands 11.4% Japan 14.4% Germany 16.2% United Kingdom 17.9% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Nissan Motor Company, Ltd. 5.4% ------------------------------------------------- 2 Royal Bank of Scotland 4.9% ------------------------------------------------- 3 UBS AG 4.8% ------------------------------------------------- 4 Porsche AG 4.6% ------------------------------------------------- 5 Bayerische Motoren Werke (BMW) AG 4.3% ------------------------------------------------- 6 Westjet Airlines Ltd. 4.2% ------------------------------------------------- 7 Ryanair Holdings plc, ADR 3.9% ------------------------------------------------- 8 Unilever NV 3.4% ------------------------------------------------- 9 WPP Group plc 3.2% ------------------------------------------------- 10 Smiths Group plc 2.9% ------------------------------------------------- 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, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 25 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS MARSICO INTERNATIONAL OPPORTUNITIES LIPPER INTERNATIONAL FUNDS FUND AVERAGE MSCI EAFE INDEX --------------------------- -------------------------- --------------- Aug. 1 2000 9425 10000 10000 9/00 9444 9432 9513 12/00 8822 8984 9258 3/01 7549 7699 7987 6/01 7860 7702 7881 9/01 6428 6491 6778 12/01 7521 7038 7251 Mar. 31 2002 7842 7122 7321
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS MARSICO INTERNATIONAL OPPORTUNITIES LIPPER INTERNATIONAL FUNDS FUND AVERAGE MSCI EAFE INDEX --------------------------- -------------------------- --------------- Aug. 1 2000 10000 10000 10000 9/00 10020 9432 9513 12/00 9360 8984 9258 3/01 8010 7699 7987 6/01 8340 7702 7881 9/01 6820 6491 6778 12/01 7980 7038 7251 Mar. 31 2002 8320 7122 7321
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (8/1/001 through 3/31/02) -10.45% -13.58%
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. Figures for the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index is an unmanaged, capitalization-weighted index that reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets, include reinvestment of dividends. Funds in the Lipper International Funds Average invest their assets in securities with primary trading markets outside of the United States. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. 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. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/02)
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 --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 4.11% 3.87% -2.12% 3.14% -1.86% 3.14% 2.14% --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS SINCE INCEPTION -10.20% -10.45% -13.58% -11.10% -13.25% -11.10% -11.10%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. 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. 26 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY* PORTFOLIO MANAGEMENT Christopher Palmer is Principal Portfolio Manager of Nations Emerging Markets Fund and is a senior investment manager on the Emerging Markets Team for Gartmore Global Partners, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term capital growth by investing primarily in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Emerging Markets Fund Investor A Shares provided shareholders with a total return of 17.31%.** IN THE FOLLOWING INTERVIEW, MR. PALMER SHARES HIS VIEWS ON NATIONS EMERGING MARKETS FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2002 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The Fund's primary objective is to invest in growth opportunities in emerging market equities. We believe this is best accomplished by identifying companies whose rates of earnings growth we believe will exceed market expectations. Sources of unexpected growth may include strong national or regional franchises, strategies, management and the ability to finance business objectives. The markets in which the Fund invests are generally those where economic and political conditions provide an acceptable level of risk and, at a macro-economic level, may attract rising expectations of growth. HOW WOULD YOU DESCRIBE THE ECONOMIC AND MARKET CONDITIONS IN EMERGING MARKETS DURING THE FISCAL YEAR? The investment environment was extremely positive for emerging markets during the past fiscal year overall. During the 12-month period ended March 31, 2002, Nations Emerging Markets Fund (Investor A shares) returned 17.31% versus 20.73% in U.S. dollar terms for the Standard & Poor's/IFC (International Finance Corporation) Investables Index ("Index").*** While emerging markets' asset classes lagged earlier in the period, momentum was extremely strong during the final two quarters, as the theme of global economic recovery began to underpin investor sentiment. Additionally, many investors were attracted to emerging markets' regions where significant improvements have taken place in both the political and economic environment and where corporate transparency has led to higher levels of investor confidence. This resulted in the emerging markets not only recouping earlier losses but also, in many instances, significantly outperforming equity markets in the developed world for the period as a whole. Cyclical stocks generally led the way. In Mexico and Korea, two countries favored by the Fund, an improving outlook for exporters was augmented by continued positive progress on the domestic economic front. In both countries, there --------------- *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 services 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 index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. 27 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY continued have been significant reforms, and domestic consumer confidence appears to be improving. In Brazil and Israel, overall performance lagged. Within these markets, however, select technology and telecommunications stocks significantly outperformed the Index as a whole over the 12-month period. Russia was a significant outperformer, rising by more than 80% in U.S. dollar terms during the fiscal year. While this market was helped by generally firm oil prices, it also gained favor among investors due to improvements in corporate governance and political and economic stability. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE PAST 12 MONTHS?& The Fund's emphasis has been on stock selection. However, an overweighted stance in Mexico proved favorable to Fund performance during the last 12 months, significantly outperforming the Index. An underweighted position in Hong Kong also benefited performance, as that market fell sharply. WHAT COUNTRY OR REGIONAL DECISIONS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? An overweight stance in Brazil detracted somewhat from performance although good stock selection in the market more than compensated for the allocation effect. An overweight position in India detracted from performance, as the market fell over the period. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?& The Fund's emphasis on cyclicals that are geared to economic recovery proved favorable to performance. In particular, holdings such as Korea's LG Electronics Inc., a consumer electronics manufacturer, made the biggest single contribution to Fund performance over the period. Other notable contributions came from the Korean automotive company Hyundai Motor Company Ltd., Germany and Russia's Gazprom, a leading gas exporter, which accounts for 20% of world natural gas reserves. Select technology and telecommunications companies also contributed positively to performance. These included Israel's M-Systems Flash Disk Pioneers Ltd., a world leader in the manufacture of computer memory storage devices, Korea's SK Telecom Company Ltd., American Depository Receipts (ADR) and Mexico's Carso Global Telecom. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Stocks that proved least favorable to Fund performance tended to suffer more from domestic market weakness than from downturns within their sectors. Investec Group Ltd., for example, a South African-based global financial services company suffered as a result of currency appreciation (particularly in December). This hurt exporters, fueled inflation and led to a further deterioration of the interest rate environment. Two other poor performers were ICICI Ltd., ADR, a financial services group based in India, and China Mobile (Hong Kong) Ltd., ADR, the mobile telecommunications company based in Hong Kong. Both markets underperformed compared to the Index. --------------- &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 28 NATIONS EMERGING MARKETS FUND PORTFOLIO MANAGER COMMENTARY continued WHAT IS YOUR OUTLOOK FOR THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? Looking ahead, we believe emerging markets remain well placed to benefit from a recovery in global economic activity. We believe that increasing demand for consumer electronics products and semiconductors may continue to underpin support for the world-class manufacturing exporters of Asia, while Latin America may become a significant beneficiary of increased economic activity in the U.S. In Brazil, we favor resource stocks, such as oil, steel, paper and mining (all cyclicals geared to economic recovery). At the same time, we remain cautious on the telecommunications sector due to concerns regarding earnings growth. For the longer-term outlook, we continue to stay positive on secular aspects of the asset class. Our focus on profitable growth, improved corporate governance and a clear understanding of the importance of sound fiscal and monetary policymaking may bode well for our emerging markets investors. 29 NATIONS EMERGING MARKETS FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 3.2% Turkey 3.3% Hong Kong 6.4% Russia 6.2% Malaysia 6.1% India 6.7% South Africa 11.8% Brazil 12.1% Taiwan 16.0% Mexico 20.9% South Korea 7.3% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Samsung Electronics 5.7% ------------------------------------------------- 2 LG Electronics Inc. 3.6% ------------------------------------------------- 3 Shinhan Financial Group Company, Ltd., GDS 3.2% ------------------------------------------------- 4 Carso Global Telecom, ADR 3.1% ------------------------------------------------- 5 Siam Commercial Bank Public Company Ltd. 3.0% ------------------------------------------------- 6 AO Tatneft, ADR 2.8% ------------------------------------------------- 7 Compal Electronics Inc., GDR 2.5% ------------------------------------------------- 8 Unisem (M) Berhad 2.3% ------------------------------------------------- 9 Asustek Computer Inc., GDR 2.2% ------------------------------------------------- 10 Anglo American plc 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, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 30 NATIONS EMERGING MARKETS FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS EMERGING MARKETS LIPPER EMERGING MARKETS FUND S&P/IFC INVESTABLES INDEX FUNDS AVERAGE ------------------------ ------------------------- ----------------------- Jun. 30 1995 9425.00 10000.00 10000.00 1995 9209.00 9874.00 9877.00 1996 9991.00 10797.00 11266.00 1997 9672.00 9201.00 11010.00 1998 7178.00 7176.00 8021.00 1999 14076.00 10901.00 13859.00 2000 9107.00 7600.00 9643.00 2001 8732.00 7715.00 9365.00 Mar. 31 2002 10050.00 8712.00 10512.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS EMERGING MARKETS LIPPER EMERGING MARKETS FUND S&P/IFC INVESTABLES INDEX FUNDS AVERAGE ------------------------ ------------------------- ----------------------- Jun. 30 1995 10000.00 10000.00 10000.00 1995 9770.00 9874.00 9877.00 1996 10600.00 10797.00 11266.00 1997 10262.00 9201.00 11010.00 1998 7616.00 7176.00 8021.00 1999 14935.00 10901.00 13859.00 2000 9663.00 7600.00 9643.00 2001 9265.00 7715.00 9365.00 Mar. 31 2002 10663.00 8712.00 10512.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (6/30/95 through 3/31/02) 0.95% 0.07%
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. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. 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. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/02)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 6/30/95 6/30/95 6/30/95 6/30/95 ------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 17.60% 17.31% 10.55% 16.47% 11.47% 16.38% 15.38% ------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 8.96% 8.69% 6.58% 7.91% 7.04% 7.88% 7.88% 5 YEARS -1.29% -1.55% -2.71% -2.25% -2.64% -2.23% -2.23% SINCE INCEPTION 1.22% 0.95% 0.07% 0.23% 0.23% 0.31% 0.31%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. 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. 31 NATIONS FUNDS Nations Global Value Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) ------------------------------------------------------------------------------ COMMON STOCKS -- 97.3% BERMUDA -- 1.2% 45,300 Tyco International Ltd. ................................. $ 1,464 -------- BRAZIL -- 6.2% 42,200 Brasil Telecom Participacoes SA, ADR(a).................. 1,684 111,200 Cemig CIA Energ, ADR..................................... 1,657 59,200 Centrais Eletricas Brasileiras SA, ADR................... 495 54,400 Petroleo Brasileiro SA-'A', ADR.......................... 1,356 169,000 Tele Norte Leste Participacoes SA, ADR(a)................ 2,123 -------- 7,315 -------- CANADA -- 0.6% 25,700 AT&T Canada Inc.!!....................................... 692 -------- FRANCE -- 1.9% 159,400 Alcatel SA 'A'........................................... 2,275 -------- GERMANY -- 6.0% 38,900 BASF AG.................................................. 1,578 42,000 Bayerische Hypo-und Vereinsbank AG....................... 1,528 113,203 Deutsche Telekom AG...................................... 1,708 44,910 E.On AG.................................................. 2,277 -------- 7,091 -------- ITALY -- 2.0% 88,950 ENI SpA.................................................. 1,304 352,000 IntesaBci SpA!!.......................................... 1,056 6,000 Telecom Italia SpA....................................... 49 -------- 2,409 -------- JAPAN -- 9.9% 260,000 Hitachi, Ltd. ........................................... 1,901 218,000 Matsushita Electric Industrial Company, Ltd. ............ 2,658 34,000 Mitsubishi Heavy Industries, Ltd. ....................... 111 237 Mitsubishi Tokyo Financial Group Inc..................... 1,448 628 Nippon Telegraph and Telephone Corporation............... 2,413 114,000 Sankyo Company, Ltd. .................................... 1,742 183,000 Tokio Marine & Fire Insurance Company, Ltd.!!(a)(b)...... 1,299 -------- 11,572 -------- MEXICO -- 4.7% 79,500 America Movil SA de CV 'L', ADR!!........................ 1,579 55,400 Cemex SA de CV, ADR...................................... 1,637 57,600 Telefonos de Mexico SA de CV 'L', ADR.................... 2,326 -------- 5,542 -------- NETHERLANDS -- 1.3% 82,100 ABN AMRO Holding NV...................................... 1,559 -------- SOUTH KOREA -- 1.3% 66,000 Korea Telecom Corporation, ADR(a)........................ 1,583 -------- SPAIN -- 6.4% 184,880 Banco Bilbao Vizcaya Argentaria SA....................... 2,201 271,600 Repsol YPF SA!!.......................................... 3,424 172,876 Telefonica SA!!.......................................... 1,938 -------- 7,563 -------- SWITZERLAND -- 2.6% 13,200 Zurich Financial Services AG(a).......................... 3,061 --------
VALUE SHARES (000) ------------------------------------------------------------------------------ UNITED KINGDOM -- 9.5% 398,900 BAE Systems plc.......................................... $ 1,903 139,900 British American Tobacco plc............................. 1,345 391,080 BT Group plc!!........................................... 1,559 124,600 HSBC Holdings plc (REGD)................................. 1,438 178,500 Invensys plc............................................. 315 69,861 Marks & Spencer Group plc................................ 383 83,780 mmO2 plc!!............................................... 81 143,000 Reuters Group plc........................................ 1,103 228,000 South African Breweries plc@............................. 1,593 182,500 Unilever plc............................................. 1,461 -------- 11,181 -------- UNITED STATES -- 43.7% 29,800 Albertson's, Inc. ....................................... 988 55,900 Allstate Corporation..................................... 2,112 121,140 Archer-Daniels-Midland Company........................... 1,687 172,600 Avaya Inc.!!............................................. 1,274 26,200 Bank One Corporation(a).................................. 1,095 39,200 Boeing Company........................................... 1,891 19,300 ConAgra Foods, Inc. ..................................... 468 36,400 E.I. duPont de Nemours and Company....................... 1,716 54,700 Eastman Kodak Company(a)................................. 1,705 101,500 Edison International!!................................... 1,700 43,800 Exelon Corporation....................................... 2,320 106,000 Ford Motor Company(a).................................... 1,748 46,800 Goodyear Tire & Rubber Company(a)........................ 1,197 8,700 Great Lakes Chemical Corporation(a)...................... 245 120,900 Hewlett-Packard Company(a)............................... 2,169 28,700 Loews Corporation........................................ 1,681 65,500 McDonald's Corporation................................... 1,818 39,260 Merck & Company, Inc. ................................... 2,261 165,680 Motorola, Inc. .......................................... 2,352 40,200 Philip Morris Companies Inc. ............................ 2,117 47,800 Prudential Financial, Inc.!!............................. 1,484 67,400 SBC Communications Inc. ................................. 2,524 88,800 Schering-Plough Corporation.............................. 2,779 55,500 Sherwin-Williams Company(a).............................. 1,581 107,600 Sprint Corporation (FON Group)........................... 1,645 52,700 Toys R Us, Inc.!!(a)..................................... 946 88,700 Unisys Corporation!!..................................... 1,120 43,900 UST Inc.(a).............................................. 1,709 52,200 Verizon Communications Inc. ............................. 2,383 25,900 Waste Management, Inc.(a)................................ 706 197,100 Xerox Corporation!!(a)................................... 2,119 -------- 51,540 -------- TOTAL COMMON STOCKS (Cost: $111,466)....................................... 114,847 -------- PREFERRED STOCKS -- 0.0%+ (Cost: $69) BRAZIL -- 0.0%+ 1,400 Telecomunicacoes Brasileiras SA - Telebras, ADR!!(a)..... 46 -------- RIGHTS -- 0.0%+ (Cost: $0) SPAIN -- 0.0%+ 172,876 Telefonica SA Expire 04/08/02........................................ 39 --------
SEE NOTES TO FINANCIAL STATEMENTS. 32 NATIONS FUNDS Nations Global Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
SHARES VALUE (000) (000) ------------------------------------------------------------------------------ INVESTMENT COMPANIES -- 21.8% (Cost: $25,734) 25,734 Nations Cash Reserves, Capital Class Shares#............. $ 25,734 -------- TOTAL INVESTMENTS (Cost $137,269*)................................ 119.1% 140,666 -------- OTHER ASSETS AND LIABILITIES (NET)................ (19.1)% Cash..................................................... $ 423 Foreign currency (cost $2,985)........................... 2,983 Receivable for investment securities sold................ 86 Receivable for Fund shares sold.......................... 3,006 Dividends receivable..................................... 288 Interest receivable...................................... 2 Collateral on securities loaned.......................... (19,594) Payable for Fund shares redeemed......................... (1,092) Investment advisory fee payable.......................... (82) Administration fee payable............................... (29) Shareholder servicing and distribution fees payable...... (38) Payable for investment securities purchased.............. (8,438) Accrued Trustees' fees and expenses...................... (8) Accrued expenses and other liabilities................... (38) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (22,531) -------- NET ASSETS........................................ 100.0% $118,135 ======== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 30 Accumulated net realized gain on investments............. 1,071 Net unrealized appreciation of investments............... 3,398 Paid-in capital.......................................... 113,636 -------- NET ASSETS............................................... $118,135 ======== VALUE ------------------------------------------------------------------------------ PRIMARY A SHARES: Net asset value, offering and redemption price per share ($49,245,506 / 4,691,653 shares outstanding)........... $10.50 ------ ------ INVESTOR A SHARES: Net asset value and redemption price per share ($26,172,353 / 2,499,947 shares outstanding)........... $10.47 ------ ------ Maximum sales charge..................................... 5.75% Maximum offering price per share......................... $11.11 INVESTOR B SHARES: Net asset value and offering price per share& ($11,803,515 / 1,134,838 shares outstanding)........... $10.40 ------ ------ INVESTOR C SHARES: Net asset value and offering price per share& ($30,914,064 / 2,971,514 shares outstanding)........... $10.40 ------ ------
--------------- *Federal income tax information (see Note 8). @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%. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 7). The portion that represents cash collateral is $19,594. (a) All or a portion of security was on loan at March 31, 2002. The aggregate cost and market value of securities on loan at March 31, 2002 is $15,833 and $18,816, respectively. (b) Fair valued security. ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 33 NATIONS FUNDS Nations Global Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002 At March 31, 2002, sector diversification was as follows:
% OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) ------------------------------------------------------------------------------------------------- Common stocks: Telecommunications services................................. 20.6% $ 24,372 Commercial banking.......................................... 7.8 9,269 Pharmaceuticals............................................. 5.7 6,782 Insurance................................................... 5.6 6,576 Diversified electronics..................................... 5.3 6,264 Electric power -- Non nuclear............................... 5.2 6,129 Integrated oil.............................................. 5.2 6,084 Networking and telecommunications equipment................. 5.0 5,901 Computers and office equipment.............................. 4.6 5,408 Tobacco..................................................... 4.4 5,171 Aerospace and defense....................................... 3.2 3,794 Food products............................................... 3.1 3,616 Chemicals -- Basic.......................................... 2.8 3,294 Financial services.......................................... 2.6 3,061 Automotive.................................................. 2.5 2,945 Electric power -- Nuclear................................... 2.0 2,320 Retail -- Specialty......................................... 1.7 1,964 Restaurants................................................. 1.5 1,818 Commercial services......................................... 1.5 1,809 Other....................................................... 7.0 8,270 ----- -------------- TOTAL COMMON STOCKS......................................... 97.3 114,847 PREFERRED STOCKS............................................ 0.0+ 46 RIGHTS...................................................... 0.0+ 39 INVESTMENT COMPANIES........................................ 21.8 25,734 ----- -------------- TOTAL INVESTMENTS........................................... 119.1 140,666 OTHER ASSETS AND LIABILITIES (NET).......................... (19.1) (22,531) ----- -------------- NET ASSETS.................................................. 100.0% $ 118,135 ===== ==============
--------------- + Amount represents less than 0.1% SEE NOTES TO FINANCIAL STATEMENTS. 34 NATIONS FUNDS Nations International Value Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE (000) ---------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 99.6% Investment in Nations Master Investment Trust, International Value Master Portfolio*.................. $3,110,644 ---------- TOTAL INVESTMENTS................................. 99.6% 3,110,644 ---------- OTHER ASSETS AND LIABILITIES (NET)............................... 0.4% Receivable for Fund shares sold.......................... $ 25,003 Payable for Fund shares redeemed......................... (9,551) Administration fee payable............................... (435) Shareholder servicing and distribution fees payable...... (383) Accrued Trustees' fees and expenses...................... (43) Accrued expenses and other liabilities................... (737) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. 13,854 ---------- NET ASSETS........................................ 100.0% $3,124,498 ========== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 6,317 Accumulated net realized gain on investments............. 19,146 Net unrealized depreciation of investments............... (126,213) Paid-in capital.......................................... 3,225,248 ---------- NET ASSETS............................................... $3,124,498 ========== VALUE ---------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($2,059,557,785 / 123,551,881 shares outstanding)...... $16.67 ----- ----- INVESTOR A SHARES: Net asset value and redemption price per share ($798,587,038 / 48,079,059 shares outstanding)......... $16.61 ----- ----- Maximum sales charge..................................... 5.75% Maximum offering price per share......................... $17.62 INVESTOR B SHARES: Net asset value and offering price per share& ($116,373,667 / 7,101,539 shares outstanding).......... $16.39 ----- ----- INVESTOR C SHARES: Net asset value and offering price per share& ($149,979,209 / 9,151,414 shares outstanding).......... $16.39 ----- -----
--------------- *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. 35 NATIONS FUNDS Nations International Equity Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE (000) --------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 101.4% Investment in Nations Master Investment Trust, International Equity Master Portfolio*................. $ 527,507 --------- TOTAL INVESTMENTS................................. 101.4% 527,507 --------- OTHER ASSETS AND LIABILITIES (NET)................ (1.4)% Receivable for Fund shares sold.......................... $ 4,009 Payable for Fund shares redeemed......................... (10,736) Administration fee payable............................... (75) Shareholder servicing and distribution fees payable...... (20) Accrued Trustees' fees and expenses...................... (106) Accrued expenses and other liabilities................... (121) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (7,049) --------- NET ASSETS........................................ 100.0% $ 520,458 ========= NET ASSETS CONSIST OF: Distributions in excess of net investment income......... $ (335) Accumulated net realized loss on investments............. (141,446) Net unrealized appreciation of investments............... 10,920 Paid-in capital.......................................... 651,319 --------- NET ASSETS............................................... $ 520,458 ========= VALUE --------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($474,738,054 / 45,240,615 shares outstanding)......... $10.49 ------ ------ INVESTOR A SHARES: Net asset value and redemption price per share ($30,067,206 / 2,918,486 shares outstanding)........... $10.30 ------ ------ Maximum sales charge..................................... 5.75% Maximum offering price per share......................... $10.93 INVESTOR B SHARES: Net asset value and offering price per share& ($14,407,708 / 1,460,115 shares outstanding)........... $9.87 ----- ----- INVESTOR C SHARES: Net asset value and offering price per share& ($1,244,622 / 129,236 shares outstanding).............. $9.63 ----- -----
--------------- *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. 36 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) ------------------------------------------------------------------------------- COMMON STOCKS -- 93.5% AUSTRALIA -- 1.3% 17,354 Publishing & Broadcasting Limited........................ $ 92 ------- BERMUDA -- 1.9% 4,986 Accenture Ltd.!!(a)...................................... 133 ------- BRAZIL -- 0.9% 3,028 Embraer Aircraft Corporation, ADR(a)..................... 61 ------- CANADA -- 7.4% 2,707 Canadian National Railway Company(a)..................... 135 5,322 Shaw Communications Inc.................................. 95 15,704 Westjet Airlines Ltd..................................... 293 ------- 523 ------- CHINA -- 2.2% 3,388 Aluminum Corporation of China Ltd., ADR!!................ 75 3,300 CNOOC Ltd., ADR.......................................... 82 ------- 157 ------- DENMARK -- 1.0% 1,840 Novo Nordisk A/S, Class B................................ 73 ------- FRANCE -- 4.9% 8,174 JC Decaux SA!!........................................... 95 5,620 Thomson Multimedia!!..................................... 175 492 TotalFinaElf SA.......................................... 76 ------- 346 ------- GERMANY -- 9.8% 6,026 AWD Holdings AG.......................................... 152 7,635 Bayerische Motoren Werke (BMW) AG!!...................... 304 300 DePfa Deutsche Pfandbriefbank AG......................... 22 2,199 KarstadtQuelle AG........................................ 72 2,438 Schering AG.............................................. 142 ------- 692 ------- IRELAND -- 4.9% 1,034 DePfa Bank plc........................................... 69 9,088 Ryanair Holdings plc, ADR!!.............................. 273 ------- 342 ------- ITALY -- 4.1% 8,770 Banca Popolare Di Verona Scrl............................ 100 63,750 IntesaBci SpA!!.......................................... 192 ------- 292 ------- JAPAN -- 11.4% 4,514 CANON Inc., ADR.......................................... 168 53,000 Nissan Motor Company, Ltd................................ 383 2,600 Shin-Etsu Chemical Company, Ltd.......................... 110 41,000 The Seiyu, Ltd.!!........................................ 144 ------- 805 ------- MEXICO -- 4.9% 2,600 Cemex SA de CV, ADR...................................... 77 35,600 Corporacion Geo S.A. de C.V., Series B!!................. 85 55,932 Wal-Mart de Mexico SA de CV, Series V.................... 183 ------- 345 -------
VALUE SHARES (000) ------------------------------------------------------------------------------- NETHERLANDS -- 9.1% 3,034 ASM Lithography Holding NV!!............................. $ 76 7,810 Elsevier NV.............................................. 105 4,885 Heineken Holding NV 'A'.................................. 149 4,222 Unilever NV.............................................. 242 2,163 VNU NV................................................... 69 ------- 641 ------- PORTUGAL -- 1.0% 9,182 Portugal Telecom, SGPS, SA (REGD)!!...................... 68 ------- SOUTH KOREA -- 3.2% 2,909 Kookmin Bank............................................. 122 390 Samsung Electronics...................................... 106 ------- 228 ------- SPAIN -- 3.4% 20,721 Corporacion Mapfre, Compania Internacional de Reaseguros, SA..................................................... 139 5,189 INDITEX SA!!............................................. 98 ------- 237 ------- SWITZERLAND -- 4.8% 6,930 UBS AG!!................................................. 341 ------- UNITED KINGDOM -- 16.2% 18,976 Arm Holdings plc!!....................................... 77 14,342 Northern Rock plc........................................ 143 13,386 Royal Bank of Scotland plc@.............................. 345 17,576 Smiths Group plc......................................... 203 76,164 Vodafone Group plc....................................... 141 19,578 WPP Group plc............................................ 223 ------- 1,132 ------- UNITED STATES -- 1.1% 696 L-3 Communications Holdings, Inc.!!...................... 78 ------- TOTAL COMMON STOCKS (Cost: $5,552)......................................... 6,586 ------- PREFERRED STOCKS -- 4.6% (Cost: $200) GERMANY -- 4.6% 710 Porsche AG............................................... 323 ------- PRINCIPAL AMOUNT (000) --------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 1.4% (Cost: $100) $ 100 Federal Home Loan Bank 1.740% 04/01/02........................................ 100 -------
SEE NOTES TO FINANCIAL STATEMENTS. 37 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
SHARES VALUE (000) (000) ------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 5.7% (Cost: $399) 399 Nations Cash Reserves, Capital Class Shares#............. $ 399 ------- TOTAL INVESTMENTS (Cost $6,251*).................................. 105.2% 7,408 ------- OTHER ASSETS AND LIABILITIES (NET)................ (5.2)% Cash..................................................... $ 1 Foreign currency (cost $48).............................. 48 Receivable for investment securities sold................ 112 Receivable for Fund shares sold.......................... 2 Dividends receivable..................................... 17 Collateral on securities loaned.......................... (347) Investment advisory fee payable.......................... (5) Administration fee payable............................... (1) Shareholder servicing and distribution fees payable...... (3) Payable for investment securities purchased.............. (127) Accrued Trustees' fees and expenses...................... (23) Accrued expenses and other liabilities................... (38) ------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................................... (364) ------- NET ASSETS........................................ 100.0% $ 7,044 ======= NET ASSETS CONSIST OF: Accumulated net realized loss on investments............. $(2,703) Net unrealized appreciation of investments............... 1,158 Paid-in capital.......................................... 8,589 ------- NET ASSETS............................................... $ 7,044 =======
VALUE ------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($2,699,535 / 322,904 shares outstanding).............. $8.36 ----- ----- INVESTOR A SHARES: Net asset value and redemption price per share ($1,525,621 / 183,268 shares outstanding).............. $8.32 ----- ----- Maximum sales charge..................................... 5.75% Maximum offering price per share......................... $8.83 INVESTOR B SHARES: Net asset value and offering price per share& ($1,950,613 / 237,306 shares outstanding).............. $8.22 ----- ----- INVESTOR C SHARES: Net asset value and offering price per share& ($868,706 / 105,649 shares outstanding)............................ $8.22 ----- -----
--------------- *Federal income tax information (see Note 8). @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, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 7). The portion that represents cash collateral is $347. (a) All or a portion of security was on loan at March 31, 2002. The aggregate cost and market value of securities on loan at March 31, 2002 is $191 and $333, respectively. ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 38 NATIONS FUNDS Nations Marsico International Opportunities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002 At March 31, 2002, sector diversification was as follows:
% OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) ----------------------------------------------------------------------------------------------- Common stocks: Automotive.................................................. 14.4% $ 1,010 Commercial banking.......................................... 12.8 899 Airlines.................................................... 8.0 566 Publishing and advertising.................................. 7.0 492 Banking..................................................... 4.1 292 Department and discount stores.............................. 3.6 255 Food products............................................... 3.4 242 Telecommunications services................................. 3.0 209 Conglomerates............................................... 2.9 203 Broadcasting and cable...................................... 2.7 187 Semiconductors.............................................. 2.6 182 Media....................................................... 2.5 175 Computers and office equipment.............................. 2.4 168 Integrated oil.............................................. 2.2 158 Finance -- miscellaneous.................................... 2.2 152 Commercial services......................................... 2.1 149 Food and drug stores........................................ 2.0 144 Consumer credit and mortgages............................... 2.0 143 Pharmaceuticals............................................. 2.0 142 Other....................................................... 11.6 818 ----- --------------- TOTAL COMMON STOCKS......................................... 93.5 6,586 PREFERRED STOCKS............................................ 4.6 323 U.S. GOVERNMENT OBLIGATIONS................................. 1.4 100 INVESTMENT COMPANIES........................................ 5.7 399 ----- --------------- TOTAL INVESTMENTS........................................... 105.2 7,408 OTHER ASSETS AND LIABILITIES (NET).......................... (5.2) (364) ----- --------------- NET ASSETS.................................................. 100.0% $ 7,044 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 39 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) ---------------------------------------------------------------------------------- COMMON STOCKS -- 93.9% BRAZIL -- 6.9% 6,300 Brasil Telecom Participacoes SA, ADR(a).................. $ 251 35,100 Companhia Paranaense de Energia-Copel, ADR(a)............ 274 9,300 Companhia Vale do Rio Doce, ADR.......................... 246 20,900 Gerdau SA, ADR(a)........................................ 259 39,200 Tele Centro Oeste Celular Participacoes SA, ADR(a)....... 236 13,200 Tele Norte Leste Participacoes SA, ADR(a)................ 166 15,700 Votorantim Celulose E Papel SA, ADR!!(a)................. 294 -------- 1,726 -------- CHINA -- 1.4% 296,000 Nanjing Panda Electonics Company Ltd.,!!................. 118 1,162,000 PetroChina Company Ltd. ................................. 240 -------- 358 -------- GREECE -- 0.4% 13,000 STET Hellas Telecommunications SA, ADR!!................. 90 -------- HONG KONG -- 3.3% 17,200 China Mobile (Hong Kong) Ltd., ADR!!..................... 266 238,500 CNOOC Ltd. .............................................. 297 1,014,000 Denway Investment........................................ 267 -------- 830 -------- HUNGARY -- 1.9% 3,600 Gedeon Richter, GDR...................................... 230 33,600 Otp Bank Rt. ............................................ 259 -------- 489 -------- INDIA -- 6.1% 44,200 ICICI Ltd., ADR.......................................... 359 17,800 Ranbaxy Laboratories Ltd.(a) ............................ 365 34,200 Reliance Industries Ltd., GDR............................ 453 9,600 Wipro Ltd.(a)............................................ 357 -------- 1,534 -------- ISRAEL -- 2.1% 55,500 M-Systems Flash Disk Pioneers Ltd.(a).................... 517 -------- MALAYSIA -- 6.2% 275,800 AMMB Holdings Berhad..................................... 388 116,200 Commerce Asset-Holding Berhad............................ 291 205,000 Petronas Dagangan Berhad................................. 308 174,400 Unisem (M) Berhad........................................ 583 -------- 1,570 -------- MEXICO -- 16.0% 272,200 Alfa, SA................................................. 431 158,300 Carso Global Telecom, ADR!!(a)........................... 791 15,200 Consorcio ARA SA de CV, ADR!!@........................... 308 41,100 Grupo Elektra SA de CV, GDR.............................. 350 169,000 Grupo Financiero Banorte SA de CV!!...................... 401 27,300 Grupo IMSA SA de CV, ADR................................. 362
VALUE SHARES (000) ---------------------------------------------------------------------------------- MEXICO -- (CONTINUED) 180,800 Grupo Mexico SA, Series B................................ $ 290 46,200 Grupo Modelo SA de CV 'C'................................ 118 48,200 TV Azteca SA de CV, ADR.................................. 424 15,900 Wal-Mart de Mexico SA de CV, ADR(a)...................... 522 -------- 3,997 -------- POLAND -- 0.9% 24,200 Polski Koncern Naftowy Orlen SA, GDR..................... 221 -------- RUSSIA -- 6.4% 50,500 AO Tatneft, ADR(a)....................................... 708 35,100 OAO Gazprom, ADR......................................... 499 15,500 JSC MMC Norilsk Nickel, ADR!!(a)......................... 339 3,000 Wimm-Bill-Dann Foods ADR!!............................... 72 -------- 1,618 -------- SOUTH AFRICA -- 6.7% 32,600 Anglo American plc....................................... 540 270,000 Aveng Ltd................................................ 166 193,600 FirstRand Ltd. .......................................... 113 10,000 Impala Platinum Holdings Ltd.(a) ........................ 531 29,300 Investec Group Ltd. ..................................... 335 -------- 1,685 -------- SOUTH KOREA -- 17.3% 43,600 Daewoo Shipbuilding & Marine Engineering Company, Ltd.!!................................................. 306 12,600 Daishin Securities Company............................... 257 29,100 Hyundai Motor Company Ltd., GDR!!(a)..................... 453 11,500 Pohang Iron & Steel Company Ltd., ADR(a)................. 300 34,900 Samsung Corporation...................................... 330 5,300 Samsung Electronics...................................... 1,428 31,300 Shinhan Financial Group Company, Ltd., GDS!!............. 817 19,000 SK Telecom Company Ltd., ADR!!........................... 467 -------- 4,358 -------- TAIWAN -- 12.1% 122,850 Asustek Computer Inc., GDR............................... 553 95,100 Compal Electronics Inc., GDR(a).......................... 637 255,000 Fubon Financial Holding Company, Ltd.!!.................. 251 49,000 Hon Hai Precision Industry Company, Ltd. ................ 228 324,000 Pro Mos Technologies Inc.!!.............................. 268 244,500 Ritek Corporation........................................ 275 83,000 Sunplus Technology Company., Ltd. ....................... 320 23,972 Taiwan Semiconductor Manufacturing Company Ltd., ADR!!... 498 -------- 3,030 -------- THAILAND -- 3.0% 1,359,400 Siam Commercial Bank Public Company Ltd.!!(a)............ 766 --------
SEE NOTES TO FINANCIAL STATEMENTS. 40 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE SHARES (000) ---------------------------------------------------------------------------------- TURKEY -- 3.2% 145,600,000 Turkiye Garanti Bankasi AS!!............................. $ 299 171,000,000 Yapi ve Kredi Bankasi AS!!............................... 505 -------- 804 -------- TOTAL COMMON STOCKS (Cost: $20,680)........................................ 23,593 -------- PREFERRED STOCKS -- 8.4% BRAZIL -- 4.8% 1,440,300 Ambev Cia De Bebid....................................... 281 71,274,710 Banco Bradesco SA........................................ 435 20,450 Petroleo Brasileiro SA - Petrobras....................... 507 -------- 1,223 -------- SOUTH KOREA -- 3.6% 46,000 LG Electronics Inc.(b)................................... 894 -------- TOTAL PREFERRED STOCKS (Cost: $1,438)......................................... 2,117 -------- WARRANTS -- 0.1% BRAZIL -- 0.1% 59,969 Ambev Cia De Bebid Expire 4/30/03......................................... 17 4,990 Cie Cervejaria Brahma Expire 4/30/03......................................... 1 -------- TOTAL WARRANTS (Cost: $3)............................................. 18 --------
SHARES VALUE (000) (000) ---------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 26.5% (Cost: $6,663) 6,663 Nations Cash Reserves, Capital Class Shares#............. $ 6,663 -------- TOTAL INVESTMENTS (Cost $28,784*)................................. 128.9% 32,391 -------- OTHER ASSETS AND LIABILITIES (NET)................ (28.9)% Receivable for investment securities sold................ $ 499 Receivable for Fund shares sold.......................... 227 Dividends receivable..................................... 114 Interest receivable...................................... 4 Collateral on securities loaned.......................... (6,663) Payable for Fund shares redeemed......................... (2) Investment advisory fee payable.......................... (22) Administration fee payable............................... (5) Shareholder servicing and distribution fees payable...... (2) Due to custodian......................................... (1,295) Payable for investment securities purchased.............. (17) Accrued Trustees' fees and expenses...................... (41) Accrued expenses and other liabilities................... (66) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (7,269) -------- NET ASSETS........................................ 100.0% $ 25,122 ======== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 13 Accumulated net realized loss on investments............. (27,297) Net unrealized appreciation of investments............... 3,607 Paid-in capital.......................................... 48,799 -------- NET ASSETS............................................... $ 25,122 ========
SEE NOTES TO FINANCIAL STATEMENTS. 41 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE ---------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($19,639,947 / 1,871,753 shares outstanding)........... $10.49 ------ ------ INVESTOR A SHARES: Net asset value and redemption price per share ($3,354,098 / 323,298 shares outstanding).............. $10.37 ------ ------ Maximum sales charge..................................... 5.75% Maximum offering price per share......................... $11.00 INVESTOR B SHARES: Net asset value and offering price per share& ($1,960,704 / 195,380 shares outstanding).............. $10.04 ------ ------ INVESTOR C SHARES: Net asset value and offering price per share& ($167,112 / 16,675 shares outstanding)................. $10.02 ------ ------
--------------- *Federal income tax information (see Note 8). @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, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 7). The portion that represents cash collateral is $6,663. (a) All or a portion of security was on loan at March 31, 2002. The aggregate cost and market value of securities on loan at March 31, 2002 is $5,055 and $6,223, respectively. (b) Fair valued security. ADR -- American Depository Receipt GDR -- Global Depository Receipt GDS -- Global Depository Shares
SEE NOTES TO FINANCIAL STATEMENTS. 42 NATIONS FUNDS Nations Emerging Markets Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002 At March 31, 2002, sector diversification was as follows:
% OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) ----------------------------------------------------------------------------------------------- Common stocks: Commercial banking.......................................... 16.4% $ 4,161 Diversified electronics..................................... 13.0 3,267 Semiconductors.............................................. 11.1 2,777 Telecommunications services................................. 9.0 2,267 Metals and mining........................................... 8.9 2,246 Diversified manufacturing................................... 5.0 1,246 Exploration and production.................................. 4.0 1,005 Department and discount stores.............................. 3.5 872 Oil refining and marketing.................................. 3.1 769 Automotive.................................................. 2.9 720 Finance -- Miscellaneous.................................... 2.5 616 Pharmaceuticals............................................. 2.4 595 Integrated oil.............................................. 2.0 507 Natural gas distribution.................................... 2.0 499 Broadcasting and cable...................................... 1.7 424 Beverages................................................... 1.6 399 Software.................................................... 1.4 357 Investment services......................................... 1.3 335 Conglomerates............................................... 1.3 330 Other....................................................... 0.8 201 ----- --------------- TOTAL COMMON STOCKS......................................... 93.9 23,593 PREFERRED STOCKS............................................ 8.4 2,117 WARRANTS.................................................... 0.1 18 INVESTMENT COMPANIES........................................ 26.5 6,663 ----- --------------- TOTAL INVESTMENTS........................................... 128.9 32,391 OTHER ASSETS AND LIABILITIES (NET).......................... (28.9) (7,269) ----- --------------- NET ASSETS.................................................. 100.0% $ 25,122 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 43 NATIONS FUNDS STATEMENTS OF OPERATIONS For the year ended March 31, 2002
GLOBAL INTERNATIONAL INTERNATIONAL INTERNATIONAL EMERGING VALUE(a) VALUE EQUITY OPPORTUNITIES MARKETS -------------------------------------------------------------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $29, $0, $0, $12 and $72, respectively)........................ $ 710 $ -- $ -- $ 74 $ 633 Dividend income from affiliated funds................................ 80 -- -- 2 17 Interest............................... 1 -- -- 25 15 Securities lending..................... 8 -- -- 2 62 Allocated from portfolio: Dividends (Net of foreign withholding taxes of $0, $6,292, $1,824, $0 and $0, respectively)+................... -- 51,413 11,244 -- -- Dividend income from affiliated funds+............................... -- 2,878 611 -- -- Interest+.............................. -- -- 122 -- -- Securities lending+.................... -- 3,076 537 -- -- Expenses (Net of reimbursement of $0, $776, $0, $0 and $0, respectively)+....................... -- (20,891) (5,686) -- -- -------------- -------------- -------------- -------------- -------------- Total investment income............ 799 36,476 6,828 103 727 -------------- -------------- -------------- -------------- -------------- EXPENSES: Investment advisory fee................ 345 -- -- 57 309 Administration fee..................... 84 3,828 1,037 16 68 Transfer agent fees.................... 27 1,184 183 7 9 Custodian fees......................... 28 -- -- 41 34 Legal and audit fees................... 61 98 78 64 66 Registration and filing fees........... 17 370 35 35 41 Trustees' fees and expenses............ 18 29 29 28 29 Interest expense....................... -- -- -- --* 14 Printing expense....................... 42 392 69 35 54 Other.................................. 2 63 41 -- 21 -------------- -------------- -------------- -------------- -------------- Subtotal........................... 624 5,964 1,472 283 645 Shareholder servicing and distribution fees: Investor A Shares.................... 21 1,287 89 5 10 Investor B Shares.................... 53 945 171 20 17 Investor C Shares.................... 105 866 11 9 1 -------------- -------------- -------------- -------------- -------------- Total expenses..................... 803 9,062 1,743 317 673 Fees waived by investment advisor and/or administrator................. (86) -- -- (183) (72) Fees reduced by credits allowed by the custodian............................ (2) -- -- --* -- -------------- -------------- -------------- -------------- -------------- Net expenses....................... 715 9,062 1,743 134 601 -------------- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME/(LOSS)........... 84 27,414 5,085 (31) 126 -------------- -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions................ 1,186 -- -- (926) (8,010) Security transactions allocated from Portfolio+......................... -- 70,829 (100,529) -- -- Foreign currencies and net other assets............................. (34) -- -- (30) (64) Foreign currencies and net other assets allocated from Portfolio+... -- (1,029) (891) -- -- -------------- -------------- -------------- -------------- -------------- Net realized gain/(loss) on investments.......................... 1,152 69,800 (101,420) (956) (8,074) -------------- -------------- -------------- -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities........................... 3,397 -- -- 1,134 12,422 Securities allocated from Portfolio+......................... -- (64,827) 70,073 -- -- Foreign currencies and net other assets............................. 1 -- -- 8 4 -------------- -------------- -------------- -------------- -------------- Net change in unrealized appreciation/ (depreciation) of investments........ 3,398 (64,827) 70,073 1,142 12,426 -------------- -------------- -------------- -------------- -------------- Net realized and unrealized gain/(loss) on investments....................... 4,550 4,973 (31,347) 186 4,352 -------------- -------------- -------------- -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............ $ 4,634 $ 32,387 $ (26,262) $ 155 $ 4,478 ============== ============== ============== ============== ==============
--------------- * Amount represents less than $500. + Allocated from International Value Master Portfolio and International Equity Master Portfolio, respectively. (a)Global Value commenced operations on April 16, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 44 [This page intentionally left blank.] 45 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
GLOBAL VALUE INTERNATIONAL VALUE -------------- -------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED 3/31/02(a) 3/31/02 3/31/01 --------------------------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ 84 $ 27,414 $ 22,150 Net realized gain/(loss) on investments..................... 1,152 -- -- Net realized gain/(loss) on investments allocated from Portfolio+................................................ -- 69,800 33,992 Net change in unrealized appreciation/(depreciation) of investments............................................... 3,398 -- -- Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio+..................... -- (64,827) (103,599) -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ 4,634 32,387 (47,457) Distributions to shareholders from net investment income: Primary A Shares.......................................... (16) (21,300) (9,924) Primary B Shares.......................................... -- -- -- Investor A Shares......................................... (5) (6,264) (2,896) Investor B Shares......................................... -- (582) (484) Investor C Shares......................................... -- (627) (167) Distributions to shareholders from net realized gain on investments: Primary A Shares.......................................... (29) (34,084) (47,333) Primary B Shares.......................................... -- -- -- Investor A Shares......................................... (15) (11,408) (15,320) Investor B Shares......................................... (11) (2,115) (3,941) Investor C Shares......................................... (20) (1,962) (1,209) Net increase/(decrease) in net assets from Fund share transactions.............................................. 113,597 1,523,469 923,753 -------------- -------------- -------------- Net increase/(decrease) in net assets....................... 118,135 1,477,514 795,022 NET ASSETS: Beginning of period......................................... -- 1,646,984 851,962 -------------- -------------- -------------- End of period............................................... $ 118,135 $ 3,124,498 $ 1,646,984 ============== ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of period......... $ 30 $ 6,317 $ 8,633 ============== ============== ==============
--------------- * Amount represents less than $500. + Allocated from International Value Master Portfolio and International Equity Master Portfolio, respectively. (a)Global Value commenced operations on April 16, 2001. (b)International Opportunities commenced operations on August 1, 2000. SEE NOTES TO FINANCIAL STATEMENTS. 46 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INTERNATIONAL EQUITY INTERNATIONAL OPPORTUNITIES EMERGING MARKETS ------------------------------- ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED 3/31/02 3/31/01 3/31/02 3/31/01(B) 3/31/02 3/31/01 ------------------------------------------------------------------------------------------------------- $ 5,085 $ 8,048 $ (31) $ (18) $ 126 $ (242) -- -- (956) (1,768) (8,074) (1,627) (101,420) (29,984) -- -- -- -- -- -- 1,142 16 12,426 (26,159) 70,073 (259,030) -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- (26,262) (280,966) 155 (1,770) 4,478 (28,028) (90) (6,672) -- -- -- (97) -- -- -- -- -- -- -- (230) -- -- -- (7) -- (137) -- -- -- -- -- (4) -- -- -- -- -- (61,780) -- -- -- -- -- --* -- -- -- -- -- (2,143) -- -- -- -- -- (2,308) -- -- -- -- -- (78) -- -- -- -- (246,445) 204,671 (390) 9,049 (19,876) 5,743 -------------- -------------- -------------- -------------- -------------- -------------- (272,797) (149,647) (235) 7,279 (15,398) (22,389) 793,255 942,902 7,279 -- 40,520 62,909 -------------- -------------- -------------- -------------- -------------- -------------- $ 520,458 $ 793,255 $ 7,044 $ 7,279 $ 25,122 $ 40,520 ============== ============== ============== ============== ============== ============== $ (335) $ (10,231) $ -- $ -- $ 13 $ (49) ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 47 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY
GLOBAL VALUE PERIOD ENDED MARCH 31, 2002 ------------------ SHARES DOLLARS ------------------ (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 5,368 $ 53,858 Issued as reinvestment of dividends....................... --* 3 Redeemed.................................................. (676) (6,872) ------ -------- Net increase/(decrease)................................... 4,692 $ 46,989 ====== ======== INVESTOR A SHARES:+ Sold...................................................... 2,660 $ 27,008 Issued as reinvestment of dividends....................... 1 10 Redeemed.................................................. (161) (1,628) ------ -------- Net increase/(decrease)................................... 2,500 $ 25,390 ====== ======== INVESTOR B SHARES:+ Sold...................................................... 1,175 $ 11,824 Issued as reinvestment of dividends....................... 1 6 Redeemed.................................................. (41) (416) ------ -------- Net increase/(decrease)................................... 1,135 $ 11,414 ====== ======== INVESTOR C SHARES:+ Sold...................................................... 3,061 $ 30,685 Issued as reinvestment of dividends....................... 1 14 Redeemed.................................................. (91) (895) ------ -------- Net increase/(decrease)................................... 2,971 $ 29,804 ====== ======== Total net increase/(decrease)............................. 11,298 $113,597 ====== ========
--------------- + Global Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on April 16, 2001. *Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 48 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERNATIONAL VALUE YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 --------------------- --------------------- SHARES DOLLARS SHARES DOLLARS ------------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 87,370 $1,445,271 46,622 $ 863,368 Issued as reinvestment of dividends....................... 1,351 21,389 1,731 30,888 Redeemed.................................................. (32,433) (529,939) (13,064) (241,191) ------- ---------- ------- ---------- Net increase/(decrease)................................... 56,288 $ 936,721 35,289 $ 653,065 ======= ========== ======= ========== INVESTOR A SHARES: Sold...................................................... 76,262 $1,245,590 56,747 $1,051,494 Issued as reinvestment of dividends....................... 797 12,548 763 13,561 Redeemed.................................................. (49,471) (810,553) (46,965) (869,653) ------- ---------- ------- ---------- Net increase/(decrease)................................... 27,588 $ 447,585 10,545 $ 195,402 ======= ========== ======= ========== INVESTOR B SHARES: Sold...................................................... 3,224 $ 52,386 2,235 $ 41,136 Issued as reinvestment of dividends....................... 141 2,201 227 3,980 Redeemed.................................................. (988) (15,784) (473) (8,581) ------- ---------- ------- ---------- Net increase/(decrease)................................... 2,377 $ 38,803 1,989 $ 36,535 ======= ========== ======= ========== INVESTOR C SHARES: Sold...................................................... 7,184 $ 114,565 2,267 $ 41,438 Issued as reinvestment of dividends....................... 114 1,772 62 1,094 Redeemed.................................................. (1,004) (15,977) (208) (3,781) ------- ---------- ------- ---------- Net increase/(decrease)................................... 6,294 $ 100,360 2,121 $ 38,751 ======= ========== ======= ========== Total net increase/(decrease)............................. 92,547 $1,523,469 49,944 $ 923,753 ======= ========== ======= ==========
SEE NOTES TO FINANCIAL STATEMENTS. 49 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERNATIONAL EQUITY YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ----------------------- ----------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 81,708 $ 850,492 119,548 $ 1,587,180 Issued in exchange for: Assets of Boatmen's Trust Company International Equity Fund (Master Trust Note 6)............................ -- -- 2,048 29,129 Primary A Shares of Nations International Growth Fund (Note 9).............................................. -- -- 1,260 17,669 Issued as reinvestment of dividends....................... 7 66 2,495 34,578 Redeemed.................................................. (101,628) (1,072,907) (111,981) (1,479,456) -------- ----------- -------- ----------- Net increase/(decrease)................................... (19,913) $ (222,349) 13,370 $ 189,100 ======== =========== ======== =========== INVESTOR A SHARES: Sold...................................................... 58,348 $ 610,249 106,860 $ 1,413,885 Issued in exchange for Investor A Shares of Nations International Growth Fund (Note 9)...................... -- -- 1,309 18,066 Issued as reinvestment of dividends....................... -- -- 117 1,593 Redeemed.................................................. (59,702) (629,457) (106,625) (1,419,696) -------- ----------- -------- ----------- Net increase/(decrease)................................... (1,354) $ (19,208) 1,661 $ 13,848 ======== =========== ======== =========== INVESTOR B SHARES: Sold...................................................... 369 $ 3,997 854 $ 11,428 Issued in exchange for Investor B Shares of Nations International Growth Fund (Note 9)...................... -- -- 144 1,921 Issued as reinvestment of dividends....................... -- -- 172 2,294 Redeemed.................................................. (874) (9,026) (1,202) (14,802) -------- ----------- -------- ----------- Net increase/(decrease)................................... (505) $ (5,029) (32) $ 841 ======== =========== ======== =========== INVESTOR C SHARES: Sold...................................................... 322 $ 3,070 506 $ 6,177 Issued in exchange for Investor C Shares of Nations International Growth Fund (Note 9)...................... -- -- 30 392 Issued as reinvestment of dividends....................... -- -- 6 81 Redeemed.................................................. (306) (2,929) (492) (5,768) -------- ----------- -------- ----------- Net increase/(decrease)................................... 16 $ 141 50 $ 882 ======== =========== ======== =========== Total net increase/(decrease)............................. (21,756) $ (246,445) 15,049 $ 204,671 ======== =========== ======== ===========
SEE NOTES TO FINANCIAL STATEMENTS. 50 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERNATIONAL OPPORTUNITIES YEAR ENDED PERIOD ENDED MARCH 31, 2002 MARCH 31, 2001 ----------------- ----------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 276 $ 2,233 189 $ 1,855 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (137) (1,096) (5) (43) ---- ------- ---- ------- Net increase/(decrease)................................... 139 $ 1,137 184 $ 1,812 ==== ======= ==== ======= INVESTOR A SHARES:+ Sold...................................................... 116 $ 903 524 $ 5,045 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (282) (2,187) (175) (1,586) ---- ------- ---- ------- Net increase/(decrease)................................... (166) $(1,284) 349 $ 3,459 ==== ======= ==== ======= INVESTOR B SHARES:+ Sold...................................................... 23 $ 189 272 $ 2,713 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (41) (309) (18) (153) ---- ------- ---- ------- Net increase/(decrease)................................... (18) $ (120) 254 $ 2,560 ==== ======= ==== ======= INVESTOR C SHARES:+ Sold...................................................... 8 $ 64 139 $ 1,376 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (24) (187) (17) (158) ---- ------- ---- ------- Net increase/(decrease)................................... (16) $ (123) 122 $ 1,218 ==== ======= ==== ======= Total net increase/(decrease)............................. (61) $ (390) 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. 51 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
EMERGING MARKETS YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 4,897 $ 44,247 4,079 $ 44,819 Issued as reinvestment of dividends....................... -- -- 1 6 Redeemed.................................................. (6,934) (63,313) (3,739) (40,979) ------ -------- ------ -------- Net increase/(decrease)................................... (2,037) $(19,066) 341 $ 3,846 ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 1,373 $ 11,971 1,719 $ 19,992 Issued as reinvestment of dividends....................... -- -- 1 7 Redeemed.................................................. (1,485) (12,833) (1,482) (17,808) ------ -------- ------ -------- Net increase/(decrease)................................... (112) $ (862) 238 $ 2,191 ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 36 $ 320 27 $ 304 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (41) (347) (53) (594) ------ -------- ------ -------- Net increase/(decrease)................................... (5) $ (27) (26) $ (290) ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 14 $ 116 5 $ 46 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (5) (37) (5) (50) ------ -------- ------ -------- Net increase/(decrease)................................... 9 $ 79 --* $ (4) ====== ======== ====== ======== Total net increase/(decrease)............................. (2,145) $(19,876) 553 $ 5,743 ====== ======== ====== ========
--------------- *Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 52 [This page intentionally left blank] 53 NATIONS FUNDS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME ------------------------------------------------------------------------- GLOBAL VALUE: PRIMARY A SHARES Period ended 3/31/2002*#.................. $10.00 $ 0.06 $0.47 $0.53 $(0.01) INVESTOR A SHARES Period ended 3/31/2002*#.................. $10.00 $ 0.04 $0.45 $0.49 $ --## INVESTOR B SHARES Period ended 3/31/2002*#.................. $10.00 $(0.03) $0.45 $0.42 $ -- INVESTOR C SHARES Period ended 3/31/2002*#.................. $10.00 $(0.03) $0.45 $0.42 $ -- DISTRIBUTIONS FROM NET REALIZED GAINS ------------- GLOBAL VALUE: PRIMARY A SHARES Period ended 3/31/2002*#.................. $(0.02) INVESTOR A SHARES Period ended 3/31/2002*#.................. $(0.02) INVESTOR B SHARES Period ended 3/31/2002*#.................. $(0.02) INVESTOR C SHARES Period ended 3/31/2002*#.................. $(0.02)
--------------- * Global Value Primary A, Investor A, Investor B and Investor C Shares commenced operation on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average 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%. SEE NOTES TO FINANCIAL STATEMENTS. 54 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING TOTAL NET ASSET END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO DIVIDENDS AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS+ ASSETS+ RATE NET ASSETS+ --------------------------------------------------------------------------------------------------------------------------- $(0.03) $10.50 5.24% $49,246 1.40%(a) 0.66% 19% 1.63%(a) $(0.02) $10.47 4.92% $26,172 1.65%(a) 0.41% 19% 1.88%(a) $(0.02) $10.40 4.18% $11,804 2.40%(a) (0.34)% 19% 2.63%(a) $(0.02) $10.40 4.18% $30,914 2.40%(a) (0.34)% 19% 2.63%(a)
SEE NOTES TO FINANCIAL STATEMENTS. 55 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME ------------------------------------------------------------------------- INTERNATIONAL VALUE: PRIMARY A SHARES* Year ended 3/31/2002#..................... $17.30 $0.22 $(0.29) $(0.07) $(0.20) 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 (0.10) INVESTOR A SHARES* Year ended 3/31/2002#..................... $17.26 $0.18 $(0.29) $(0.11) $(0.18) 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 (0.06) INVESTOR B SHARES Year ended 3/31/2002#..................... $17.07 $0.07 $(0.30) $(0.23) $(0.09) 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 3/31/2002#..................... $17.07 $0.04 $(0.27) $(0.23) $(0.09) 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 3/31/2002#..................... $(0.36) 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) INVESTOR A SHARES* Year ended 3/31/2002#..................... $(0.36) 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) INVESTOR B SHARES Year ended 3/31/2002#..................... $(0.36) 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 3/31/2002#..................... $(0.36) 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 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. 56 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF NET ASSETS OPERATING INVESTMENT OPERATING TOTAL NET ASSET END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO DIVIDENDS AND VALUE TOTAL PERIOD AVERAGE NET TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS NET ASSETS RATE NET ASSETS ----------------------------------------------------------------------------------------------------------------- $(0.56) $16.67 (0.18)% $2,059,558 1.19% 1.36% -- 1.23% (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 $(0.54) $16.61 (0.46)% $ 798,587 1.44% 1.11% -- 1.48% (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 $(0.45) $16.39 (1.16)% $ 116,374 2.19% 0.36% -- 2.23% (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+ $(0.45) $16.39 (1.16)% $ 149,979 2.19% 0.36% -- 2.23% (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. 57 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each year.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME ------------------------------------------------------------------------- INTERNATIONAL EQUITY: PRIMARY A SHARES Year ended 3/31/2002#..................... $11.12 $ 0.09 $(0.72) $(0.63) $ --## 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 (0.22) INVESTOR A SHARES Year ended 3/31/2002#..................... $10.95 $ 0.06 $(0.71) $(0.65) $ -- 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 (0.19) INVESTOR B SHARES Year ended 3/31/2002#..................... $10.56 $(0.01) $(0.68) $(0.69) $ -- Year ended 3/31/2001#..................... 16.06 -- (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 -- INVESTOR C SHARES Year ended 3/31/2002#..................... $10.30 $(0.01) $(0.66) $(0.67) $ -- 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 (0.12) DISTRIBUTIONS FROM NET REALIZED GAINS ------------- INTERNATIONAL EQUITY: PRIMARY A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... (1.16) Year ended 3/31/2000#..................... (2.33) Year ended 3/31/1999#..................... (1.07) Year ended 3/31/1998#..................... (0.16) INVESTOR A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... (1.16) Year ended 3/31/2000#..................... (2.33) Year ended 3/31/1999#..................... (1.07) Year ended 3/31/1998#..................... (0.16) INVESTOR B SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... (1.16) Year ended 3/31/2000#..................... (2.33) Year ended 3/31/1999#..................... (1.07) Year ended 3/31/1998#..................... (0.16) INVESTOR C SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... (1.16) Year ended 3/31/2000#..................... (2.33) Year ended 3/31/1999#..................... (1.07) Year ended 3/31/1998#..................... (0.16)
--------------- ++ 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. 58 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF NET ASSETS OPERATING INVESTMENT OPERATING TOTAL NET ASSET END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO DIVIDENDS AND VALUE TOTAL PERIOD AVERAGE NET TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS NET ASSETS RATE NET ASSETS ----------------------------------------------------------------------------------------------------------------- $ --## $10.49 (5.65)% $474,738 1.16% 0.88% -- 1.16% (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 $ -- $10.30 (5.94)% $ 30,067 1.41% 0.63% -- 1.41% (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 $ -- $ 9.87 (6.53)% $ 14,408 2.16% (0.12)% -- 2.16% (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 $ -- $ 9.63 (6.50)% $ 1,245 2.16% (0.12)% -- 2.16% (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
SEE NOTES TO FINANCIAL STATEMENTS. 59 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 Year ended 3/31/2002#..................... $ 8.03 $(0.01) $ 0.34 $ 0.33 Period ended 3/31/2001*#.................. 10.00 --## (1.97) (1.97) INVESTOR A SHARES Year ended 3/31/2002#..................... $ 8.01 $(0.01) $ 0.32 $ 0.31 Period ended 3/31/2001*#.................. 10.00 (0.01) (1.98) (1.99) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 7.97 $(0.07) $ 0.32 $ 0.25 Period ended 3/31/2001*#.................. 10.00 (0.08) (1.95) (2.03) INVESTOR C SHARES Year ended 3/31/2002#..................... $ 7.97 $(0.07) $ 0.32 $ 0.25 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. (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. 60 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF NET ASSETS OPERATING INVESTMENT OPERATING NET ASSET END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD AVERAGE NET TO AVERAGE TURNOVER AVERAGE END OF PERIOD RETURN++ (000) ASSETS NET ASSETS RATE NET ASSETS ------------------------------------------------------------------------------------------------- $8.36 4.11% $2,700 1.42%(a)(b) (0.08)% 307% 4.02%(a) 8.03 (19.70) 1,477 1.47+ 0.12+ 442 6.28+ $8.32 3.87% $1,526 1.67%(a)(b) (0.33)% 307% 4.27%(a) 8.01 (19.90) 2,797 1.72+ (0.13)+ 442 6.53+ $8.22 3.14% $1,951 2.42%(a)(b) (1.08)% 307% 5.02%(a) 7.97 (20.30) 2,031 2.47+ (0.88)+ 442 7.28+ $8.22 3.14% $ 869 2.42%(a)(b) (1.08)% 307% 5.02%(a) 7.97 (20.30) 974 2.47+ (0.88)+ 442 7.28+
SEE NOTES TO FINANCIAL STATEMENTS. 61 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each year.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME ------------------------------------------------------------------------- EMERGING MARKETS: PRIMARY A SHARES Year ended 3/31/2002#..................... $ 8.92 $ 0.05 $ 1.52 $ 1.57 $ -- Year ended 3/31/2001#..................... 15.76 (0.05) (6.76) (6.81) (0.03) 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) INVESTOR A SHARES Year ended 3/31/2002#..................... $ 8.84 $ 0.01 $ 1.52 $ 1.53 $ -- Year ended 3/31/2001#..................... 15.65 (0.04) (6.75) (6.79) (0.02) 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) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 8.62 $(0.06) $ 1.48 $ 1.42 $ -- 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) -- INVESTOR C SHARES Year ended 3/31/2002#..................... $ 8.61 $(0.06) $ 1.47 $ 1.41 $ -- 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) DISTRIBUTIONS FROM NET REALIZED GAINS ------------- EMERGING MARKETS: PRIMARY A SHARES Year ended 3/31/2002#..................... $-- Year ended 3/31/2001#..................... -- Year ended 3/31/2000#..................... -- Year ended 3/31/1999#..................... -- Year ended 3/31/1998#..................... -- INVESTOR A SHARES Year ended 3/31/2002#..................... $-- Year ended 3/31/2001#..................... -- Year ended 3/31/2000#..................... -- Year ended 3/31/1999#..................... -- Year ended 3/31/1998#..................... -- INVESTOR B SHARES Year ended 3/31/2002#..................... $-- Year ended 3/31/2001#..................... -- Year ended 3/31/2000#..................... -- Year ended 3/31/1999#..................... -- Year ended 3/31/1998#..................... -- INVESTOR C SHARES Year ended 3/31/2002#..................... $-- Year ended 3/31/2001#..................... -- Year ended 3/31/2000#..................... -- Year ended 3/31/1999#..................... -- Year ended 3/31/1998#..................... --
--------------- ++ 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. (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. 62 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS RATIO OF NET AND/OR EXPENSE OPERATING REIMBURSEMENTS EXPENSES --------------- RATIO OF INCLUDING RATIO OF NET RATIO OF NET ASSETS OPERATING INTEREST INVESTMENT OPERATING TOTAL NET ASSET END OF EXPENSES TO EXPENSE INCOME/(LOSS) PORTFOLIO EXPENSES TO DIVIDENDS AND VALUE TOTAL PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS NET ASSETS NET ASSETS RATE NET ASSETS -------------------------------------------------------------------------------------------------------------------------------- $ -- $10.49 17.60% $19,640 1.80% 1.85% 0.54% 102% 2.08% (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 $ -- $10.37 17.31% $ 3,354 2.05% 2.10% 0.29% 102% 2.33% (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 $ -- $10.04 16.47% $ 1,961 2.80% 2.85% (0.46)% 102% 3.08% -- 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 $ -- $10.02 16.38% $ 167 2.80% 2.85% (0.46)% 102% 3.08% -- 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
SEE NOTES TO FINANCIAL STATEMENTS. 63 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, 2002, Reserves offered thirteen separate portfolios and Funds Trust offered eighteen separate portfolios. These financial statements pertain only to the international stock portfolios of Reserves and Funds Trust: Global Value Fund, 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 (85.5% for International Value Master Portfolio and 100.0% for International Equity Master Portfolio at March 31, 2002). 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, LLC ("BA Advisors"), whose financial statements are not presented here, also invest in the International Value Master Portfolio. International Opportunities Fund operates 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 as of and for the year ended March 31, 2002 represented substantially all of the beneficial interests in the International Opportunities Master Portfolio, the financial statements for the International Opportunities Fund reflect the consolidation of the International Opportunities Master Portfolio. Separate financial statements for 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, including futures contracts, 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. Securities which are primarily traded on foreign securities exchanges are valued at the last available closing values on their respective exchanges where primarily traded, or at the mean between the closing bid and ask prices if no sales are recorded. 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. Investments in other Nations Funds are valued at their net 64 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) asset value determined as of the close of the New York Stock Exchange on the valuation date. 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 for the purposes of hedging against changes in values of the Fund's securities or changes in the prevailing levels of interest rates or currency exchange rates or to gain exposure to the equity market. 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". 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. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of net assets. Foreign currency transactions: The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of 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. 65 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. Dividends and distributions to shareholders: Distributions from net investment income, if any, are declared and paid each calendar quarter for all Funds except Global Value and International Value, which declare and pay 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. 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. 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, Funds Trust and Master Trust has entered into an investment advisory agreement (the "Investment Advisory Agreements") with BA Advisors, 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 BA Advisors provides investment advisory services to the Funds. Under the terms of the Investment Advisory Agreements, BA Advisors 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 ----------- Global Value................................. 0.90% 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). Funds Trust has, on behalf of the Global Value Fund, entered into a sub-advisory agreement with BA Advisors and Brandes Investment Partners, L.P. ("Brandes") pursuant to which Brandes is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.50% of the first $1 billion of the Fund's average daily net assets and 0.45% over $1 billion of the Fund's average daily net assets. Master Trust has, on behalf of the International Opportunities Fund, entered into a sub-advisory agreement with BA Advisors and Marsico Capital Management, LLC ("Marsico"), a wholly-owned 66 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) subsidiary of Bank of America, pursuant to which Marsico is entitled to receive a sub-advisory fee from BA Advisors 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 BA Advisors 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 BA Advisors at the maximum annual rate of 0.66% of the Fund's average daily net assets. Effective February 1, 2002, Gartmore has agreed to voluntarily waive half of these expenses. There is no guarantee that this waiver will continue in the future. 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 BA Advisors serve as co-administrators of Reserves and Funds Trust. Under the co-administration agreements, Stephens and BA Advisors 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 Global Value Fund, 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 BA Advisors. For the year ended March 31, 2002, Stephens and BA Advisors earned 0.07% and 0.05%, respectively, of the Funds' average daily net assets for their co-administration services. BA Advisors and/or the sub-advisers and/or Stephens may from time to time, reduce their fees payable by each Fund. From April 1, 2001 until July 31, 2001, BA Advisors and/or the sub-advisers and/or Stephens agreed to reimburse expenses and/or waive fees to the extent that total expenses (excluding shareholder servicing and distribution fees), exceeded an annual rate of 1.90% of Emerging Markets Fund's average daily net assets. Effective September 7, 2001, BA Advisors and/or the sub-advisors and/or Stephens have agreed to voluntarily reimburse expenses and/or waive fees 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. There is no guarantee that this expense limitation will continue. During the year ended March 31, 2002 and until July 31, 2002, BA Advisors and/or the sub-advisers and Stephens have agreed to reimburse expenses and/or waive fees to the extent that total expenses (excluding shareholder servicing and distribution fees) exceed an annual rate of 1.40% of Global Value Fund's average daily net assets and 1.50% of International Opportunities Fund's average daily net assets. There is no guarantee that these expense limitations will continue after this date. BA Advisors is entitled to recover from Global Value Fund any fees waived or expenses reimbursed during the three year period following such waiver or reimbursement, to the extent that such recovery would not cause the affected fund to exceed the expense limitations in effect at the time of recovery. At March 31, 2002, $86,375 for Global Value Fund is potentially recoverable by BA Advisors pursuant to this arrangement. BNY serves as the custodian of the Reserves' and Funds Trust's assets. For the year ended March 31, 2002, expenses of the Funds were reduced by $2,006 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. The Emerging Markets Fund does not participate in the expense offset arrangement. 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, 2002, Bank of America earned approximately $23,290 for providing such services. Stephens also serves as distributor of the Funds' shares. For the year ended March 31, 2002, the Funds were informed that the distributor received $1,228,229 in front-end sales charges for sales of Investor A Shares and $377,398 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 BA Advisors, 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 67 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. Effective January 1, 2002, the retirement plan was terminated. Reserves' and Funds Trust's eligible Trustees had the option of a rollover into the deferred compensation plan on January 1, 2002 or a lump sum distribution, including interest, on January 1, 2003. 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 Global Value Fund and the International Opportunities Master Portfolio 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. The income earned by each Fund from such investments is included in its Statement of operations as "Dividend income from affiliated funds." 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/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 BA Advisors. For the year ended March 31, 2002, 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, 2002 were as follows:
PURCHASES SALES (000) (000) -------------------- Global Value..................... $117,739 $ 7,303 International Opportunities...... 20,613 20,327 Emerging Markets................. 30,911 42,994
There were no purchases or sales of long-term U.S. government securities for the year ended March 31, 2002. 5. SHARES OF BENEFICIAL INTEREST As of March 31, 2002, 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. 6. LINES OF CREDIT Reserves and Funds Trust each participate with other Nations Funds in a $1 billion 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 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. At March 31, 2002, there were no loans outstanding under this Agreement. For the year ended March 31, 68 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2002, borrowings by the Funds under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST FUND (000) RATE ----------------------------------------------------------- Emerging Markets.................. $398 3.41% International Opportunities....... 251 2.92
The average amount outstanding was calculated based on daily balances in the period. 7. 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, 2002, the following Funds had securities on loan:
MARKET VALUE OF MARKET VALUE LOANED SECURITIES OF COLLATERAL FUND (000) (000) ---------------------------------------------------------------- Global Value.............. $18,816 $19,594 International Opportunities........... 333 347 Emerging Markets.......... 6,223 6,663
8. INCOME TAXES Information on the tax components of capital is as follows:
NET TAX UNREALIZED APPRECIATION/ (DEPRECIATION) ON NET TAX UNREALIZED DERIVATIVES AND UNDISTRIBUTED COST OF GROSS TAX GROSS TAX APPRECIATION/ FOREIGN CURRENCY ORDINARY INCOME/ INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION) ON AND NET OTHER (ACCUMULATED TAX PURPOSES APPRECIATION DEPRECIATION INVESTMENTS ASSETS ORDINARY LOSS) FUND (000) (000) (000) (000) (000) (000) --------------------------------------------------------------------------------------------------------------------------------- Global Value......... $137,269 $6,254 $(2,857) $ 3,397 $1 $ 1,101 International Value.............. N/A** N/A** N/A** (126,214) -- 17,750 International Equity............. N/A** N/A** N/A** (2,527) -- (319) International Opportunities...... 6,455 1,205 (252) 953 1 --* Emerging Markets..... 29,633 4,911 (2,153) 2,758 --* 13 UNDISTRIBUTED LONG-TERM GAINS/ (ACCUMULATED CAPITAL LOSS) FUND (000) --------------------- ---------------- Global Value......... $ -- International Value.............. 7,714 International Equity............. (128,015) International Opportunities...... (2,499) Emerging Markets..... (26,448)
--------------- * Amount represents less than $500. ** See corresponding Master portfolio for "tax basis" information. At March 31, 2002, the following Funds had available for federal income tax purposes unused capital losses as follows:
EXPIRING IN EXPIRING IN EXPIRING IN 2007 2009 2010 FUND (000) (000) (000) ------------------------------------------------------------------------------------------------------- International Equity........................................ -- -- $128,015 International Opportunities................................. -- $166 2,333 Emerging Markets............................................ $14,260 -- 9,088
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 fiscal year ended March 31, 2002, the following Funds elected to defer losses occurring between 69 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) November 1, 2001 and March 31, 2002 under these rules, as follows:
CAPITAL CURRENCY LOSSES LOSSES DEFERRED DEFERRED FUND (000) (000) ---------------------------------------------------------- Global Value......................... $ -- $ 23 International Value.................. -- 1,032 International Equity................. -- 319 International Opportunities.......... -- 66 Emerging Markets..................... 3,100 23
The tax composition of dividends (other than return of capital dividends for the year) was as follows:
ORDINARY LONG-TERM INCOME CAPITAL GAINS FUND (000) (000) ------------------------------------------------------------ Global Value...................... $ 96 $ -- International Value............... 35,644 42,698 International Equity.............. 90 -- International Opportunities....... -- -- Emerging Markets.................. -- --
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 primarily 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. 9. 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 OF ACQUIRED FUND TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED ACQUIRED FUND ACQUIRING FUND AFTER CONVERSION APPRECIATION (000) (000) (000) (000) ------------------------------------------------------------------------------- $29,129 $868,368 $897,497 $5,808
FUND REORGANIZATION 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:
ACQUIRED TOTAL NET ASSETS OF FUND TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED ACQUIRED FUND ACQUIRING FUND AFTER ACQUISITION APPRECIATION (000) (000) (000) (000) ------------------------------------------------------------------------------ $38,048 $1,023,329 $1,061,377 $8,750
70 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. SUBSEQUENT EVENT On October 10, 2001, the Board of Trustees of each fund listed in the left column below (each a "Fund") approved its reorganization into a newly created successor fund that is substantially identical to the existing Fund. On March 27, 2002, the shareholders of each Fund approved the reorganization. The reorganization occurred on May 10, 2002. At that time, shares of each Fund were exchanged for shares of equal value of the newly created successor fund. The principal effect of this reorganization was to redomicile the Fund in Delaware, under a Delaware business trust structure that management believes provides greater flexibility and efficiency in certain corporate and organizational matters.
REORGANIZED INTO A NEWLY CREATED FUND SUCCESSOR -------------------------------------------------------- International Value International Value International Equity International Equity Emerging Markets Emerging Markets
71 NATIONS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF NATIONS RESERVES AND NATIONS FUNDS TRUST 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, Nations Emerging Markets Fund and Nations Global Value Fund (constituting parts of Nations Reserves or Nations Funds Trust, hereafter referred to as the "Funds") at March 31, 2002, 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 (other than those periods discussed in the last sentence of this paragraph), 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, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of Nations International Value Fund, formerly Emerald International Equity Fund, for the period ended May 15, 1998 and the year ended November 30, 1997 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 23, 2002 72 NATIONS FUND TAX INFORMATION (UNAUDITED) For the fiscal year ended March 31, 2002, the amount of long-term capital gain designated by Nations International Value Fund was $51,487,029. Of the ordinary income (including short-term capital gain) distributions made by the Nations Global Value Fund during the fiscal year ended March 31, 2002, 38.77% qualify for the dividend received deduction available to corporate shareholders. For the fiscal year ended March 31, 2002, the total amount of income received by International Value Fund from sources within foreign countries and possessions of the United States was a total of $57,367,765. The total amount of taxes paid by International Value Fund to such countries was $6,291,688. 73 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio and Nations International Equity Master Portfolio Annual Report MARCH 31, 2002 The following pages should be read in conjunction with Nations International Value and Nations International Equity Funds' Annual Report. 74 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) ------------------------------------------------------------------------------------ COMMON STOCKS -- 96.9% ARGENTINA -- 0.1% 843,100 Telecom Argentina Stet - France Telecom SA, ADR(a)....... $ 2,411 ----------- BERMUDA -- 1.3% 1,463,580 Tyco International Ltd. ................................. 47,303 ----------- BRAZIL -- 5.1% 567,840 Banco Bradesco SA, ADR(a)................................ 17,183 241,760 Brasil Telecom Participacoes SA, ADR(a).................. 9,646 7,567,270 Centrais Eletricas Brasileiras SA, ADR(a)................ 63,332 1,740,000 Companhia Vale do Rio Doce, ADR(a)....................... 46,110 1,984,600 Petroleo Brasileiro SA-'A', ADR.......................... 49,476 ----------- 185,747 ----------- CANADA -- 0.2% 609,000 TELUS Corporation, Non Voting Shares(a).................. 6,455 ----------- CHINA -- 0.5% 939,000 PetroChina Company Ltd., ADR(a).......................... 19,644 ----------- FRANCE -- 6.4% 5,772,100 Alcatel SA, ADR(a)....................................... 81,791 1,071,000 Alstom SA, ADR(a)........................................ 14,459 1,426,100 Compagnie Generale des Etablissements Michelin........... 54,168 3,710,000 European Aeronautic Defence and Space Company!!(a)....... 52,302 219,700 Provimi!!................................................ 4,121 341,170 Total Fina Elf SA, ADR(a)................................ 26,134 ----------- 232,975 ----------- GERMANY -- 5.5% 1,094,000 BASF AG, ADR(a).......................................... 44,668 1,416,700 Bayerische Hypo-und Vereinsbank AG, ADR(a)............... 51,537 621,710 Deutsche Telekom AG(a)................................... 9,383 2,825,800 Deutsche Telekom AG, ADR(a).............................. 42,330 1,048,900 E.On AG, ADR(a).......................................... 52,969 ----------- 200,887 ----------- HONG KONG -- 0.9% 6,316,000 Swire Pacific, Ltd. 'A', ADR............................. 34,172 ----------- IRELAND -- 1.9% 1,852,140 Allied Irish Banks plc, ADR(a)........................... 44,451 609,000 Bank of Ireland, ADR(a).................................. 26,327 ----------- 70,778 -----------
VALUE SHARES (000) ------------------------------------------------------------------------------------ ITALY -- 3.6% 484,840 ENI SpA, ADR(a).......................................... $ 34,933 21,334,000 IntesaBci SpA!!.......................................... 64,022 374,390 Telecom Italia SpA, ADR(a)............................... 30,606 ----------- 129,561 ----------- JAPAN -- 20.6% 188,000 Daiichi Pharmaceutical Company, Ltd. .................... 3,511 5,141,000 Daiwa House Industry Company, Ltd.(a).................... 32,195 1,199,825 Hitachi, Ltd., ADR(a).................................... 88,246 10,935 Japan Tobacco, Inc. ..................................... 66,253 1,904,950 Komatsu Ltd., ADR(a)..................................... 27,252 1,230,000 Komatsu Ltd.(a).......................................... 4,399 5,846,310 Matsushita Electric Industrial Company Ltd., ADR(a)...... 72,202 609,000 Matsushita Electric Industrial Company, Ltd.(a).......... 7,426 10,262,000 Mitsubishi Heavy Industries, Ltd. ....................... 33,604 11,021,990 Mitsubishi Tokyo Financial Group Inc.(a)................. 67,785 15,789,000 Nippon Mitsubishi Oil Corporation........................ 75,172 2,571,180 Nippon Telegraph and Telephone Corporation, ADR.......... 49,752 1,125,000 Ono Pharmaceutical Company, Ltd. ........................ 34,208 3,648,000 Sankyo Company, Ltd. .................................... 55,737 2,986,000 Sumitomo Mitsui Banking Corporation...................... 12,437 10,757,100 Sumitomo Mitsui Banking Corporation, ADR!!(a)............ 44,802 1,365,600 TDK Corporation, ADR(a).................................. 73,060 ----------- 748,041 ----------- MEXICO -- 4.0% 2,244,200 America Movil SA de CV 'L', ADR(a)....................... 44,570 2,520,850 Telefonos de Mexico SA de CV 'L', ADR(a)................. 101,818 ----------- 146,388 ----------- NETHERLANDS -- 1.6% 2,605,400 ABN AMRO Holding NV, ADR(a).............................. 49,398 187,000 Akzo Nobel NV, ADR....................................... 8,776 ----------- 58,174 ----------- NEW ZEALAND -- 0.8% 1,651,200 Telecom Corporation of New Zealand Ltd., ADR(a).......... 27,955 ----------- PORTUGAL -- 1.4% 6,830,776 Portugal Telecommunications, SGPS, SA, ADR!!(a).......... 50,343 ----------- SINGAPORE -- 4.2% 263,453 DBS Group Holdings Ltd., ADR............................. 8,458 8,994,000 Development Bank of Singapore!!@......................... 72,190 3,464,100 Jardine Matheson Holdings, Ltd., ADR..................... 19,053 7,142,000 Oversea-Chinese Banking Corporation Ltd. ................ 53,452 ----------- 153,153 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 75 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE SHARES (000) ------------------------------------------------------------------------------------ SOUTH KOREA -- 3.9% 4,783,000 Korea Electric Power Corporation, ADR!!(a)............... $ 50,413 2,150,700 Korea Telecom Corporation, ADR(a)........................ 51,574 1,527,400 Pohang Iron & Steel Company Ltd., ADR(a)................. 39,942 ----------- 141,929 ----------- SPAIN -- 9.3% 2,435,400 Altadis, SA!!(a)......................................... 44,722 8,288,433 Banco Bilbao Vizcaya Argentaria SA, ADR(a)............... 97,638 10,301,530 Repsol YPF SA, ADR(a).................................... 130,828 1,982,944 Telefonica SA, ADR!!..................................... 65,655 ----------- 338,843 ----------- SWITZERLAND -- 3.7% 869,700 Swisscom AG, ADR(a)...................................... 26,004 4,733,619 Zurich Financial Services AG, ADR(a)..................... 109,769 ----------- 135,773 ----------- UNITED KINGDOM -- 21.1% 365,000 Allied Domecq plc, ADR................................... 2,236 5,174,700 BAE Systems plc, ADR(a).................................. 98,741 2,620,100 British American Tobacco plc, ADR(a)..................... 50,149 1,540,000 British Energy plc, ADR(a)............................... 16,601 472,030 BT Group plc, ADR!!(a)................................... 18,966 3,804,000 Corus Group plc, ADR!!(a)................................ 46,675 12,147,935 Friends Provident plc!!.................................. 33,735 28,000,000 Granada plc@............................................. 54,628 1,241,500 HSBC Holdings plc, ADR(a)................................ 72,355 4,238,673 Imperial Chemical Industries plc, ADR(a)................. 80,577 336,200 Innogy Holdings plc, ADR................................. 12,843 18,541,415 Invensys plc, ADR(a)..................................... 65,742 1,658,281 Marks & Spencer Group plc, ADR!!(a)...................... 54,973 472,030 mmO2 plc, ADR!!.......................................... 4,621 312,000 Rolls-Royce plc, ADR(a).................................. 4,165 12,708,200 Royal & Sun Alliance Insurance Group plc................. 53,388 2,515,850 South African Breweries plc@............................. 17,574 379,600 South African Breweries plc.............................. 2,652 4,967,200 South African Breweries plc, ADR(a)...................... 34,353 1,352,600 Unilever plc, ADR(a)..................................... 42,877 ----------- 767,851 ----------- VENEZUELA -- 0.8% 2,071,225 Cia Anonima Nacional Telefonos de Venezuela, ADR......... 28,583 ----------- TOTAL COMMON STOCKS (Cost: $3,637,900)..................................... 3,526,966 ----------- PREFERRED STOCKS -- 1.1% BRAZIL -- 1.1% 882,000 Companhia de Bebidas das Americas, ADR(a)................ 17,208
VALUE SHARES (000) ------------------------------------------------------------------------------------ BRAZIL -- (CONTINUED) 663,200 Telecomunicacoes Brasileiras SA - Telebras, ADR(a)....... $ 21,919 ----------- 39,127 ----------- TOTAL PREFERRED STOCKS (Cost: $55,566)........................................ 39,127 ----------- SHARES (000) ---------- INVESTMENT COMPANIES -- 31.4% (Cost: $1,142,527) 1,142,527 Nations Cash Reserves, Capital Class Shares#............. 1,142,527 ----------- TOTAL INVESTMENTS (Cost $4,835,993*).............................. 129.4% 4,708,620 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (29.4)% Cash..................................................... $ 257 Foreign cash (cost $46,733).............................. 46,754 Receivable for investment securities sold................ 12,254 Dividends receivable..................................... 16,712 Interest receivable...................................... 247 Collateral on securities loaned.......................... (1,049,219) Investment advisory fee payable.......................... (2,549) Administration fee payable............................... (150) Payable for investment securities purchased.............. (93,497) Accrued Trustees' fees and expenses...................... (29) Accrued expenses and other liabilities................... (116) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (1,069,336) ----------- NET ASSETS........................................ 100.0% $ 3,639,284 ===========
--------------- *Federal Income Tax Information: Net unrealized depreciation of $127,373 on investment securities was comprised of gross appreciation of $277,932 and gross depreciation of $405,305 for federal income tax purposes. At March 31, 2002, the aggregate cost of securities for federal income tax purposes was $4,835,993. @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. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 5). The portion that represents cash collateral is $1,049,219. (a) All or a portion of security was on loan at March 31, 2002. The aggregate cost and market value of securities on loan at March 31, 2002 is $1,087,619 and $986,708, respectively. ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 76 NATIONS MASTER INVESTMENT TRUST Nations International Value Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002 At March 31, 2002, sector diversification was as follows:
% OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) ----------------------------------------------------------------------------------------------- Common stocks: Telecommunications services................................. 16.2% $ 592,591 Diversified electronics..................................... 15.2 554,039 Intergrated oil............................................. 7.2 261,015 Electrical equipment........................................ 4.8 175,765 Financial services.......................................... 4.5 162,994 Tobacco..................................................... 4.4 161,124 Aerospace and defense....................................... 4.3 155,208 Electrical power -- Non nuclear............................. 3.5 129,144 Banking..................................................... 3.5 127,996 Housing and furnishing...................................... 2.9 104,397 Heavy machinery............................................. 2.7 97,393 Pharmaceuticals............................................. 2.6 93,456 Insurance................................................... 2.4 87,123 Metals and mining........................................... 2.4 86,052 Networking and telecommunications equipment................. 2.2 81,791 Conglomerates............................................... 2.2 80,907 Chemicals -- Basic.......................................... 2.2 80,577 Oil and gas................................................. 2.1 75,172 Beverages................................................... 2.1 74,023 Other....................................................... 9.5 346,199 ----- --------------- TOTAL COMMON STOCKS......................................... 96.9 3,526,966 PREFERRED STOCKS............................................ 1.1 39,127 INVESTMENT COMPANIES........................................ 31.4 1,142,527 ----- --------------- TOTAL INVESTMENTS........................................... 129.4 4,708,620 OTHER ASSETS AND LIABILITIES (NET).......................... (29.4) (1,069,336) ----- --------------- NET ASSETS.................................................. 100.0% $ 3,639,284 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 77 NATIONS MASTER INVESTMENT FUNDS Nations International Equity Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) --------------------------------------------------------------------------------- COMMON STOCKS -- 95.0% AUSTRALIA -- 2.0% 197,043 Broken Hill Proprietary Company, Ltd. ................... $ 1,199 235,000 National Australia Bank Ltd. ............................ 4,285 367,034 Publishing & Broadcasting Limited........................ 1,949 33,620 Rio Tinto Ltd. .......................................... 676 86,205 The News Corporation Ltd., ADR........................... 2,447 -------- 10,556 -------- BELGIUM -- 0.2% 59,338 Dexia.................................................... 897 -------- BERMUDA -- 0.6% 108,690 Accenture Ltd.!!@(a)..................................... 2,902 -------- BRAZIL -- 1.6% 5,000 Banco Bradesco SA, ADR(a)................................ 151 9,500 Banco Itau SA, ADR....................................... 381 29,400 Companhia Paranaense de Energia-Copel, ADR(a)............ 229 14,900 Companhia Vale do Rio Doce, ADR.......................... 395 48,800 Companhia Vale do Rio Doce!!............................. 1,337 67,289 Embraer Aircraft Corporation, ADR(a)..................... 1,358 149,275 Petroleo Brasileiro SA, ADR(a)........................... 3,951 18,700 Unibanco - Uniao De Bancos Brasileiros SA(a)............. 457 -------- 8,259 -------- CANADA -- 3.3% 108,000 Barrick Gold Corporation(a).............................. 2,004 56,696 Canadian National Railway Company(a)..................... 2,833 12,620 Royal Bank of Canada..................................... 421 112,052 Shaw Communications Inc. ................................ 2,007 68,295 Sun Life Financial Services of Canada.................... 1,475 22,516 Suncor Energy, Inc. ..................................... 812 38,050 Toronto-Dominion Bank.................................... 1,041 360,344 Westjet Airlines Ltd. ................................... 6,719 -------- 17,312 -------- CHINA -- 0.6% 74,204 Aluminum Corporation of China Ltd., ADR!!(a)............. 1,644 69,800 CNOOC Ltd., ADR.......................................... 1,731 -------- 3,375 -------- DENMARK -- 0.7% 92,181 Danske Bank A/S(a)....................................... 1,439 38,746 Novo Nordisk A/S, Class B(a)............................. 1,544 23,262 TDC A/S(a)............................................... 748 -------- 3,731 -------- FINLAND -- 0.3% 76,231 Stora Enso Oyj 'R'(a).................................... 964 24,498 TietoEnator Oyj@(a)...................................... 620 -------- 1,584 -------- FRANCE -- 10.1% 27,415 Accor SA................................................. 1,100 22,059 Aventis SA............................................... 1,534 43,292 BNP Paribas SA........................................... 2,187 60,445 Bouygues SA.............................................. 1,975 17,500 Compagnie De Saint-Gobain................................ 2,856
VALUE SHARES (000) --------------------------------------------------------------------------------- FRANCE -- (CONTINUED) 85,000 Compagnie Generale des Etablissements Michelin........... $ 3,229 6,652 Groupe Danone............................................ 784 75,363 Havas Advertising SA..................................... 679 168,346 JC Decaux SA!!........................................... 1,953 18,703 Lafarge SA............................................... 1,672 3,780 PSA Peugeot Citroen...................................... 187 15,622 Publicis SA.............................................. 530 75,657 Sanofi-Synthelabo SA..................................... 4,858 113,248 Societe Generale 'A'..................................... 7,163 38,205 Societe Television Francaise 1........................... 1,189 123,206 Thomson Multimedia!!(a).................................. 3,838 96,946 TotalFinaElf SA.......................................... 14,968 62,000 Vivendi Universal SA!!................................... 2,411 -------- 53,113 -------- GERMANY -- 7.0% 16,667 Allianz AG............................................... 3,940 125,452 AWD Holdings AG.......................................... 3,173 102,413 BASF AG(a)............................................... 4,155 55,900 Bayer AG................................................. 1,897 227,980 Bayerische Motoren Werke (BMW) AG!!...................... 9,088 3,100 DePfa Deutsche Pfandbriefbank AG(a)...................... 223 44,000 Deutsche Bank AG (REGD).................................. 2,814 60,096 Deutsche Post AG (REGD)@................................. 899 45,000 KarstadtQuelle AG........................................ 1,464 34,286 Metro AG!!(a)............................................ 1,152 15,352 Muenchener Rueckversicherungs - Gesellschaft AG@......... 3,817 30,000 SAP AG, ADR(a)........................................... 1,116 51,346 Schering AG.............................................. 3,001 8,192 Volkswagen AG............................................ 429 -------- 37,168 -------- HONG KONG -- 1.0% 233,100 Cheung Kong (Holdings) Ltd. ............................. 2,085 575,000 China Mobile (HK) Ltd.!!................................. 1,777 267,500 Hong Kong & China Gas Company Ltd. ...................... 372 230,500 Hong Kong Electric Holdings Ltd. ........................ 872 -------- 5,106 -------- IRELAND -- 2.1% 103,806 Allied Irish Banks plc................................... 1,277 142,130 CRH plc.................................................. 2,502 21,756 DePfa Bank plc(a)........................................ 1,461 188,902 Ryanair Holdings plc, ADR!!(a)........................... 5,669 -------- 10,909 -------- ITALY -- 3.6% 179,978 Banca Popolare Di Verona Scrl............................ 2,060 57,000 ENI SpA, ADR(a).......................................... 4,107 1,298,250 IntesaBci SpA!!(a)....................................... 3,895 25,900 Mediaset SpA............................................. 223 96,000 San Paolo - IMI SpA, ADR(a).............................. 2,260 136,275 San Paolo - IMI SpA!!.................................... 1,603 127,643 Telecom Italia Mobile SpA................................ 619 347,000 Telecom Italia SpA....................................... 2,858 221,600 Telecom Italia SpA, RNC.................................. 1,218 -------- 18,843 --------
SEE NOTES TO FINANCIAL STATEMENTS. 78 NATIONS MASTER INVESTMENT FUNDS Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE SHARES (000) --------------------------------------------------------------------------------- JAPAN -- 15.0% 10,800 Acom Company, Ltd.@(a)................................... $ 654 4,900 Advantest Corporation(a)................................. 368 4,800 Aiful Corporation........................................ 264 12,900 Asatsu-DK Inc. .......................................... 272 141,000 CANON Inc. .............................................. 5,235 97,690 CANON Inc., ADR.......................................... 3,629 5,200 Fast Retailing Company, Ltd.!!........................... 127 141,000 Fuji Photo Film Company, Ltd. ........................... 4,436 116 Fuji Television Network, Inc. ........................... 602 800 Fujitsu Ltd. ............................................ 6 360,000 Hitachi, Ltd. ........................................... 2,632 100,100 Honda Motor Company Ltd. ................................ 4,207 58,000 Ito-Yokado Company, Ltd. ................................ 2,306 10 Japan Telecom Company Ltd. .............................. 31 41,000 Kao Corporation(a)....................................... 764 40,000 Kyocera Corporation!!.................................... 2,768 69,000 Matsushita Electric Works, Ltd.(a)....................... 526 288,000 Nikko Cordial Corporation................................ 1,271 7,000 Nintendo Company, Ltd. .................................. 1,030 825 Nippon Telegraph and Telephone Corporation(a)............ 3,168 3,100 Nippon Television Network Corporation.................... 705 1,108,000 Nissan Motor Company, Ltd.!!(a).......................... 8,008 488 NTT DoCoMo, Inc.@........................................ 1,326 1,952 NTT DoCoMo, Inc.!!....................................... 5,287 9,000 Olympus Optical Company, Ltd. ........................... 112 10,200 Orix Corporation......................................... 765 7,800 Rohm Company Ltd. ....................................... 1,171 39,000 Sankyo Company, Ltd. .................................... 596 700 Sharp Corporation........................................ 9 126,000 Shin-Etsu Chemical Company, Ltd. ........................ 5,333 33,000 Shionogi and Company, Ltd. .............................. 518 99,000 Sony Corporation......................................... 5,147 700 Sumitomo Corporation..................................... 4 42,000 Takeda Chemical Industries, Ltd. ........................ 1,702 32,000 Takefuji Corporation@.................................... 1,961 42,000 TDK Corporation(a)....................................... 2,256 865,000 The Seiyu, Ltd.!!........................................ 3,035 259,000 Tokyo Gas Company Ltd.(a)................................ 627 236,400 Toyota Motor Corporation(a).............................. 6,814 -------- 79,672 -------- MEXICO -- 2.6% 81,300 Cemex SA de CV, ADR...................................... 2,402 226,800 Corporacion Geo S.A. de C.V., Series B!!................. 541 13,000 Fomento Economico Mexicano SA de C.V., ADR............... 613 660,908 Grupo Financiero BBVA Bancomer, SA de CV (GFB)!!......... 724 25,939 Grupo Televisa SA, ADR!!................................. 1,258 116,286 Telefonos de Mexico SA de CV 'L', ADR(a)................. 4,697 1,033,890 Wal-Mart de Mexico SA de CV, Series V.................... 3,395 -------- 13,630 -------- NETHERLANDS -- 7.9% 193,000 ABN AMRO Holding NV...................................... 3,665 34,177 Akzo Nobel NV............................................ 1,598 62,136 ASM Lithography Holding NV!!............................. 1,567 164,436 Elsevier NV.............................................. 2,203 16,740 Gucci Group NV (REGD).................................... 1,549 102,847 Heineken Holding NV 'A'.................................. 3,140 7,910 Heineken NV.............................................. 322 425,604 ING Groep NV............................................. 11,584 145,000 Koninklijke (Royal) Philips Electronics NV............... 4,423 33,500 TPG NV................................................... 696 84,478 Unilever NV.............................................. 4,849 70,000 Unilever NV, NY Shares................................... 3,976 57,921 VNU NV................................................... 1,839 -------- 41,411 -------- NORWAY -- 0.4% 285,000 Statoil ASA!!............................................ 2,259 -------- PORTUGAL -- 0.8% 257,684 Portugal Telecom, SGPS, SA (REGD)!!...................... 1,918 322,000 Portugal Telecommunications, SGPS, SA, ADR!!............. 2,373 -------- 4,291 -------- SINGAPORE -- 0.5% 79,256 DBS Group Holdings Ltd. ................................. 636 99,850 Overseas-Chinese Banking Corporation Ltd. ............... 747 7,000 Singapore Airlines Ltd. ................................. 55 55,000 Singapore Press Holdings, Ltd. .......................... 734 34,000 United Overseas Bank..................................... 280 -------- 2,452 -------- SOUTH KOREA -- 4.0% 66,870 Kookmin Bank............................................. 2,797 903 Kookmin Bank, ADR!!...................................... 38 338,600 Korea Electric Power Corporation, ADR!!(a)............... 3,569 154,000 Korea Telecom Corporation, ADR(a)........................ 3,693 17,400 Korea Tobacco & Ginseng Corporation@(a)(b)............... 114 31,300 Pohang Iron & Steel Company Ltd., ADR(a)................. 818 34,115 Samsung Electronics...................................... 9,191 44,200 SK Telecom Company Ltd., ADR!!(a)........................ 1,087 -------- 21,307 -------- SPAIN -- 2.6% 17,105 Altadis, SA!!............................................ 315 78,505 Banco Popular Espanol SA................................. 2,959 436,240 Corporacion Mapfre, Compania Internacional de Reaseguros, SA..................................................... 2,934 240,000 Endesa SA................................................ 3,570 10,772 Iberdrola SA............................................. 141 108,704 INDITEX SA!!............................................. 2,044 125,000 Repsol YPF SA, ADR....................................... 1,588 -------- 13,551 -------- SWEDEN -- 1.5% 471,121 Ericsson AB (LM) 'B'..................................... 1,992 238,935 Investor AB 'B'.......................................... 2,687 103,810 Nordea AB................................................ 591
SEE NOTES TO FINANCIAL STATEMENTS. 79 NATIONS MASTER INVESTMENT FUNDS Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE SHARES (000) --------------------------------------------------------------------------------- SWEDEN -- (CONTINUED) 40,772 Sandvik AB(a)............................................ $ 970 27,820 Securitas AB............................................. 552 82,510 Svenska Handelsbanken AB 'A'(a).......................... 1,183 -------- 7,975 -------- SWITZERLAND -- 6.9% 18,450 Ciba Specialty Chemicals AG(a)........................... 1,396 85,452 Compagnie Financiere Richemont AG!!...................... 1,969 2,200 Holcim Ltd. ............................................. 498 3,270 Julius Baer Holdings Ltd., Zurich(a)..................... 1,048 36,944 Nestle SA (REGD)(a)...................................... 8,216 177,808 Novartis AG!!(a)......................................... 6,994 28,000 Roche Holding AG(a)...................................... 2,177 1,441 Syngenta AG (REGD)!!(a).................................. 89 38,479 Syngenta AG!!(a)......................................... 2,351 695 Synthes - Stratec Inc.!!................................. 457 7,120 The Swatch Group AG., Class B!!(a)....................... 725 14,630 The Swatch Group AG!!(a)................................. 316 146,028 UBS AG!!(a).............................................. 7,188 12,500 Zurich Financial Services AG(a).......................... 2,899 -------- 36,323 -------- UNITED KINGDOM -- 19.4% 277,700 Abbey National plc....................................... 3,939 293,494 Arm Holdings plc!!....................................... 1,187 162,024 AstraZeneca plc.......................................... 8,045 529,121 BAE Systems plc.......................................... 2,524 149,429 Billiton plc............................................. 852 39,393 BOC Group plc............................................ 597 354,000 BP Amoco plc!!........................................... 3,151 650,000 BT Group plc!!........................................... 2,592 430,300 Cadbury Schweppes plc.................................... 2,970 118,050 Compass Group plc........................................ 790 420,600 Diageo plc............................................... 5,498 405,261 GlaxoSmithKline plc...................................... 9,545 75,800 Hays plc................................................. 195 52,920 HSBC Holdings plc........................................ 612 430,000 HSBC Holdings plc (REGD)................................. 4,962 322,200 Kingfisher plc........................................... 1,776 311,666 Marks & Spencer Group plc................................ 1,710 113,200 New Dixons Group plc..................................... 422 301,944 Northern Rock plc........................................ 3,010 28,937 Rio Tinto plc (REGD)..................................... 572 800,000 Rolls-Royce plc.......................................... 2,148
VALUE SHARES (000) --------------------------------------------------------------------------------- UNITED KINGDOM -- (CONTINUED) 264,760 Royal Bank of Scotland plc@.............................. $ 6,817 846,576 Scottish Power plc....................................... 4,333 1,402,722 Shell Transport and Trading Company plc.................. 10,448 430,896 Smiths Group plc......................................... 4,977 103,600 South African Breweries plc@............................. 724 570,188 Tesco plc................................................ 1,957 93,386 United Business Media plc................................ 813 4,577,683 Vodafone Group plc....................................... 8,457 623,750 WPP Group plc............................................ 7,124 -------- 102,747 -------- UNITED STATES -- 0.3% 15,692 L-3 Communications Holdings, Inc.!!(a)................... 1,758 -------- TOTAL COMMON STOCKS (Cost: $491,421)....................................... 501,131 -------- PREFERRED STOCKS -- 1.5% BRAZIL -- 0.1% 29,754 Companhia de Bebidas das Americas, ADR................... 581 -------- GERMANY -- 1.4% 16,062 Porsche AG............................................... 7,300 -------- TOTAL PREFERRED STOCKS (Cost: $6,676)......................................... 7,881 -------- WARRANTS -- 0.1% (Cost: $474) UNITED STATES -- 0.1% 6,000 Infosys Technologies Ltd.(b)............................. 461 -------- PRINCIPAL AMOUNT (000) ---------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 0.9% (Cost: $5,000) $ 5,000 Federal Home Loan Bank 1.740% 04/01/02........................................ 5,000 --------
SEE NOTES TO FINANCIAL STATEMENTS. 80 NATIONS MASTER INVESTMENT FUNDS Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
SHARES VALUE (000) (000) --------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 18.2% (Cost: $95,829) 95,829 Nations Cash Reserves, Capital Class Shares#............. $ 95,829 -------- TOTAL INVESTMENTS (Cost $599,400*)................................ 115.7% 610,302 -------- OTHER ASSETS AND LIABILITIES (NET)................ (15.7)% Receivable for investment securities sold................ $ 10,163 Dividends receivable..................................... 1,875 Interest receivable...................................... 23 Collateral on securities loaned.......................... (88,999) Investment advisory fee payable.......................... (355) Administration fee payable............................... (22) Due to custodian......................................... (1,752) Payable for investment securities purchased.............. (3,562) Accrued Trustees' fees and expenses...................... (29) Accrued expenses and other liabilities................... (137) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (82,795) -------- NET ASSETS........................................ 100.0% $527,507 ========
--------------- *Federal Income Tax Information: Net unrealized depreciation of $2,657 on investment securities was comprised of gross appreciation of $49,246 and gross depreciation of $51,903 for federal income tax purposes. At March 31, 2002, the aggregate cost of securities for federal income tax purposes was $612,959. @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 0.01%. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 5). The portion that represents cash collateral is $88,999. (a) All or a portion of security was on loan at March 31, 2002. The aggregate cost and market value of securities on loan at March 31, 2002 is $79,758 and $84,574, respectively. (b) Fair valued security. ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 81 NATIONS FUNDS Nations International Equity Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002 At March 31, 2002, sector diversification was as follows:
% OF NET VALUE SECTOR DIVERSIFICATION ASSETS (000) ----------------------------------------------------------------------------------------------- Common stocks: Commercial banking.......................................... 12.0% $ 63,335 Telecommunications services................................. 7.9 41,849 Integrated oil.............................................. 7.7 40,756 Automotive.................................................. 7.5 39,262 Pharmaceuticals............................................. 7.4 38,970 Insurance................................................... 4.5 23,750 Food products............................................... 4.1 21,585 Publishing and advertising.................................. 3.1 16,147 Electronics................................................. 2.6 13,646 Airlines.................................................... 2.4 12,443 Computers and office equipment.............................. 2.1 11,126 Semiconductors.............................................. 2.0 10,758 Broadcasting and cable...................................... 2.0 10,380 Conglomerates............................................... 1.9 10,079 Diversified electronics..................................... 1.8 9,637 Metals and mining........................................... 1.8 9,497 Chemicals -- Specialty...................................... 1.7 9,169 Electric power -- Non nuclear............................... 1.7 8,916 Banking..................................................... 1.7 8,866 Other....................................................... 19.1 100,960 ----- --------------- TOTAL COMMON STOCKS......................................... 95.0 501,131 PREFERRED STOCKS............................................ 1.5 7,881 U.S. GOVERNMENT OBLIGATIONS................................. 0.9 5,000 WARRANTS.................................................... 0.1 461 INVESTMENT COMPANIES........................................ 18.2 95,829 ----- --------------- TOTAL INVESTMENTS........................................... 115.7 610,302 OTHER ASSETS AND LIABILITIES (NET).......................... (15.7) (82,795) ----- --------------- NET ASSETS.................................................. 100.0% $ 527,507 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 82 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF OPERATIONS For the year ended March 31, 2002
INTERNATIONAL INTERNATIONAL VALUE EQUITY MASTER MASTER PORTFOLIO PORTFOLIO --------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $7,061 and $1,827, respectively)..................................... $ 58,065 $ 11,257 Dividends income from affiliated funds...................... 3,216 612 Interest.................................................... 1 127 Securities lending.......................................... 3,468 537 -------------- -------------- Total investment income................................. 64,750 12,533 -------------- -------------- EXPENSES: Investment advisory fee..................................... 23,000 4,888 Administration fee.......................................... 1,278 305 Custodian fees.............................................. 257 364 Legal and audit fees........................................ 40 41 Trustees' fees and expenses................................. 29 28 Interest expense............................................ 3 63 Other....................................................... 9 29 -------------- -------------- Total expenses.......................................... 24,616 5,718 Fees waived by investment advisor........................... (857) -- Fees reduced by credits allowed by the custodian............ (34) (1) -------------- -------------- Net expenses............................................ 23,725 5,717 -------------- -------------- NET INVESTMENT INCOME....................................... 41,025 6,816 -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... 79,453 (100,139) Futures contracts......................................... -- (675) Forward foreign exchange contracts, foreign currencies and other net assets........................................ (661) (923) -------------- -------------- Net realized gain/(loss) on investments..................... 78,792 (101,737) -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities................................................ (57,994) 70,186 Futures contracts......................................... -- (54) Forward foreign exchange contracts, foreign currencies and other net assets........................................ (33) 103 -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (58,027) 70,235 -------------- -------------- Net realized and unrealized gain/(loss) on investments...... 20,765 (31,502) -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ 61,790 $ (24,686) ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 83 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL VALUE INTERNATIONAL EQUITY MASTER PORTFOLIO MASTER PORTFOLIO -------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/02 3/31/01 3/31/02 3/31/01 --------------------------------------------------------------------- (IN THOUSANDS) Net investment income................................ $ 41,025 $ 28,132 $ 6,816 $ 10,725 Net realized gain/(loss) on investments.............. 78,792 34,050 (101,737) (30,925) Net change in unrealized appreciation/(depreciation) of investments..................................... (58,027) (112,412) 70,235 (246,000) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations......................................... 61,790 (50,230) (24,686) (266,200) Contributions........................................ 3,890,748 2,266,519 1,514,448 3,172,103 Withdrawals.......................................... (2,083,166) (1,302,473) (1,745,362) (3,051,242) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets................ 1,869,372 913,816 (255,600) (145,339) NET ASSETS: Beginning of year.................................... 1,769,912 856,096 783,107 928,446 -------------- -------------- -------------- -------------- End of year.......................................... $ 3,639,284 $ 1,769,912 $ 527,507 $ 783,107 ============== ============== ============== ==============
FINANCIAL HIGHLIGHTS
WITHOUT WAIVERS RATIO OF AND/OR EXPENSE OPERATING REIMBURSEMENTS EXPENSES --------------- RATIO OF INCLUDING RATIO OF NET RATIO OF OPERATING INTEREST INVESTMENT OPERATING EXPENSE TO EXPENSE INCOME/(LOSS) PORTFOLIO EXPENSES TO TOTAL AVERAGE NET TO AVERAGE TO AVERAGE TURNOVER AVERAGE RETURN@ ASSETS NET ASSETS NET ASSETS RATE NET ASSETS ----------------------------------------------------------------------------------- INTERNATIONAL VALUE MASTER PORTFOLIO: Year ended 3/31/2002.................. 0.08% 0.93%(c) --(d) 1.61% 19% 0.96%(c) 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 3/31/2002.................. (5.41)% 0.92%(c) 0.93% 1.12% 85% 0.94%(c) 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%. @ Total return for the Portfolio has been calculated based on the total return for the Feeder Fund adjusted for the applicable Feeder Fund expenses as set out in the notes to financial statements. SEE NOTES TO FINANCIAL STATEMENTS. 84 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS Nations Master Investment Trust (the "Master 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, 2002, the Master Trust offered seventeen 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 Master Trust are presented under separate cover. The following investors were invested in the Master Portfolios at March 31, 2002: International Value Master Portfolio: Nations International Value Fund............. 85.5% Nations International Value Fund (Offshore)................................. 1.6% Banc of America Capital Management Funds VII -- International Value Fund............ 12.9% International Equity Master Portfolio: Nations International Equity Fund............ 100.0%
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, including futures contracts, 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. Securities which are primarily traded on foreign securities exchanges are valued at the last available closing values on their respective exchanges where primarily traded, or at the mean between the closing bid and ask prices if no sales are recorded. 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. Investments in other Nations Funds are valued at their net asset value determined as of the close of the New York Stock Exchange on the valuation date. Futures contracts: A Master Portfolio may invest in futures contracts for the purposes of hedging against changes in values of the Portfolio's securities or changes in the prevailing levels of interest rates or currency exchange rates or to gain exposure to the equity market. 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 changes in 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 transactions: The books and records of the Master Portfolios are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of 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 85 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 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, 2002. 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. 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. Expenses: General expenses of the Master 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. 2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED PARTY TRANSACTIONS The Master Trust has entered into an investment advisory agreement (the "Investment Advisory Agreement") with Banc of America Advisors, LLC ("BA Advisors"), 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 BA Advisors provides investment advisory services to the Master Portfolios. Under the terms of the Investment Advisory Agreement, BA Advisors is entitled to receive an advisory fee, calculated daily and payable monthly, based on the 86 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 Master Trust has, on behalf on the International Value Master Portfolio, entered into a sub-advisory agreement with BA Advisors and Brandes Investment Partners, L.P. ("Brandes"), pursuant to which Brandes is entitled to receive a sub-advisory fee from BA Advisors 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. INVESCO Global Asset Management (N.A.), Inc. ("INVESCO"), Putnam Investment Management, Inc. ("Putnam") and effective January 15, 2002, Marsico Capital Management, LLC ("Marsico") each manage approximately one-third of the assets of the Master Portfolio. Pursuant to the sub-advisory agreement, INVESCO, Putnam and Marsico are entitled to receive a fee from BA Advisors 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 January 15, 2002, Gartmore Global Partners was one-third of the portfolio management team and entitled to the same maximum annual rate listed above. For the period April 1, 2001 and until July 31, 2001, BA Advisors waived 0.10% of International Value Master Portfolio's advisory fee as a percentage of the Master Portfolio's average daily net assets. For the period beginning March 8, 2002, BA Advisors voluntarily agreed to limit total annual operating expenses to 0.90% of the Master Portfolio's average daily net assets. There is no guarantee that this limitation will continue. Stephens Inc. ("Stephens") and BA Advisors serve as co-administrators of the Master Trust. Under the co-administration agreements, Stephens and BA Advisors 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 Master Trust pursuant to an agreement with BA Advisors. For the year ended March 31, 2002, BA Advisors 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 Master Trust's assets. For the year ended March 31, 2002, expenses of the Master Portfolios were reduced by $35,700 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 BA Advisors, or any affiliate thereof, receives any compensation from the Master Trust for serving as a Trustee or officer of the Master Trust. The Master 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. Effective January 1, 2002, the retirement plan was terminated. The Master Trust's eligible Trustees had the option of a rollover into the deferred compensation plan on January 1, 2002 or a lump sum distribution, including interest, on January 1, 2003. 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. The income earned by each Master Portfolio from such investments is included in its Statement of operations as "Dividend income from affiliated funds". 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government 87 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) securities and short-term investments, for the year ended March 31, 2002 were as follows:
PURCHASES SALES (000) (000) ---------------------- International Value Master Portfolio................... $2,324,008 $476,473 International Equity Master Portfolio................... 501,750 723,838
There were no purchases and sales of long-term U.S. government securities for the year ended March 31, 2002. 4. LINES OF CREDIT The Master Trust participates with other Nations Funds in a $1 billion 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, 2002, there were no loans outstanding under this Agreement. For the year ended March 31, 2002, borrowings by the Master Portfolios under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST (000) RATE ----------------------- International Value Master Portfolio...................... $ 68 4.54% International Equity Master Portfolio...................... 1,492 3.26
The average amount outstanding was calculated based on daily balances in the period. 5. 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, 2002, the following Master Portfolios had securities on loan:
MARKET VALUE OF MARKET VALUE OF LOANED SECURITIES COLLATERAL (000) (000) ------------------------------------ International Value Master Portfolio....... $986,708 $1,049,219 International Equity Master Portfolio....... 84,574 88,999
6. REORGANIZATIONS CONVERSION OF COMMON TRUST FUNDS On May 12, 2000, the International Equity Fund (the "Acquiring Fund"), acquired the assets of Bank of America Common Trust International Equity Fund, a common trust fund, managed by Bank of America, N.A., (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
88 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) FUND REORGANIZATION 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
89 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 financial highlights present fairly, in all material respects, the financial position of Nations International Value Master Portfolio and Nations International Equity Master Portfolio (constituting parts of Nations Master Investment Trust, hereafter referred to as the "Portfolios") at March 31, 2002, 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 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, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York May 23, 2002 90 NATIONS FUNDS FUND GOVERNANCE (UNAUDITED) The Boards of Trustees/Directors (the "Boards") of Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Funds Trust and Nations Master Investment Trust (the "Companies") oversee their funds to ensure that they are managed and operated in the interests of shareholders. This annual report may relate to Funds of one or more of the Companies. Please see the introduction for the Notes to financial statements for information about which Funds and which Companies are applicable to this annual report. A majority of the Trustees/Directors ("Board Members") are "independent," meaning that they have no affiliation with Bank of America, N.A., its affiliates, or the funds, apart from the personal investments that most Board Members have made in certain of the funds as private individuals. The Board Members bring distinguished backgrounds in government, business, academia and public service to their task of working with Company officers to establish the policies and oversee the activities of the funds. Although all Board Members are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Companies, the independent Board Members have particular responsibilities for assuring that the Companies are managed in the best interests of fund shareholders. The following table provides basic information about the Board Members and Officers of the Companies. The mailing address of each Board Member is c/o Nations Funds, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina 28255. Each Board Member and Officer serves in identical capacities for each Company (except for Mr. Carmichael, who serves in an advisory capacity for certain Companies) and serves an indefinite term, subject to retirement from service as required (pursuant to each Company's retirement policy) at the end of the calendar year in which a Board Member turns 72, provided that any Board Member who served on any of the Boards as of February 22, 2001, and who reached the age of 72 no later than the end of that calendar year, may continue to serve until the end of the calendar year in which such Trustee reaches age 75 and may continue to serve for successive annual periods thereafter upon the vote of a majority of the other Board Members.
NAME, AGE AND POSITION TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) DURING NUMBER OF FUNDS IN WITH THE COMPANIES LENGTH OF TIME SERVED THE PAST FIVE YEARS FUND COMPLEX OVERSEEN ---------------------------------------------------------------------------------------------------------- INDEPENDENT BOARD MEMBERS William P. Carmichael Indefinite term; Senior Managing Director of The 41 (50 others in an Age: 58 Board Member since Succession Fund (a company formed advisory capacity Board Member (Nations 1999 to advise and buy family owned only) Funds Trust and companies) from 1998 through Nations Master April 2001. Investment Trust only) William H. Grigg Indefinite term; Retired; Chairman Emeritus since 95 Age: 69 Board Member since July 1997, Chairman and Chief Board Member 1991 Executive Officer through July 1997 -- Duke Power Co. Thomas F. Keller Indefinite term; R.J. Reynolds Industries 95 Age: 70 Board Member since Professor of Business Board Member 1991 Administration, Fuqua School of Business, Duke University, since July 1974; Dean, Fuqua School of Business Europe, Duke University, July 1999 through June 2001 Carl E. Mundy, Jr. Indefinite term; President and Chief Executive 91 Age: 66 Board Member since Officer -- USO from May 1996 to Board Member 1996 May 2000; Commandant -- United States Marine Corps from July 1991 to July 1995; Member, Board of Advisors to the Comptroller General of the United States; Chairman, Board of Trustees, Marine Corps University Foundation; Dr. Cornelius J. Pings Indefinite term; Retired; President, Association 91 Age: 73 Board Member since of American Universities through Board Member 1999 June 1998. NAME, AGE AND POSITION WITH THE COMPANIES OTHER DIRECTORSHIPS HELD ---------------------- --------------------------------- INDEPENDENT BOARD MEMB William P. Carmichael Director -- Cobra Electronics Age: 58 Corporation (electronic equipment Board Member (Nations manufacturer), Opta Food Funds Trust and Ingredients, Inc. (food Nations Master ingredients manufacturer) and Investment Trust only) Golden Rule Insurance Company since May, 1994; Board Member, Nations Funds Family (4 registered investment companies) William H. Grigg Director, The Shaw Group, Inc.; Age: 69 and Director and Vice Chairman, Board Member Aegis Insurance Services, Ltd. (a mutual fund insurance company in Bermuda); Board Member, Nations Funds Family (11 registered investment companies) Thomas F. Keller Director, Wendy's International, Age: 70 Inc. (restaurant operating and Board Member franchising); Director, Dimon, Inc. (tobacco); and Director, Biogen, Inc. (pharmaceutical biotechnology); Board Member, Nations Funds Family (11 registered investment companies) Carl E. Mundy, Jr. Director -- Shering-Plough Age: 66 (pharmaceuticals and health care Board Member products); General Dynamics Corporation (defense systems); Board Member, Nations Funds Family (7 registered investment companies) Dr. Cornelius J. Pings Director, Farmers Group, Inc. Age: 73 (insurance company); Board Board Member Member, Nations Funds Family (7 registered investment companies)
91 NATIONS FUNDS FUND GOVERNANCE (CONTINUED) (UNAUDITED)
NAME, AGE AND POSITION TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) DURING NUMBER OF FUNDS IN WITH THE COMPANIES LENGTH OF TIME SERVED THE PAST FIVE YEARS FUND COMPLEX OVERSEEN ---------------------------------------------------------------------------------------------------------- Charles B. Walker Indefinite term; Vice Chairman and Chief Financial 91 Age: 63 Board Member since Officer -- Albemarle Corporation Board Member 1985 (chemical manufacturing) INTERESTED BOARD MEMBERS(1) Edmund L. Benson, III Indefinite term; Director, President and 91 Age: 65 Board Member since Treasurer, Saunders & Benson, Board Member 1985 Inc. (insurance) James B. Sommers Indefinite term; Retired 91 Age: 63 Board Member since Board Member 1997 A. Max Walker Indefinite term; Independent Financial Consultant 95 Age: 80 Board Member since President, Chairman of inception the Boards and Board Member Thomas S. Word, Jr. Indefinite term; Partner -- McGuire, Woods, Battle 91 Age: 63 Board Member since & Boothe LLP (law firm) Board Member 1985 OTHER OFFICERS Richard H. Blank, Jr. Indefinite term; Senior Vice President since 1998, N/A Age: 44 Secretary since 1993 and Vice President from 1994 to Stephens Inc. and Treasurer since 1998 -- Mutual Fund Services, 111 Center Street 1998 Stephens Inc.; Secretary since Little Rock, AR 72201 September 1993 and Treasurer Secretary and since November 1998 -- Nations Treasurer Funds Family (7 other registered investment companies) NAME, AGE AND POSITION WITH THE COMPANIES OTHER DIRECTORSHIPS HELD ---------------------- --------------------------------- Charles B. Walker Director -- Ethyl Corporation Age: 63 (chemical manufacturing); Board Board Member Member, Nations Funds Family (7 registered investment companies) INTERESTED BOARD MEMBERS(1) Edmund L. Benson, III Director, Insurance Managers Inc. Age: 65 (insurance); Board Member, Board Member Nations Funds Family (7 registered investment companies) James B. Sommers Chairman -- Central Piedmont Age: 63 Community College Foundation; Board Member Director, Board of Commissioners, Charlotte/Mecklenberg Hospital Authority; Trustee, Central Piedmont Community College, Mint Museum of Art; Board Member, Nations Funds Family (7 registered investment companies) A. Max Walker President, Chairman and Board Age: 80 Member, Nations Funds Family (7 President, Chairman of registered investment companies) the Boards and Board Chairman and Board Member, Member Nations Funds Family (4 registered investment companies) Thomas S. Word, Jr. Director -- Vaughan-Bassett Age: 63 Furniture Company, Inc. Board Member (furniture); Board Member, Nations Funds Family (7 registered investment companies) OTHER OFFICERS Richard H. Blank, Jr. N/A Age: 44 Stephens Inc. 111 Center Street Little Rock, AR 72201 Secretary and Treasurer
--------------- (1) Basis of Interestedness. Mr. Benson's step-son is an employee of Bank of America, the parent of BA Advisors. Mr. Sommers own securities of Bank of America Corporation, the parent holding company of BA Advisors. Mr. Word is affiliated with a law firm which provides services to Bank of America and certain of its affiliates. Mr. A. Max Walker is an Interested Board Member by virtue of the fact that he also serves as President of the Companies. More information about the Board Members is available in the Statement of Additional Information, which is available at no charge from Nations Funds. 92 [This page intentionally left blank.] THE NATIONS FUNDS FAMILY OF FUNDS Within each category, the funds are listed from aggressive to conservative. Lower risk/reward potential SPECIALTY FUNDS INDEX FUNDS Nations SmallCap Index Fund Nations MidCap Index Fund Nations LargeCap Index Fund Nations Managed Index Fund ASSET ALLOCATION PORTFOLIOS Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio OTHER SPECIALTIES Nations Financial Services Fund Nations Convertible Securities Fund MONEY MARKET FUNDS Nations Prime Fund(1) Nations Cash Reserves Nations Money Market Reserves Nations Government Money Market Fund(2) Nations Government Reserves Nations Treasury Fund(3) Nations Treasury Reserves Nations Tax Exempt Fund(4) Nations Municipal Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves FIXED INCOME FUNDS TAXABLE INCOME FUNDS Nations High Yield Bond Fund Nations Strategic Income Fund Nations Bond Fund Nations Intermediate Bond Fund Nations Government Securities 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, MD, NC, SC, TN, TX, VA)(5) Nations Intermediate Municipal Bond Fund Nations State-Specific Intermediate Municipal Bond Funds (FL, GA, KS, MD, NC, SC, TN, TX, VA) Nations Short-Term Municipal Income Fund STOCK FUNDS GROWTH FUNDS Nations Small Company Fund Nations Marsico 21st Century Fund Nations MidCap Growth Fund Nations Marsico Focused Equities Fund Nations Marsico Growth & Income Fund(6) Nations Aggressive Growth Fund(7) Nations Capital Growth Fund Nations Strategic Growth Fund BLEND FUNDS Nations Blue Chip Fund(8) Nations Asset Allocation Fund Nations Equity Income Fund(9) VALUE FUNDS Nations MidCap Value Fund Nations Value Fund Nations LargeCap Value Fund Nations Classic Value Fund Higher reward/risk potential INTERNATIONAL/GLOBAL FUNDS Nations Emerging Markets Fund Nations Marsico International Opportunities Fund Nations International Equity Fund Nations International Value Fund Nations Global Value Fund 1 Effective May 10, 2002, the fund reorganized into Nations Cash Reserves. 2 Effective May 10, 2002, the fund reorganized into Nations Government Reserves. 3 Effective May 10, 2002, the fund reorganized into Nations Treasury Reserves. 4 Effective May 10, 2002, the fund reorganized into Nations Tax-Exempt Reserves. 5 Effective May 10, 2002, these funds, excluding CA and FL, reorganized into a corresponding intermediate municipal bond fund of the same state which has substantially similar investment objectives and principal investment strategies. 6 Effective May 10, 2002, the fund's name changed to Nations Marsico Growth Fund which better reflects the fund's investment objective and strategies. 7 Effective May 10, 2002, the fund reorganized into Nations Capital Growth Fund. 8 Effective May 10, 2002, the fund reorganized into Nations Strategic Growth Fund. 9 Effective May 10, 2002, the fund reorganized into Nations Convertible Securities Fund. INTSTKAR 220635 (04/02)