-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5+wOF6lPDpziphPLVN513bmEqFo2jy+P2nO1Sz39IoS6OQHpWsT0pOkCDUzJoqs 2eJ+PZW6afyJS1rR0WgbAg== 0000950144-02-006313.txt : 20020607 0000950144-02-006313.hdr.sgml : 20020607 20020606144820 ACCESSION NUMBER: 0000950144-02-006313 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020606 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUND TRUST CENTRAL INDEX KEY: 0000769100 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04305 FILM NUMBER: 02672092 BUSINESS ADDRESS: STREET 1: 1 BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003217854 MAIL ADDRESS: STREET 1: ONE BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FORMER COMPANY: FORMER CONFORMED NAME: NATIONS FUND DATE OF NAME CHANGE: 19921228 FORMER COMPANY: FORMER CONFORMED NAME: MARKETMASTER TRUST DATE OF NAME CHANGE: 19920203 FORMER COMPANY: FORMER CONFORMED NAME: MARKETMASTER TRUST/DE/ DATE OF NAME CHANGE: 19920407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUNDS TRUST CENTRAL INDEX KEY: 0001097519 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-09645 FILM NUMBER: 02672093 BUSINESS ADDRESS: STREET 1: ONE BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003217854 MAIL ADDRESS: STREET 1: ONE BANKOF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS INSTITUTIONAL RESERVES CENTRAL INDEX KEY: 0000859750 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06030 FILM NUMBER: 02672094 BUSINESS ADDRESS: STREET 1: ONE NATIONSBANK PLZ CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 8003425734 MAIL ADDRESS: STREET 1: ONE NATIONSBANK PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FORMER COMPANY: FORMER CONFORMED NAME: SEI CAPITOL FUNDS DATE OF NAME CHANGE: 19900318 FORMER COMPANY: FORMER CONFORMED NAME: CAPITOL MUTUAL FUNDS DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUND INC CENTRAL INDEX KEY: 0000790569 STATE OF INCORPORATION: MD FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04614 FILM NUMBER: 02672095 BUSINESS ADDRESS: STREET 1: 111 CENTER STREET STREET 2: BELLEVUE PARK CORPORATE CNTR CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 8003217854 MAIL ADDRESS: STREET 1: ONE NATIONSBANK PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 FORMER COMPANY: FORMER CONFORMED NAME: SILVER STAR FUND INC DATE OF NAME CHANGE: 19891016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS MASTER INVESTMENT TRUST CENTRAL INDEX KEY: 0001078410 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-09347 FILM NUMBER: 02672096 BUSINESS ADDRESS: STREET 1: ONE NATIONSBANK PLAZA STREET 2: 101 SOUTH TRYON ST CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 18003217854 MAIL ADDRESS: STREET 1: ONE BANK OF AMERICA PLAZA CITY: CHARLOTTE STATE: NC ZIP: 28255 N-30D 1 g75298nv30d.txt NATIONS FUND TRUST / NATIONS GOVT & CORPORATE Nations Short-Term Income Fund Nations Short-Intermediate Government Fund Nations Government Securities Fund Nations Intermediate Bond Fund GOVERNMENT & CORPORATE Nations Bond Fund -------------------------------- Annual report for the year ended Nations Strategic March 31, 2002 Income Fund Nations High Yield Bond 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 ECONOMIC OVERVIEW 3 PORTFOLIO COMMENTARY Nations Short-Term Income Fund 5 Nations Short-Intermediate Government Fund 11 Nations Government Securities Fund 16 Nations Intermediate Bond Fund 21 Nations Bond Fund 27 Nations Strategic Income Fund 33 Nations High Yield Bond Fund 38 FINANCIAL STATEMENTS Statements of net assets 43 Statements of operations 70 Statements of changes in net assets 72 Schedules of capital stock activity 76 Financial highlights 84 Notes to financial statements 98 Statement of net assets -- Nations Master Investment Trust Nations Intermediate Bond Master Portfolio 113 Nations High Yield Bond Master Portfolio 118 Statement of operations 127 Statement of changes in net assets 128 Financial highlights 128 Notes to financial statements 129 Fund governance 137
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.] ECONOMIC OVERVIEW BANC OF AMERICA CAPITAL MANAGEMENT* THE YEAR IN REVIEW Over the past year, the U.S. economy suffered its first recession in more than a decade as well as the trauma of an unprecedented attack from terrorism. The ability of the U.S. financial markets to cope with these shocks demonstrates the resilience of our economic system. While stock market performance varied by investment style and sector, most measures remained relatively flat or posted gains for the 12 months ended March 31, 2002. The Standard & Poor's 500 Composite Stock Price Index** remained essentially stable, with a total return of almost 0.2%. In contrast, gains by smaller companies pushed the total return of the Russell 2000 Index*** to nearly 14%. Stock market performance across industry segments diverged widely over the past year. Anticipation of an economic recovery gave a sizable boost to basic material stocks, while investors also sought the safety of the consumer staples sector. Excess capacity, however, drove the share prices of many telecommunications service companies sharply lower. The fixed-income markets faced pressure from rising long-term interest rates in early 2002, yet still managed to post a moderate return over the 12 months ending March 31, 2002. U.S. Treasury securities achieved a 3% return, as measured by the Lehman U.S. Treasury Index.+ Meanwhile, the Lehman Corporate Bond Index++ recorded a 5% gain. After the longest expansion in U.S. history, the U.S. economy slipped into recession in March 2001, according to the Business Cycle Dating Committee of the National Bureau of Economic Research. The prior year's tightening of monetary policy, higher energy costs and the contraction in the stock market all acted to slow the economy, especially the "hard-hit" manufacturing sector. The September 11, 2001 terrorist attacks extended the downturn to other sectors, such as travel and tourism. By historical standards, the past year's recession has been relatively short and mild. Real Gross Domestic Product (GDP) declined in only one quarter, the July through September 2001 period. Housing remained strong throughout the downturn and - --------------- *Banc of America Capital Management is the investment management group of Bank of America, N.A. and includes Banc of America Capital Management, LLC, investment sub-adviser to many Nations Funds, and other non-bank affiliates of Bank of America. **The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. ***The Russell 2000 Index is an unmanaged index of 2,000 of the smallest stocks representing approximately 11% of the U.S. equity market. The index is weighted by market capitalization, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. +The Lehman U.S. Treasury Index is an index consisting of U.S. Treasury debt obligations and is generally considered to be representative of U.S. Treasury market activity. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. ++The Lehman Corporate Bond Index is an unmanaged market value-weighted index of investment- grade corporate fixed-rate debt issues with maturities of one year or more. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Source of all statistical data -- Banc of America Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 3 ECONOMIC OVERVIEW CONTINUED... consumer spending held up relatively well. However, corporate profits plunged and businesses slashed their capital spending budgets. As 2001 drew to a close, forces were converging to produce an economic upswing in 2002. Eleven interest-rate cuts by the Federal Reserve Board (the "Fed") combined with tax cuts and increases in federal spending helped to refuel the U.S. economic engine. Meanwhile, businesses reacted quickly by bringing inventories in line with demand, and Americans displayed a remarkable ability to recover from last September's shock. THE YEAR AHEAD Recent economic statistics indicate that the recession has ended and an economic recovery has taken hold. With companies no longer able to fill sales with goods already on the shelf, production and real GDP turned sharply higher in the first quarter. Although significant risks persist, we believe the recovery should continue over the balance of 2002. We also believe a gradual improvement in the job market, personal income gains and rising home equity values should support a further rise in consumer spending. Companies have been reluctant to increase their spending on technology products and other capital goods, but by the latter part of 2002 we believe many companies could grow more confident in a sustained economic recovery. Some improvement in operating margins and higher sales volumes, we feel, would allow profits to rebound over the next few quarters. Favorable long-term productivity trends remain intact, which we believe should put the economy on track for expansion in 2002. We anticipate that the Fed will raise interest rates from today's extraordinarily low levels to keep inflation in check. However, even by year-end, interest rates may continue to be at moderate levels. Looking ahead, investors may continue to face formidable risks that have recently been exacerbated by the worldwide war against terrorism and violence in the Middle East. Valuation levels also may remain a constraint. Yet, we believe that the fundamentals of the U.S. economy remain strong and the U.S. appears to be leading the rest of the world into recovery. LYNN REASER, PH.D. CHIEF ECONOMIST AND SENIOR MARKET STRATEGIST BANC OF AMERICA CAPITAL MANAGEMENT March 31, 2002 4 NATIONS SHORT-TERM INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks high current income consistent with minimal fluctuations of principal. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Short-Term Income Fund Investor A Shares provided shareholders with a total return of 4.91%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS SHORT-TERM INCOME 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 investment style and philosophy are based upon our belief that the fixed income total returns and consistency of returns we strive for may be achieved through a disciplined risk management process. We seek to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. Simply put, we believe that if we maximize the yield of the portfolio and manage its duration -- or interest rate sensitivity -- to an appropriate benchmark, the higher yield should enhance the return of the portfolio. At the same time, we believe managing the duration of the portfolio compared to the benchmark will lessen unnecessary portfolio performance volatility. The investment strategy of Nations Short-Term Income Fund is to seek to outperform the Merrill Lynch 1-3 year Treasury Index*** (Index). The Index is comprised of U.S. Treasury securities that have remaining maturities between one and three years, and it has an average duration of 1.7 years. This Index is well matched to the Lipper Short Investment Grade Debt Funds Average&. Our strategy is focused on adding yield to the portfolio by overweighting shorter duration corporate securities and underweighting U.S. Treasury and agency securities. The security selection process is based on seeking relative value and uses both quantitative and fundamental credit analyses. HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Short-Term Income Fund (Investor A Shares) returned 4.91%, compared to 5.40% for the Fund's benchmark Index. The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought - --------------- *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 1.00%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Merrill Lynch 1-3 year Treasury Index is an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commission or other expenses of investing. &Lipper, Inc. is an independent mutual fund performance monitor. Funds in the Lipper Short Investment Grade Debt Funds Average invest at least 65% of their assets in investment grade debt issues with dollar-weighted average maturities of less than three years. Source for all statistical data -- Banc of America Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 5 NATIONS SHORT-TERM INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecommunications equipment all but disappeared in 2001 as the hope for "a chicken in every pot and a broadband connection in every home" disappeared. For a short while, it appeared that the combination of lower short-term interest rates and surprisingly resilient consumer spending was going to prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. The growth rate for the Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and a substantial increase of 5.8% in growth in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait-and-see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between "BBB" rated U.S. investment grade corporate debt and U.S. Treasury securities ranged between 2.77% and 2.18% over the past 12 months. Early hopes for recovery helped corporate debt to outperform comparable maturity U.S. Treasury notes in April and May of 2001, but the tragedy of September 11, 2001 caused U.S. Treasury notes to rally dramatically. While prices of corporate, mortgage, and asset-backed securities increased, they were unable to keep pace with the increase in U.S. Treasury prices. In September 2001, almost all sectors of the fixed income markets underperformed comparable maturity U.S. Treasury notes. "B" rated high yield debt managed to underperform U.S. Treasury notes by over 10%. In contrast, the normally interest rate sensitive mortgage market took the interest rate rally in stride by outperforming U.S. Treasury notes in both September and October of 2001. Once the shock of September 11, 2001 subsided, the yield on U.S. Treasury notes increased and the yield spread between U.S. Treasury notes and the credit sensitive sectors of the fixed income market tightened substantially. Despite the shocks to the U.S. economy and the incredible changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts. 6 NATIONS SHORT-TERM INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued
---------------------------------------------------------------------------- EXCESS TOTAL RETURN TO COMPARABLE DURATION SECTOR U.S. TREASURY NOTES(1) ---------------------------------------------------------------------------- Agency Debentures 1.31% Agency Mortgage-Backed Securities 1.73 AAA Asset-Backed Securities 1.19 AAA Commercial Mortgage-Backed Securities 4.27 Corporates (All) 2.38 AAA/AA Rated Corporates 2.49 A Rated Corporates 2.84 BBB Rated Corporates 1.83 BB Rated Corporates 1.30 B Rated Corporates -4.22 ----------------------------------------------------------------------------
(1)Excess total returns based upon Banc of America Capital Management, LLC analysis of the Salomon Fixed Income Benchmarks and other selected fixed income markets. HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of attempting to manage interest rate risk and focusing on relative value opportunities across the fixed income markets. The portfolio was heavily weighted in high quality sectors with a particular focus on government securities, "AAA" rated asset-backed and corporate notes. We have managed the Fund's allocation in "AAA" rated asset- backed securities at about 15% to take advantage of their perceived attractiveness versus other "AAA" rated securities. We reduced our exposure to corporate bonds to 33% because of weakness in the corporate sector and the general credit deterioration in the market. We felt it was not prudent to reduce our exposure beyond this because short-term corporates have historically provided very high risk- adjusted returns. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& Our strategic overweight to the high quality sectors helped the Fund's total return performance for the period. The portfolio was invested in "AAA" rated asset-backed securities and agency debentures in lieu of U.S. Treasury notes. Typically high quality spread sectors outperform Treasuries over even moderately long holding periods. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? One investment decision that hindered overall Fund performance was maintaining the portfolio's exposure to "BBB" rated corporate bonds. While the portfolio was invested in shorter maturity securities, the slowing of the U.S. economy and the perceived risk of recession widened yield spreads on these securities and reduced the overall performance of the portfolio. - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 7 NATIONS SHORT-TERM INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? Despite the fact that we expect weaker short-term corporate profits, we have decided to maintain our corporate exposure at current levels. We believe the yield spreads of corporate notes to U.S. Treasury notes are already at recession levels, and if we underweight these sectors, we run the risk of missing the expected improvement in the U.S. economy. As evidence of the recovery mounts, we will moderately increase our exposure to the corporate sector. 8 NATIONS SHORT-TERM INCOME FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 36.5% U.S. Treasury obligations 32.3% Corporate bonds and notes 16.5% Asset-backed securities 8.7% U.S. government and agency obligations 1.6% Foreign bonds and notes 1.2% Mortgage-backed securities 3.2% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 U.S. Treasury Note, 5.250% 08/15/03 8.4% ------------------------------------------------- 2 Federal Home Loan Mortgage Corporation (FHLMC), 3.250% 01/15/04 6.6% ------------------------------------------------- 3 U.S. Treasury Note, 4.250% 11/15/03 4.7% ------------------------------------------------- 4 U.S. Treasury Strip, Principal only, 4.179% 11/15/04 3.0% ------------------------------------------------- 5 U.S. Treasury Note, 3.250% 12/31/03 1.9% ------------------------------------------------- 6 EQCC Home Equity Loan Trust, Series 1998-1, Class A4F, 6.459% 03/15/21 1.7% ------------------------------------------------- 7 U.S. Treasury Note, 3.875% 07/31/03 1.6% ------------------------------------------------- 8 Federal National Mortgage Association (FNMA) Certificates, 5.750% 04/15/03 1.3% ------------------------------------------------- 9 BMW Vehicle Lease Trust, Series 2000-A, Class A4, 6.670% 10/25/03 0.9% ------------------------------------------------- 10 Golden State Holdings, Escrow Corporation, 7.000% 08/01/03 0.9% ------------------------------------------------- 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. 9 NATIONS SHORT-TERM INCOME FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
MERRILL LYNCH 1-3 YEAR TREASURY NATIONS SHORT-TERM INCOME FUND INDEX ------------------------------ ------------------------------- Oct. 2|1992 9900 10000 12/93 10535 10560 12/94 10484 10620 12/95 11645 11789 12/96 12191 12375 12/97 12900 13198 12/98 13685 14122 12/99 14095 14555 12/00 15067 15718 12/01 16340 17022 Mar. 31|2002 16310 17024
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
MERRILL LYNCH 1-3 YEAR TREASURY NATIONS SHORT-TERM INCOME FUND INDEX ------------------------------ ------------------------------- Oct. 2|1992 10000 10000 12/93 10641 10560 12/94 10590 10620 12/95 11763 11789 12/96 12314 12375 12/97 13030 13198 12/98 13823 14122 12/99 14237 14555 12/00 15219 15718 12/01 16505 17022 Mar. 31|2002 16475 17024
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (10/2/92 through 3/31/02) 5.40% 5.29%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Short-Term Income Fund from the inception of the share class. Figures for the Merrill Lynch 1-3 Year Treasury Index, an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years, include reinvestment of dividends. It is unavailable for investment and does 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 9/30/92 10/2/92 6/7/93 10/2/92 - ------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 5.19% 4.91% 3.86% 4.25% -0.75% 4.23% 3.23% - ------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 5.84% 5.62% 5.26% 4.98% 4.06% 4.82% 4.82% 5 YEARS 6.10% 5.87% 5.66% 5.42% 5.10% 5.32% 5.32% SINCE INCEPTION 5.64% 5.40% 5.29% 5.16% 5.16% 5.02% 5.02%
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 1.00%. **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 SHORT-INTERMEDIATE GOVERNMENT FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks high current income consistent with modest fluctuation of principal. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Short-Intermediate Government Fund Investor A Shares provided shareholders with a total return of 4.42%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS SHORT-INTERMEDIATE GOVERNMENT 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 investment style and philosophy are based upon our belief that the fixed income total returns and consistency of returns we strive for may be achieved through a disciplined risk management process. We seek to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. Simply put, we believe that if we maximize the yield of the portfolio and manage its duration -- or interest rate sensitivity -- to an appropriate benchmark, the higher yield should enhance the return of the portfolio. At the same time, we believe that managing the duration of the portfolio compared to the benchmark will lessen unnecessary portfolio performance volatility. Nations Short-Intermediate Government Fund seeks to outperform the Lehman Intermediate Government Bond Index*** (Index). The Index is comprised of all U.S. Treasury and agency issues with maturities from one to ten years. It has an average duration of 3.5 years. HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Short-Intermediate Government Fund (Investor A Shares) returned 4.42%, compared to 4.98% for the Fund's benchmark Index. The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecommunications equipment all but disappeared in 2001 as the hope for "a chicken in every pot and a broadband connection in every home" disappeared. For a short while, it appeared that the combination of reduced short-term interest rates and surprisingly resilient consumer spending was going to - --------------- *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 3.25%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Lehman Intermediate Government Bond Index is an unmanaged index of U.S. government agency and U.S. Treasury securities and includes reinvestment of all dividends. All dividends are reinvested. It is not available for investment and does 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. 11 NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. The growth rate for Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and a substantial increase of 5.8% in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait-and-see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between agency mortgage-backed securities and comparable duration U.S. Treasury notes ranged between 0.91% and 0.30%. The initial decline in U.S. Treasury yields brought lower mortgage rates and increased investor concern over prepayments and supply. Mortgage spreads widened from 0.80% to 0.90%. Interest rates continued to decline during this period but mortgages managed to outperform their U.S. Treasury counterparts, even through the events of September 11, 2001. Despite the shocks to the U.S. economy and substantial changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts.
---------------------------------------------------------------------------- EXCESS TOTAL RETURN TO COMPARABLE DURATION SECTOR U.S. TREASURY NOTES(1) ---------------------------------------------------------------------------- Agency Debentures 1.31% Agency Mortgage-Backed Securities 1.73 AAA Asset-Backed Securities 1.19 AAA Commercial Mortgage-Backed Securities 4.27 Corporates (All) 2.38 AAA/AA Rated Corporates 2.49 A Rated Corporates 2.84 BBB Rated Corporates 1.83 BB Rated Corporates 1.30 B Rated Corporates -4.22 ----------------------------------------------------------------------------
(1)Excess total returns based upon Banc of America Capital Management, LLC analysis of the Salomon Fixed Income Benchmarks and other selected fixed income markets. HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of attempting to manage interest rate risk and focusing on relative value opportunities across the 12 NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued fixed income markets. The portfolio was heavily weighted in high quality sectors with a particular focus on agency mortgage-backed securities and "AAA" rated commercial mortgage-backed securities. While these sectors are not immune from credit risk, we believe they do offer substantial protection from default. U.S. agency mortgage-backed securities are backed by either an explicit or an implicit guarantee of the U.S. government as well as by the real estate underlying each mortgage. "AAA" rated commercial mortgage-backed securities are backed by highly diverse pools of commercial real estate loans and they are structured to attempt to withstand defaults of 50% or more. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?& Our efforts to manage yield curve and interest rate exposure helped reduce the performance volatility in the Fund relative to its benchmark. In addition, our overweight to the "AAA" rated collateralized mortgage-backed securities and agency mortgage-backed securities enhanced the return of the Fund. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? One investment decision that hindered the overall performance of the Fund was our overweight to mortgage-backed securities in the fourth quarter of 2001. While mortgages managed to perform in line with U.S. Treasury notes through the decline in interest rates in the third quarter, agency mortgage-backed securities substantially underperformed U.S. Treasury notes in November and December of 2001. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? While the outlook for the U.S. economy remains unclear, we believe that second and third quarter of 2002 corporate profits may be weak and the performance of the credit sensitive sectors could remain volatile. The rebound in U.S. economic activity in the first quarter of 2002 came from a reduction in corporate inventories, and it is uncertain whether U.S. consumer spending can continue to outpace the lack of corporate capital expenditures. While we believe the worst is over, we suspect that the U.S. economic growth for the remainder of 2002 could be less than spectacular. Based upon our outlook and the recent performance of the agency debt, agency mortgage-backed securities, and the "AAA" rated agency-backed securities and collateralized mortgage-backed securities markets, we are most heavily weighted to agency debentures and U.S. Treasury securities. While interest rates seem to have seen their low for this cycle, we believe that interest rates could move even lower from their current level and may create buying opportunities in the mortgage-backed security market. In addition, we will probably position the portfolio for a flattening of the yield curve with the expectation that the Fed may increase short-term U.S. interest rates sometime in the next six to nine months. - --------------- &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 13 NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 37.8% Mortgage-backed securities 30.2% U.S. Treasury obligations 7.0% Asset-backed securities 4.5% U.S. government and agency obligations 3.9% Short-term investments 3.5% Corporate obligations 13.1% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Federal National Mortgage Association (FNMA) Certificates, 5.000% 01/15/07 10.0% ------------------------------------------------- 2 Federal National Mortgage Association (FNMA) Certificates, 7.000% 07/15/05 9.8% ------------------------------------------------- 3 U.S. Treasury Strip, Principal only, 4.179% 11/15/04 6.8% ------------------------------------------------- 4 Federal Home Loan Mortgage Corporation (FHLMC) Certificates, 5.750% 01/15/12 6.1% ------------------------------------------------- 5 Federal Home Loan Mortgage Corporation (FHLMC), 3.250% 01/15/04 4.3% ------------------------------------------------- 6 U.S. Treasury Note, 3.875% 07/31/03 3.6% ------------------------------------------------- 7 Government National Mortgage Association (GNMA) Certificates, 6.500% 07/15/29 1.8% ------------------------------------------------- 8 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32 1.6% ------------------------------------------------- 9 Government National Mortgage Association (GNMA) Certificates, 6.375% 04/20/22 1.5% ------------------------------------------------- 10 Government National Mortgage Association (GNMA) Certificates, 5.323% 06/20/29 1.3% ------------------------------------------------- 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. 14 NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/01) RETURN CHART]
NATIONS SHORT-INTERMEDIATE LEHMAN INTERMEDIATE GOVERNMENT GOVERNMENT FUND BOND INDEX -------------------------- ------------------------------ Mar. 31, 1992 9675 10000 1993 10772 11210 1994 10995 11472 1995 11315 11962 1996 12124 13051 1997 12581 13671 1998 13666 14953 1999 14316 15937 2000 14521 16321 2001 16163 18273 Mar. 31, 2002 16878 19183
[INVESTOR A SHARES AT NAV** (AS OF 3/31/01) RETURN CHART]
NATIONS SHORT-INTERMEDIATE LEHMAN INTERMEDIATE GOVERNMENT GOVERNMENT FUND BOND INDEX -------------------------- ------------------------------ Mar. 31, 1992 10000 10000 1993 11134 11210 1994 11364 11472 1995 11695 11962 1996 12531 13051 1997 13004 13671 1998 14125 14953 1999 14797 15937 2000 15009 16321 2001 16706 18273 Mar. 31, 2002 17445 19183
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/92 through 3/31/02) 5.72% 5.37%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Short-Intermediate Government Fund over the last 10 years. Figures for the Lehman Intermediate Government Bond Index, an unmanaged index of U.S. government agency and U.S. Treasury securities, include reinvestment of dividends. It is unavailable for investment and does not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Primary B, 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 PRIMARY B INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 8/1/91 6/28/96 8/5/91 6/7/93 6/17/92 - --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 4.68% 4.16% 4.42% 1.01% 3.64% 0.64% 3.63% 2.63% - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 5.88% 5.39% 5.64% 4.46% 4.86% 4.55% 4.88% 4.88% 5 YEARS 6.28% 5.84% 6.05% 5.38% 5.35% 5.35% 5.36% 5.36% 10 YEARS 5.93% -- 5.72% 5.37% -- -- -- -- SINCE INCEPTION 6.28% 5.69% 6.09% 5.77% 4.58% 4.58% 4.88% 4.88%
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 3.25%. **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. 15 NATIONS GOVERNMENT SECURITIES FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks high current income consistent with moderate fluctuation of principal. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Government Securities Fund Investor A Shares provided shareholders with a total return of 3.45%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS GOVERNMENT SECURITIES 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 investment style and philosophy are based upon our belief that fixed income total returns and consistency of returns may be achieved through a disciplined risk management process. We focus on seeking to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. The goal of Nations Government Securities Fund is to seek to outperform the Lehman Government Bond Index*** (Index). The Index is comprised of all U.S. Treasury and agency issues with maturities longer than 1 year and it has an average duration of 5.5 years. This Index is well matched to the Lipper General U.S. Government Funds Average.& HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Government Securities Fund (Investor A Shares) returned 3.45%, compared to 3.94% for the Fund's benchmark Index. The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecom equipment all but disappeared in 2001 as the hope for "a chicken in every pot and a broadband connection in every home" disappeared. For a short while it appeared that the combination of lower short-term interest rates and surprisingly resilient consumer spending was going to prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. The - --------------- *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 4.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Lehman Government Bond Index is an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. &Lipper, Inc. is an independent mutual fund performance monitor. Funds in the Lipper General U.S. Government Funds Average invest at least 65% of their assets in U.S. government and agency issues. Source for all statistical data -- Banc of America Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 16 NATIONS GOVERNMENT SECURITIES FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued growth rate for the Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and an incredible increase of 5.8% in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait and see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between "BBB" rated U.S. investment grade corporate debt and U.S. Treasury securities ranged between 2.77% and 2.18% over the past 12 months. Early hopes for recovery helped corporate debt to outperform comparable maturity U.S. Treasury notes in April and May of 2001, but the tragedy of September 11, 2001 caused U.S. Treasury notes to rally dramatically. While prices of corporate, mortgage, and asset-backed securities increased, they were unable to keep pace with the increase in U.S. Treasury prices. In September 2001, almost all sectors of the fixed income markets underperformed compared to U.S. Treasury notes. "B" rated high yield debt managed to underperform U.S. Treasury notes by over 10%. In contrast, the normally interest rate sensitive mortgage market took the interest rate rally in stride by outperforming U.S. Treasury notes in both September and October of 2001. Once the shock of September 11, 2001 subsided, the yield on U.S. Treasury notes increased and the yield spread between U.S. Treasury notes and the credit sensitive sectors of the fixed income market tightened substantially. Despite the shocks to the U.S. economy and the incredible changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts.
-------------------------------------------------------------------------------- EXCESS TOTAL RETURN TO COMPARABLE DURATION SECTOR U.S. TREASURY NOTES(1) -------------------------------------------------------------------------------- Agency Debentures 1.31% Agency Mortgage-Backed Securities 1.73 AAA Asset-Backed Securities 1.19 AAA Commercial Mortgage-Backed Securities 4.27 Corporates (All) 2.38 AAA/AA Rated Corporates 2.49 A Rated Corporates 2.84 BBB Rated Corporates 1.83 BB Rated Corporates 1.30 B Rated Corporates -4.22 --------------------------------------------------------------------------------
(1)Excess total returns based upon Banc of America Capital Management, LLC analysis of the Salomon Fixed Income Benchmarks and other selected fixed income markets. 17 NATIONS GOVERNMENT SECURITIES FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of attempting to manage interest rate risk and focusing on relative value opportunities across the fixed income markets. The portfolio was heavily weighted in high quality sectors with a particular focus on U.S. agency mortgage-backed securities and "AAA" rated commercial mortgage-backed securities. While these sectors are not immune from credit risk, we believe they do offer substantial protection from default. U.S. agency mortgage-backed securities are backed by either an explicit or an implicit guarantee of the U.S. government as well as by the real estate underlying each mortgage. "AAA" rated commercial mortgage-backed securities are backed by highly diverse pools of commercial real estate loans and they are structured to attempt to withstand defaults of 50% or more. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& Our efforts to manage yield curve and interest rate exposure helped reduce the performance volatility in the Fund relative to its benchmark. In addition, our overweight to the "AAA" rated collateralized mortgage-backed securities and agency mortgage-backed securities enhanced the return of the Fund. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? One investment decision that hindered the overall performance of the Fund was our overweight to mortgage-backed securities in the fourth quarter of 2001. While mortgages managed to perform in line with U.S. Treasury notes through the decline in interest rates in the third quarter, agency mortgage-backed securities substantially under-performed U.S. Treasury notes in November and December of 2001. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? While the outlook for the U.S. economy remains unclear, we believe that second and third quarter corporate profits may be weak and the performance of the credit sensitive sectors could remain volatile. The rebound in U.S. economic activity in the first quarter of 2002 came from a reduction in corporate inventories, and it is uncertain whether U.S. consumer spending will continue to outpace the lack of corporate capital expenditures. While we believe the worst is over, we suspect that the U.S. economic growth for the remainder of 2002 could be less than spectacular. Based upon our outlook and the recent performance of agency debt, agency mortgage-backed securities, and the "AAA" rated agency-backed securities and collateralized mortgage-backed securities markets, we are most heavily weighted to agency debentures and U.S. Treasury securities. While interest rates seem to have seen their low for this cycle, we believe that interest rates may move lower from their current level which may create buying opportunities in the mortgage-backed securities market. In addition, we will probably position the Fund for a flattening of the yield curve with the expectation that the Fed may increase short-term U.S. interest rates sometime in the next six to nine months. - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 18 NATIONS GOVERNMENT SECURITIES FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 36.3% Mortgage-backed securities 29.0% U.S. Treasury obligations 12.7% Short-term investments 7.6% Asset-backed securities 4.8% U.S. government and agency obligations 3.6% Corporate obligations 6.0% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Federal National Mortgage Association (FNMA) Certificates, 7.000% 07/15/05 7.6% ------------------------------------------------- 2 Federal National Mortgage Association (FNMA) Certificates, 5.000% 01/15/07 7.5% ------------------------------------------------- 3 Federal Home Loan Mortgage Corporation (FHLMC) Certificates, 5.750% 01/15/12 5.3% ------------------------------------------------- 4 Federal Home Loan Mortgage Corporation (FHLMC) Certificates, 3.250% 01/15/04 4.7% ------------------------------------------------- 5 U.S. Treasury Note, 5.875% 11/15/04 3.4% ------------------------------------------------- 6 Federal National Mortgage Association (FNMA) Certificates, 6.625% 11/15/30 2.5% ------------------------------------------------- 7 U.S. Treasury Strip, Principal only, 4.179% 11/15/04 2.1% ------------------------------------------------- 8 Federal National Mortgage Association (FNMA) Certificates, 6.565% 07/01/16 1.9% ------------------------------------------------- 9 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32 1.6% ------------------------------------------------- 10 PNC Mortgage Acceptance Corporation, Series 2001-C1, Class A1, 5.910% 03/12/34 1.4% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 19 NATIONS GOVERNMENT SECURITIES FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS GOVT. SECURITIES FUND LEHMAN GOVERNMENT BOND INDEX ----------------------------- ---------------------------- Mar. 31, 1992 9525 10000 1993 10495 11407 1994 10634 11714 1995 10894 12219 1996 11696 13498 1997 12024 14077 1998 13392 15787 1999 14083 16842 2000 14196 17263 2001 15857 19392 Mar. 31, 2002 16404 20156
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS GOVT SECURITIES FUND LEHMAN GOVERNMENT BOND INDEX ---------------------------- ---------------------------- Mar. 31, 1992 10000 10000 1993 11018 11407 1994 11164 11714 1995 11437 12219 1996 12279 13498 1997 12624 14077 1998 14060 15787 1999 14785 16842 2000 14904 17263 2001 16648 19392 Mar. 31, 2002 17222 20156
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/92 through 3/31/02) 5.59% 5.07%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Government Securities Fund over the last 10 years. Figures for the Lehman Government Bond Index, an unmanaged index of government bonds with an average maturity of approximately nine years, include reinvestment of dividends. It is unavailable for investment and does 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 4/11/91 4/17/91 6/7/93 7/6/92 - -------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 3.70% 3.45% -1.45% 2.67% -2.29% 2.68% 1.69% - -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 5.50% 5.22% 3.53% 4.49% 3.57% 4.39% 4.39% 5 YEARS 6.68% 6.41% 5.37% 5.73% 5.40% 5.67% 5.67% 10 YEARS 5.84% 5.59% 5.07% -- -- -- -- SINCE INCEPTION 6.21% 5.96% 5.49% 4.47% 4.47% 4.62% 4.62%
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 4.75%. **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. 20 NATIONS INTERMEDIATE BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks to obtain interest income and capital appreciation. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Intermediate Bond Fund Investor A Shares provided shareholders with a total return of 3.66%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS INTERMEDIATE BOND 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 investment style and philosophy are based upon our belief that the level of fixed income total returns and consistency of returns we strive for may be achieved through a disciplined risk management process. We focus on seeking to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. The investment strategy of Nations Intermediate Bond Fund is designed to attempt to outperform the Lehman Intermediate Government/Corporate Bond Index (Index).*** This Index is comprised of all publicly issued investment grade corporate, U.S. Treasury and U.S. government and agency securities with maturities of 1 to 10 years and it has an average duration of 3.5 years. This Index is well matched to the Lipper Intermediate Investment Grade Debt Funds Average,& the Fund's peer group. HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Intermediate Bond Fund (Investor A Shares) returned 3.66%, compared to 5.16% for the Fund's benchmark Index. The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought - --------------- *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 3.25%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Lehman Intermediate Government/Corporate Bond Index is an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities between 1 to 10 years. All dividends are reinvested. It is unavailable for investment and does not reflect fees, brokerage commissions or other expenses of investing. &Lipper, Inc. is an independent mutual fund performance monitor. Funds in the Lipper Intermediate Investment Grade Debt Funds Average invest at least 65% of their assets in investment grade debt issues with dollar-weighted average maturities of five to ten years. Source for all statistical data -- Banc of America Capital Management, LLC. INVESTMENTS IN HIGH YIELD OR "JUNK" BONDS HAVE A HIGHER DEGREE OF RISK THAN INVESTMENTS IN INVESTMENT GRADE BONDS. CHANGES IN ECONOMIC CONDITIONS OR OTHER CIRCUMSTANCES MAY ADVERSELY AFFECT A JUNK BOND ISSUER'S ABILITY TO MAKE PRINCIPAL AND INTEREST PAYMENTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 21 NATIONS INTERMEDIATE BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecommunications equipment all but disappeared in 2001 as the hope for "a chicken in every pot and a broadband connection in every home" disappeared. For a short while, it appeared that the combination of lower short-term interest rates and surprisingly resilient consumer spending was going to prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. The growth rate of the Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and a substantial increase of 5.8% in growth in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait-and-see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between "BBB" rated U.S. investment grade corporate debt and U.S. Treasury securities ranged between 2.77% and 2.18% over the past 12 months. Early hopes for recovery helped corporate debt to outperform comparable maturity U.S. Treasury notes in April and May of 2001, but the tragedy of September 11, 2001 caused U.S. Treasury notes to rally dramatically. While prices of corporate, mortgage, and asset-backed securities increased, they were unable to keep pace with the increase in U.S. Treasury prices. In September 2001, almost all sectors of the fixed income markets underperformed compared to U.S. Treasury notes. "B" rated high yield debt managed to underperform U.S. Treasury notes by over 10%. In contrast, the normally interest rate sensitive mortgage market took the interest rate rally in stride by outperforming U.S. Treasury notes in both September and October of 2001. Once the shock of September 11, 2001 subsided, the yield on U.S. Treasury notes increased and the yield spread between U.S. Treasury notes and the credit sensitive sectors of the fixed income market tightened substantially. Despite the shocks to the U.S. economy and the incredible changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts. 22 NATIONS INTERMEDIATE BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued
---------------------------------------------------------------------------- EXCESS TOTAL RETURN TO COMPARABLE DURATION SECTOR U.S. TREASURY NOTES(1) ---------------------------------------------------------------------------- Agency Debentures 1.31% Agency Mortgage-Backed Securities 1.73 AAA Asset-Backed Securities 1.19 AAA Commercial Mortgage-Backed Securities 4.27 Corporates (All) 2.38 AAA/AA Rated Corporates 2.49 A Rated Corporates 2.84 BBB Rated Corporates 1.83 BB Rated Corporates 1.30 B Rated Corporates -4.22 ----------------------------------------------------------------------------
(1)Excess total returns based upon Banc of America Capital Management, LLC analysis of the Salomon Fixed Income Benchmarks and other selected fixed income markets. HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of attempting to manage interest rate risk and focus on relative value opportunities across the fixed income markets. The portfolio was heavily weighted in high quality sectors with a particular focus on U.S. agency mortgage-backed securities and "AAA" rated commercial mortgage-backed securities. While these sectors are not immune from credit risk, we believe they do offer substantial protection from default. U.S. agency mortgage-backed securities are backed by either an explicit or an implicit guarantee of the U.S. government as well as by the real estate underlying each mortgage. "AAA" rated commercial mortgage-backed securities are backed by highly diverse pools of commercial real estate loans and they are structured to attempt to withstand defaults of 50% or more. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& Our strategic overweight to what we believe were high quality sectors helped the Fund's total return performance for the period. The portfolio was invested in "AAA" rated commercial and agency residential mortgage-backed securities in lieu of U.S. Treasury notes. As can be seen in the table above, high quality credit sensitive sectors outperformed U.S. Treasury notes and this contributed to the overall Fund performance. In addition, our willingness to increase our exposure to "BBB" rated corporate debt in December 2001 also enhanced portfolio performance. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? Our decision to maintain a sizeable investment in lower quality corporate debt in the third quarter hindered the overall Fund performance. From the end of March 2001 until the middle of the summer, our corporate debt exposure enhanced the return of the Fund. As we moved into August 2001, we believed the U.S. economy would narrowly miss a recession. Our expectations were for a flatter yield curve and a tightening of corporate yield spreads as the equity market improved in the face of better prospects for U.S. growth. Unfortunately, the events of September 11, 2001 caused a substantial rally in the U.S. Treasury market and, - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 23 NATIONS INTERMEDIATE BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued while the return of the portfolio increased, it did not perform as well as if it was more heavily weighted towards U.S. Treasury securities. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? While the outlook for the U.S. economy remains unclear, we believe that second and third quarter corporate profits may be weak and the performance of the credit sensitive sectors could remain volatile. The rebound in U.S. economic activity in the first quarter of 2002 came from a reduction in corporate inventories, and it is uncertain whether U.S. consumer spending will continue to outpace the lack of corporate capital expenditures. While we believe the worst is over, we suspect that U.S. economic growth for the remainder of 2002 will be less than spectacular. Based upon our outlook, we plan to maintain an overweight to U.S. investment grade corporate debt and some sectors of the high yield market. In addition, we will probably position the Fund for a flattening of the yield curve with the expectation that the Fed will increase short-term interest rates sometime in the next 6 to 9 months. 24 NATIONS INTERMEDIATE BOND FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 49.3% U.S. Treasury obligations 28.3% Corporate bonds and notes 12.0% Mortgage-backed securities 2.1% Foreign bonds and notes 1.8% Asset-backed securities 6.5% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 U.S. Treasury Note, 5.875% 02/15/04 9.8% ------------------------------------------------- 2 U.S. Treasury Note, 3.250% 12/31/03 6.2% ------------------------------------------------- 3 Federal National Mortgage Association (FNMA) Certificates, 7.000% 07/15/05 6.2% ------------------------------------------------- 4 U.S. Treasury Strip, Principal only, 4.179% 11/15/04 4.4% ------------------------------------------------- 5 U.S. Treasury Note, 6.750% 05/15/05 3.4% ------------------------------------------------- 6 U.S. Treasury Strip, Interest only, 5.823% 05/15/11 1.6% ------------------------------------------------- 7 U.S. Treasury Note, 5.875% 11/15/04 1.4% ------------------------------------------------- 8 General Electric Capital Corporation, Series A, 5.380% 03/15/07 1.2% ------------------------------------------------- 9 U.S. Treasury Note, 4.250% 11/15/03 1.1% ------------------------------------------------- 10 General Motors Acceptance Corporation, 6.880% 09/15/11 1.0% ------------------------------------------------- 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. 25 NATIONS INTERMEDIATE BOND FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
LEHMAN INTERMEDIATE NATIONS INTERMEDIATE BOND FUND GOVERNMENT/CORPORATE BOND INDEX ------------------------------ ------------------------------- Jan. 24, 1994 9525 10000 12/94 9333 9699 12/95 10689 11186 12/96 11024 11639 12/97 11746 12555 12/98 12606 13614 12/99 12654 13668 12/00 13662 15051 12/01 14786 16399 Mar. 31, 2002 14669 16363
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
LEHMAN INTERMEDIATE NATIONS INTERMEDIATE BOND FUND GOVERNMENT/CORPORATE BOND INDEX ------------------------------ ------------------------------- Jan. 24, 1994 10000 10000 12/94 9798 9699 12/95 11222 11186 12/96 11574 11639 12/97 12332 12555 12/98 13235 13614 12/99 13285 13668 12/00 14343 15051 12/01 15523 16399 Mar. 31, 2002 15400 16363
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (1/24/94 through 3/31/02) 5.42% 4.99%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Intermediate Bond Fund from the inception of the share class. Figures for the Lehman Intermediate Government/Corporate Bond Index, an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury and U.S. government and agency securities with maturities of 1 to 10 years, include reinvestment of dividends. It is unavailable for investment and does 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 5/21/99 1/24/94 10/20/99 11/20/96 - -------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 4.04% 3.66% 0.30% 2.94% -0.02% 2.94% 1.94% - -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 5.27% 5.20% 4.05% 4.58% 3.98% 6.77% 6.77% 5 YEARS 5.99% 5.94% 5.24% 5.57% 5.57% 6.74% 6.74% SINCE INCEPTION 5.45% 5.42% 4.99% 5.19% 5.19% 6.18% 6.18%
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 3.25%. **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. &Primary A Shares commenced operations on May 21, 1999 and have no performance prior to that date. Performance prior to May 21, 1999 is that of Investor A Shares at NAV, which reflect 12b-1 fees of 0.25%. These 12b-1 fees are not applicable to Primary A Shares. Inception date for Investor A Shares is January 24, 1994. &&Investor B Shares commenced operations on October 20, 1999 and have no performance prior to that date. Performance prior to October 20, 1999 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 January 24, 1994. 26 NATIONS BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks total return by investing in investment grade fixed income securities. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Bond Fund Investor A Shares provided shareholders with a total return of 3.96%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS BOND 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 investment style and philosophy are based upon our belief that the level of fixed income total returns and consistency of returns we strive for may be achieved through a disciplined risk management process. We focus on seeking to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. Nations Bond Fund seeks to outperform the Lehman Aggregate Bond Index*** (Index), a broad-based measure of the bond market as a whole. The Index has an average duration of approximately 5 years and is comprised of all publicly issued investment grade corporate, "AAA" rated asset-backed, agency mortgage-backed securities, U.S. Treasury, U.S. agency, and investment grade commercial mortgage- backed securities with maturities longer than one year. This Index is well matched to the Lipper Intermediate Investment Grade Debt Funds Average.& HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Bond Fund (Investor A Shares) returned 3.96%, compared to 5.35% for the Fund's benchmark Index. The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecom equipment all but disappeared in 2001 as the hope for - --------------- *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 3.25%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***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. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage- backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. &Lipper, Inc. is an independent mutual fund performance monitor. Funds in the Lipper Intermediate Investment Grade Debt Funds Average invest at least 65% of the assets in investment grade debt issues with dollar-weighted average maturities of five to ten years. Source for all statistical data -- Banc of America Capital Management, LLC. THE FUND MAY INVEST A SMALL PORTION OF ITS ASSETS IN HIGH YIELD DEBT SECURITIES (COMMONLY KNOWN AS "JUNK BONDS"), WHICH OFFER THE POTENTIAL FOR HIGHER INCOME BUT ALSO INVOLVE SPECIAL RISKS, SUCH AS LESS LIQUIDITY AND POSSIBILITY OF DEFAULT. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 27 NATIONS BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued "a chicken in every pot and a broadband connection in every home" disappeared. For a short while it appeared that the combination of lower short-term interest rates and surprisingly resilient consumer spending was going to prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. The growth rate of the Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and a substantial increase of 5.8% in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait and see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between "BBB" rated U.S. investment grade corporate debt and U.S. Treasury securities ranged between 2.77% and 2.18% over the past 12 months. Early hopes for recovery helped corporate debt outperform comparable maturity U.S. Treasury notes in April and May of 2001, but the tragedy of September 11, 2001 caused U.S. Treasury notes to rally dramatically. While prices of corporate, mortgage, and asset-backed securities increased, they were unable to keep pace with the increase in U.S. Treasury prices. In September 2001, almost all sectors of the fixed income markets underperformed comparable U.S. Treasury notes. "B" rated high yield debt managed to underperform U.S. Treasury notes by over 10%. In contrast, the normally interest rate sensitive mortgage market took the interest rate rally in stride by outperforming U.S. Treasury notes in both September and October of 2001. Once the shock of September 11, 2001 subsided, the yields on U.S. Treasury notes increased and the yield spread between U.S. Treasury notes and the credit sensitive sectors of the fixed income market tightened substantially. Despite the shocks to the U.S. economy and the incredible changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts. 28 NATIONS BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued
---------------------------------------------------------------------------- EXCESS TOTAL RETURN TO COMPARABLE DURATION SECTOR U.S. TREASURY NOTES(1) ---------------------------------------------------------------------------- Agency Debentures 1.31% Agency Mortgage-Backed Securities 1.73 AAA Asset-Backed Securities 1.19 AAA Commercial Mortgage-Backed Securities 4.27 Corporates (All) 2.38 AAA/AA Rated Corporates 2.49 A Rated Corporates 2.84 BBB Rated Corporates 1.83 BB Rated Corporates 1.30 B Rated Corporates -4.22 ----------------------------------------------------------------------------
(1)Excess total returns based upon Banc of America Capital Management, LLC analysis of the Salomon Fixed Income Benchmarks and other selected fixed income markets. HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of attempting to manage interest rate risk and focusing on relative value opportunities across the fixed income markets. The portfolio was heavily weighted in high quality sectors with a particular focus on U.S. agency mortgage-backed securities and "AAA" rated commercial mortgage-backed securities. While these sectors are not immune from credit risk, we believe they do offer substantial protection from default. U.S. agency mortgage-backed securities are backed by either an explicit or an implicit guarantee of the U.S. government as well as by the real estate underlying each mortgage. "AAA" rated commercial mortgage-backed securities are backed by highly diverse pools of commercial real estate loans and they are structured to attempt to withstand defaults of 50% or more. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& Our strategic overweight to what we believe were high quality sectors helped the Fund's total return performance for the period. The portfolio was invested in "AAA" rated commercial and agency residential mortgage-backed securities in lieu of U.S. Treasury notes. As can be seen in the table above, high quality credit sensitive sectors outperformed U.S. Treasury notes and this contributed to the overall Fund performance. In addition, our willingness to increase our exposure to "BBB" rated and high yield corporate debt in December 2001 also enhanced portfolio performance. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? Our decision to maintain a sizeable investment in lower quality corporate debt in the third quarter hindered overall Fund performance. From the end of March 2001 until the middle of the summer, our corporate and high yield debt exposure enhanced Fund returns. As we moved into August 2001, we believed the U.S. economy would narrowly miss a recession. Our expectations were for a flatter yield curve and a tightening of corporate yield spreads as the equity market improved in the face of better prospects for U.S. growth. Unfortunately, the events of September 11, 2001 caused a substantial rally in the U.S. Treasury market and, while the return of the portfolio increased, it did not perform as well as if it was more heavily weighted towards U.S. Treasury securities. - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 29 NATIONS BOND FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? While the outlook for the U.S. economy remains unclear, we believe that second and third quarter corporate profits may be weak and the performance of the credit sensitive sectors could remain volatile. The rebound in U.S. economic activity in the first quarter of 2002 came from a reduction in corporate inventories, and it is uncertain whether U.S. consumer spending can continue to outpace the lack of corporate capital expenditures. While we believe the worst is over, we suspect that U.S. economic growth for the remainder of 2002 will be less than spectacular. Based upon our outlook, we plan to maintain an overweighting to U.S. investment grade corporate debt and some sectors of the high yield market. In addition, we will probably position the portfolio for a flattening of the yield curve with the expectation that the Fed may increase short-term U.S. interest rates sometime in the next six to nine months. 30 NATIONS BOND FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 38.8% Mortgage-backed securities 36.2% Corporate bonds and notes 10.9% Asset-backed securities 3.8% Foreign bonds and notes 2.1% U.S. Treasury obligations 8.2% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Federal National Mortgage Association (FNMA) Certificates, 6.500% 02/01/32 21.0% ------------------------------------------------- 2 Federal National Mortgage Association (FNMA) Certificates, 7.000% 05/01/30 7.4% ------------------------------------------------- 3 Federal National Mortgage Association (FNMA) Certificates, 6.000% 03/01/17 3.7% ------------------------------------------------- 4 U.S. Treasury Note, 3.880% 07/31/03 1.3% ------------------------------------------------- 5 Distribution Financial Services RV Trust, Series 1999-1, Class A4, 5.840% 10/17/11 1.1% ------------------------------------------------- 6 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32 0.9% ------------------------------------------------- 7 Banco Latinoamericano de Exportaciones, SA, Class E, 7.200% 05/28/02 0.9% ------------------------------------------------- 8 Government National Mortgage Association (GNMA) Certificates, 7.00% 01/15/30 0.8% ------------------------------------------------- 9 Metris Master Trust, Series 1997-1, Class B, 7.110% 10/20/05 0.7% ------------------------------------------------- 10 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29 0.7% ------------------------------------------------- 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. 31 NATIONS BOND FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS BOND FUND LEHMAN AGGREGATE BOND INDEX ----------------- --------------------------- Nov. 19, 1992 9675 10000 1993 10820 11147 1994 10441 10822 1995 12221 12820 1996 12455 13286 1997 13484 14567 1998 14420 15834 1999 14211 15704 2000 15608 17530 2001 16794 19010 Mar. 31, 2002 16713 19027
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS BOND FUND LEHMAN AGGREGATE BOND INDEX ----------------- --------------------------- Nov. 19, 1992 10000 10000 1993 11183 11147 1994 10791 10822 1995 12631 12820 1996 12873 13286 1997 13937 14567 1998 14904 15834 1999 14688 15704 2000 16132 17530 2001 17358 19010 Mar. 31, 2002 17274 19027
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (11/19/92 through 3/31/02) 6.01% 5.63%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Bond Fund from the inception of the share class. Figures for the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities and include reinvestment of dividends. It is unavailable for investment and does 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 10/30/92 11/19/92 6/7/93 11/16/92 - -------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 4.33% 3.96% 0.57% 3.29% 0.32% 3.18% 2.20% - -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 5.47% 5.18% 4.04% 4.45% 4.16% 4.32% 4.32% 5 YEARS 6.49% 6.23% 5.54% 5.55% 5.55% 5.52% 5.52% SINCE INCEPTION 6.25% 6.01% 5.63% 4.97% 4.97% 5.47% 5.47%
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 3.25%. **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. 32 NATIONS STRATEGIC INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Fixed Income Management Team of Banc of America Capital Management, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks total return with an emphasis on current income by investing in a diversified portfolio of fixed income securities. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations Strategic Income Fund Investor A Shares provided shareholders with a total return of 3.05%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS STRATEGIC INCOME 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. We believe that fixed income total returns and consistency of returns may be enhanced through a disciplined risk management process. We seek to manage interest rate risk and emphasize a quantitative approach to sector allocation, sector rotation and relative value security selection. In managing the Fund, the team employs a multi-sector strategy. In addition to investing in investment grade debt securities, the fund invests in lower quality securities (the Fund may invest up to 35% in non-investment grade securities rated "B" or better by a nationally recognized rating agency) and foreign securities (the Fund may invest up to one-third of its assets in foreign securities). The security selection process is based on seeking relative value across yield curves, domestic and international governments, and investment grade and high yield corporate debt. HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations Strategic Income Fund (Investor A Shares) returned 3.05%, compared to 4.64% for the Lehman Government/Corporate Bond Index*** and 5.35% for the Lehman Aggregate Bond Index, the Fund's benchmark.& - --------------- *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 4.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Lehman Government/Corporate Bond Index is an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. &The Lehman Aggregate Bond Index is an unmanaged index made of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage- Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities, and include reinvestment of dividends. These 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. THE FUND MAY INVEST A PORTION OF ITS ASSETS IN HIGH YIELD DEBT SECURITIES (COMMONLY KNOWN AS "JUNK BONDS"), WHICH OFFER THE POTENTIAL FOR HIGHER INCOME BUT ALSO INVOLVE SPECIAL RISKS, SUCH AS LESS LIQUIDITY AND POSSIBILITY OF DEFAULT. 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 ECONOMICAL DEVELOPMENTS. Past performance is no guarantee of future results. 33 NATIONS STRATEGIC INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued The U.S. economy slowed dramatically in the year ending March 31, 2002 and, according to the National Bureau of Economic Research, the U.S. economy entered a recession in March of 2001. Unlike past recessions, which are typically brought about by declining consumer activity, this decline in economic activity was prompted by the "technology implosion" of 2000. Corporate capital expenditures for technology and telecom equipment all but disappeared in 2001 as the hope for "a chicken in every pot and a broadband connection in every home" disappeared. For a short while it appeared that the combination of lower short-term interest rates and surprisingly resilient consumer spending was going to prevent a recession. Unfortunately, the events of September 11, 2001 sent the economy into a tailspin and the Federal Reserve Board (the Fed) continued to lower interest rates. Gross Domestic Product in the third quarter of 2001 hit a 10-year low of -1.30%. This drop was followed by a reasonably paced rate of growth of 1.7% in the fourth quarter of 2001 and a substantial increase of 5.8% of growth in the first quarter of 2002. The rebound in activity may be attributed to corporate inventory liquidation, and, while we believe the worst is over, we are taking a wait and see approach to the remainder of the year. Given the volatility in economic activity, it is not surprising that the fixed income markets were volatile. While fixed income returns were positive over the past 12 months, they were markedly lower than the returns of 2001. As the Fed lowered short-term interest rates, the yield curve steepened with the two-year U.S. Treasury note yield declining 0.46% to 3.73%. This steepening of the yield curve made the two-year U.S. Treasury note the top performer among U.S. Treasury securities with a return of 5.24%. In contrast, the yield on the 30-year U.S. Treasury bond increased from 5.46% to 5.82% and returned only 0.28% over the past 12 months. On top of the change in the shape of the yield curve, interest rates were extremely volatile. The yield on the 10-year U.S. Treasury note ranged from a high of 5.52% on May 29, 2001 to a low of 4.18% on November 7, 2001. The slowdown in U.S. economic activity and the events of September 11, 2001 also had an impact on world government bonds. German interest rates ended the period at 5.25% or 0.54% higher than the start of the period. The range in German interest rates was fairly wide, with 10-year German Bund yields hitting a low of 4.26% on November 11, 2001 and a high of 5.27% on March 25, 2002. This same story held true across most of the G-7 countries. (G-7, or Group of Seven, consists of the largest industrialized countries: U.S., Japan, Great Britain, France, Germany, Italy, and Canada. Each has a Finance Minister who attends G-7 meetings to discuss economic policy issues.) The volatility in interest rates also increased the return volatility of corporate, agency, and mortgage-backed securities. The yield spread between "BBB" rated U.S. investment grade corporate debt and U.S. Treasury securities ranged between 2.77% and 2.18% over the past 12 months. Early hopes for recovery helped corporate debt outperform comparable maturity U.S. Treasury notes in April and May of 2001, but the tragedy of September 11, 2001 caused U.S. Treasury notes to rally dramatically. While prices of corporate, mortgage, and asset-backed securities increased, they were unable to keep pace with the increase in U.S. Treasury prices. In September 2001, almost all sectors of the fixed income markets underperformed compared to U.S. Treasury notes. "B" rated high yield debt managed to 34 NATIONS STRATEGIC INCOME FUND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued underperform U.S. Treasury notes by over 10%. In contrast, the normally interest rate sensitive mortgage market took the interest rate rally in stride by outperforming U.S. Treasury notes in both September and October of 2001. Once the shock of September 11, 2001 subsided, yields on U.S. Treasury notes increased and the yield spread between U.S. Treasury notes and the credit sensitive sectors of the fixed income market tightened substantially. Despite the shocks to the U.S. economy and the incredible changes in interest rates, all investment grade sectors of the fixed income markets managed to outperform their U.S. Treasury counterparts. HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT? Despite the volatile markets, we remained faithful to our strategy of seeking to manage interest rate risk while exploiting relative value opportunities across the yield curve. Despite the increased volatility in U.S. Treasury markets and a corresponding increase in correlation between the various government interest rates, the inclusion of domestic government bonds, high yield debt, and international government bonds helped to stabilize the returns of the Fund. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& The investment decisions that contributed the most to the Fund's performance were our exposure to "AAA" rated commercial mortgage-backed securities and investment grade corporate debentures. Despite volatility in the U.S. Treasury market and uncertainty surrounding world economic growth, "AAA" rated commercial mortgage-backed securities and investment grade corporate debt both dramatically outperformed their U.S. Treasury counterparts. Later in the year, we shorted a small percentage of Japanese Yen. Over the period, the Yen depreciated from 116 Yen per U.S. dollar to 132 Yen per U.S. dollar. WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? The decision that most hindered performance was our exposure to the high yield market. While we were not fully invested in high yield securities, the underperformance of the high yield market as a whole reduced the overall performance of the Fund. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? While the outlook for the U.S. economy remains unclear, we believe that second and third quarter corporate profits may be weak and the performance of the credit sensitive sectors could remain volatile. The rebound in U.S. economic activity in the first quarter of 2002 came from a reduction in corporate inventories, and it is uncertain whether U.S. consumer spending can continue to outpace the lack of corporate capital expenditures. While we believe the worst is over, we suspect that U.S. economic growth for the remainder of 2002 will be less than spectacular. Based upon our outlook, we plan to maintain an overweighting to U.S. investment grade corporate debt and some sectors of the high yield market. In addition, we will be adding more credit sensitive securities to our international allocation. Given that we have probably seen the low in interest rates for this cycle, we will be looking for an opportunity to shorten the duration of the Fund. In addition, we are planning to position the Fund for a flattening of both the domestic and international yield curves. - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 35 NATIONS STRATEGIC INCOME FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 14.5% Mortgage-backed securities 11.0% Corporate bonds and notes 2.5% U.S. Treasury obligations 72.0% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Federal National Mortgage Association (FNMA) Certificates, 6.500% 02/01/32 7.0% ------------------------------------------------- 2 Federal National Mortgage Association (FNMA) Certificates, 7.000% 05/01/30 2.9% ------------------------------------------------- 3 U.S. Treasury Note, 5.750% 08/15/03 1.8% ------------------------------------------------- 4 Federal National Mortgage Association (FNMA) Certificates, 6.000% 03/01/17 1.4% ------------------------------------------------- 5 Federal National Mortgage Association (FNMA) Certificates, 7.000% 07/15/05 0.7% ------------------------------------------------- 6 Salomon Brothers Mortgage Securities VII, Series 2000-C1, Class A2, 7.520% 12/18/09 0.6% ------------------------------------------------- 7 First Union National Bank Commercial Mortgage, Series 1999-C4, Class A2, 7.390% 11/15/09 0.4% ------------------------------------------------- 8 U.S. Treasury Strip, Principal only, 6.278% 11/15/21 0.4% ------------------------------------------------- 9 CS First Boston Mortgage Securities Corporation, Series 2000-C1, Class A2, 7.545% 04/14/62 0.4% ------------------------------------------------- 10 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29 0.4% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2002, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. 36 NATIONS STRATEGIC INCOME FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS STRATEGIC INCOME LEHMAN GOVT/CORPORATE LEHMAN AGGREGATE BOND FUND BOND INDEX INDEX ------------------------ --------------------- --------------------- Nov. 25 1994 9525 10000 10000 1993 11165 11188 11147 1994 10859 10795 10822 1995 13098 12872 12820 1996 13386 13246 13286 1997 14500 14538 14567 1998 15554 15915 15834 1999 15098 15573 15704 2000 16272 17418 17530 2001 17313 18899 19010 Mar. 31 2002 17355 18810 19027
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS STRATEGIC INCOME LEHMAN GOVT/CORPORATE LEHMAN AGGREGATE BOND FUND BOND INDEX INDEX ------------------------ --------------------- --------------------- Nov. 25 1994 10000 10000 10000 1993 11722 11188 11147 1994 11722 10795 10822 1995 13751 12872 12820 1996 14054 13246 13286 1997 15223 14538 14567 1998 16330 15915 15834 1999 15851 15573 15704 2000 17083 17418 17530 2001 18176 18899 19010 Mar. 31 2002 18220 18810 19027
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (11/25/92 through 3/31/02) 6.63% 6.08%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Strategic Income Fund from the inception of the share class. Figures for the Lehman Government/Corporate Bond Index, an unmanaged index of U.S. government, U.S. Treasury and agency securities, corporate and yankee bonds, include reinvestment of dividends. Figures for the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities and include reinvestment of dividends. The Indices 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 10/30/92 11/25/92 6/7/93 11/9/92 - ------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 3.30% 3.05% -1.82% 2.28% -2.58% 2.28% 1.31% - ------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS 4.35% 4.06% 2.40% 3.34% 2.46% 3.29% 3.29% 5 YEARS 5.79% 5.51% 4.50% 4.83% 4.51% 4.81% 4.81% SINCE INCEPTION 6.92% 6.63% 6.08% 5.24% 5.24% 6.12% 6.12%
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 4.75%. **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. 37 NATIONS HIGH YIELD BOND FUND HIGH YIELD PORTFOLIO MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the High Yield Portfolio Management Team of MacKay Shields LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks maximum income by investing in a diversified portfolio of high yield debt securities. PERFORMANCE REVIEW For the 12-month period ended March 31, 2002, Nations High Yield Bond Fund Investor A Shares provided shareholders with a total return of 5.69%**. IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS HIGH YIELD BOND 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. Our investment philosophy emphasizes current yield, while looking for total return, through investments in a diversified portfolio of high-yield debt securities. We believe that high-yield managers can add value through superior credit selection, which may reduce default rates and result in attractive risk-adjusted returns. The primary focus of our investment strategy is to preserve invested capital. To this end, we seek to identify securities that offer what we call a margin of safety. These are securities with strong asset coverage or significant free cash flow. The secondary focus of our investment process is to generate total return through an identified catalyst for price appreciation. In our view, companies that can significantly reduce debt through free cash flow, new equity or an identified restructuring potentially present opportunities for price appreciation. HOW DID THE FUND PERFORM DURING THE ECONOMIC AND MARKET CONDITIONS OF THE LAST 12 MONTHS? For the 12 months ended March 31, 2002, Nations High Yield Bond Fund (Investor A Shares) returned 5.69%, outperforming the -0.94% loss in the Lipper High Current Yield Funds Average*** over the same period. The Fund also outperformed the 3.38% return of the Credit Suisse First Boston (CSFB) Global High Yield Index& for the period. In 2001, the Federal Reserve Board (the Fed) moved aggressively to ease monetary policy, lowering interest rates 11 times -- for a total reduction of 4.75%. Despite these moves to stabilize the slowing economy, default rates continued to rise. After - --------------- *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 4.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effects of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which has the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***Lipper Inc. is an independent mutual fund performance monitor. Funds in the Lipper High Current Yield Fund's Average aim at high (relative) current yield from fixed income securities and have no quality or maturity restrictions. &The Credit Suisse First Boston (CSFB) Global High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Source for all statistical data -- MacKay Shields LLC. INVESTING IN HIGHER-YIELDING, LOWER-RATED CORPORATE BONDS (COMMONLY KNOWN AS "JUNK BONDS") HAS A GREATER RISK OF PRICE FLUCTUATION AND LOSS OF PRINCIPAL AND INCOME THAN U.S. GOVERNMENT SECURITIES SUCH AS U.S. TREASURY BONDS AND BILLS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 38 NATIONS HIGH YIELD BOND FUND HIGH YIELD PORTFOLIO MANAGEMENT TEAM COMMENTARY continued the September 11, 2001 terrorist attacks, the high-yield market gave back all of its year-to-date gains. In the fourth quarter of 2001, however, high-yield bonds rallied, as the war on terrorism progressed, and attractive yields and spreads in the high-yield market attracted substantial money flows. In the first quarter of 2002, high-yield mutual funds generally experienced inflows as the recession ended. WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S PERFORMANCE?&& The Fund's ability to outperform its peer group and the benchmark was due to what it didn't own as well as to what it did own. The Fund benefited from an underweighted position in the telecommunications sector throughout the last 12 months. Even with the massive telecommunications sell-off, we continued to see more risk than opportunity in the sector, since asset values were continuing to plummet with no likely buyers for distressed assets. Even though telecommunications bonds saw a broad-based rally in the fourth quarter for 2001 and retreated from it in the first quarter of 2002, our outlook for this sector remains unchanged. Among the Fund's strongest performers for the year were Crown Cork & Seal Company, Inc., Digital Island, IPC Acquisition Corporation, Alaris Medical Systems, Inc., Medaphis Corporation and Sovereign Bank. We liquidated the Fund's position in Digital Island when it was announced that Cable and Wireless PLC would acquire the company and the bonds would be repurchased. The Fund was overweighted in utilities, real estate investment trusts (REITs), cable and media, and health care bonds, while it was underweighted in cyclical issues, such as paper, retail, and automotive bonds. Our approach to cyclical sectors reflected our concern over the possibility of a recession. The Fund's underweighted position had a positive impact on performance during the first half of last year when the pace and extent of the economic slowdown remained relatively uncertain. In the third quarter 2001, economists confirmed that the U.S. had been in recession since March 2001. The health care sector benefited from increased government reimbursement, which has improved revenues and earnings for many companies. Hospitals and nursing homes were among the beneficiaries, and many investors were attracted to these defensive issues. Despite the economic and market uncertainties in 2001, health care issues remained relatively resilient. The Fund benefited greatly as it increased its weighting in gaming, lodging and transportation investments six months ago. In late September 2001, we found several bonds at what we believed were depressed prices issued by companies with strong fundamentals. Many of the Fund's holdings -- including Hilton Hotels Corporation, MeriStar Hospitality Corporation, Venetian Casino Resort LLC, Mandalay Resort Group, Pinnacle Entertainment, Inc. and Delta Air Lines, Inc. -- rebounded strongly from their September 2001 lows and provided positive results in the fourth quarter of 2001 and into 2002. - --------------- &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 39 NATIONS HIGH YIELD BOND FUND HIGH YIELD PORTFOLIO MANAGEMENT TEAM COMMENTARY continued WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE DURING THE PERIOD? We have offset the Fund's underweighted position in telecommunications with an overweighted position in European cable television, where we have seen much better risk-adjusted market opportunity. Cable television companies tended to have strong franchise value and improving cash flow. Unfortunately, during the last 12 months, international cable credits tended to trade in line with telecommunications issues. As a result, they faced considerable pressure, which detracted from the Fund's performance through much of the last year. The Fund also had its share of disappointments. Among the weakest-performing securities in the portfolio were UIH Australia/Pacific Inc., Nextel International Inc., Cablevision SA, At Home Corporation, Ziff Davis Media Inc., and Northeast Optic. These securities suffered from declines in their respective industries. Cablevision SA, an Argentinean cable company, also felt the impact of a pending default by Argentina on it's Sovereign debt. Although the Fund did not hold any Enron Corp. securities, other utility holdings, including AES Eastern Energy and Calpine Corporation, experienced technical pressure as the entire utility sector was impacted by Enron Corp.'s bankruptcy. HOW IS THE FUND POSITIONED? We continue to maintain our underweight in telecommunications going forward, as we see more risk than opportunity in the sector. The Fund is overweighted in technology, media and publishing companies. We are increasing our weightings in cyclicals, such as paper, airlines and industrials. We are also purchasing more "fallen angels" or companies that are being downgraded from investment grade. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM AND HOW WILL YOU POSITION THE FUND? With the improving economy, declining default rates and wide spreads, we believe the high yield asset class looks favorable. A slow recovery favors the Fund, as investors are paid to wait as they receive income while the economy resuscitates. Default rates appear to be peaking at 10% absent a "double-dip" recession. The recovery could lower default rates, improving the outlook for the asset class. However, we believe the market has begun to price in a recovery and this may have a negative effect should the outlook change. Economic indicators have been generally positive in recent months, but the jury is still out on how sustainable a recovery is likely to be. The Fed's interest-rate cuts have had a positive effect, but U.S. consumers must still cope with higher unemployment, increased personal debt, and negative wealth effects from two years of falling stock prices. It is difficult to have conviction that the economic recovery may be strong and broad-based without assurances that consumers may be able to increase demand. Whatever the markets or the economy may bring, the Fund will continue to seek maximum current income through investment in a diversified portfolio of high yield debt securities. Capital appreciation will remain a secondary objective. 40 NATIONS HIGH YIELD BOND FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/02) [PIE CHART] 79.6% Corporate bonds and notes 5.5% Convertible bonds and notes 2.4% Common stocks 1.2% Preferred stocks 1.1% U.S. government and agency obligations 10.2% Other
TOP 10 HOLDINGS ------------------------------------------------- 1 Cedar Brakes II LLC, 9.875% 09/01/13 1.5% ------------------------------------------------- 2 U.S. Treasury Note, 5.375% 02/15/31 1.1% ------------------------------------------------- 3 Paxson Communications Corporation, (0.000)% due 01/15/09 12.250% beginning 01/15/06 1.1% ------------------------------------------------- 4 PG&E National Energy Group, 10.375% 05/16/11 1.1% ------------------------------------------------- 5 Calpine Canada Energy Finance, 8.500% 05/01/08 1.0% ------------------------------------------------- 6 DJ Orthopedics LLC, 12.625% 06/15/09 1.0% ------------------------------------------------- 7 Alaris Medical Systems, Inc., 9.750% 12/01/06 0.9% ------------------------------------------------- 8 Pacific Gas and Electric Company Bank Debt A, 8.000% 12/30/06 0.9% ------------------------------------------------- 9 Rogers Cable Inc., 11.000% 12/01/15 0.9% ------------------------------------------------- 10 Caremark Rx, Inc., 7.375% 10/01/06 0.8% ------------------------------------------------- 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. 41 NATIONS HIGH YIELD BOND FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS HIGH YIELD BOND FUND CSFB GLOBAL HIGH YIELD BOND INDEX ---------------------------- --------------------------------- Feb. 14, 1992 9525 10000 3/00 9494 9915 6/00 9688 9897 9/00 9802 9965 12/00 9346 9461 3/00 9872 9928 6/00 9796 9866 9/00 9427 9646 12/00 10119 10191 Mar. 31 2002 10434 10449
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS HIGH YIELD BOND FUND CSFB GLOBAL HIGH YIELD BOND INDEX ---------------------------- --------------------------------- Feb. 14, 1992 10000 10000 3/00 9967 9915 6/00 10171 9897 9/00 10291 9965 12/00 9812 9461 3/00 10364 9928 6/00 10285 9866 9/00 9897 9646 12/00 10624 10191 Mar. 31 2002 10954 10449
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (2/14/00 through 3/31/02) 4.40% 2.02%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations High Yield Bond Fund from the inception of the share class. The Credit Suisse First Boston (CSFB) Global High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the high yield debt market. It is unavailable for investment and does 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 2/14/00 2/14/00 2/17/00 3/8/00 - ------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE 6.05% 5.69% 0.67% 5.06% 0.28% 4.96% 4.00% - ------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS SINCE INCEPTION 4.89% 4.40% 2.02% 3.70% 2.49% 3.56% 3.56%
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 4.75%. **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. 42 NATIONS FUNDS Nations Short-Term Income Fund STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 16.5% ASSET-BACKED -- AUTO LOANS -- 6.5% $ 2,500 Americredit Automobile Receivables Trust, Series 2001-B, Class A4, 5.370% 06/12/08##...................................... $ 2,533 4,000 Bankboston RV Asset Backed Trust, Series 1997-1, Class A9, 6.630% 08/15/10........................................ 4,165 1,403 BankBoston RV Trust, Series 1997-1, Class A7, 6.480% 07/15/08##...................................... 1,413 5,000 BMW Vehicle Lease Trust, Series 2000-A, Class A4, 6.670% 10/25/03##...................................... 5,191 569 Ford Credit Auto Owner Trust, Series 2000-A, Class A5, 7.190% 03/15/04........................................ 591 1,725 Ford Credit Auto Owner Trust, Series 2002-B, Class B, 5.180% 10/16/06........................................ 1,723 2,270 Honda Auto Receivables Owner Trust, Series 2000-1, Class A4, 6.670% 01/16/06........................................ 2,368 1,500 MMCA Automobile Trust, Series 2001-1, Class A4, 5.340% 12/15/05........................................ 1,528 1,447 MMCA Automobile Trust, Series 2001-2, Class B, 5.750% 06/15/07........................................ 1,472 4,000 Nissan Auto Receivables Owner Trust, Series 2000-C, Class A3, 6.720% 08/16/04........................................ 4,103 3,000 Onyx Acceptance Auto Trust, Series 2002-A, Class A3, 3.750% 04/15/06........................................ 2,982 3,548 Premier Auto Trust, Series 1999-1, Class A4, 5.820% 10/08/03........................................ 3,598 2,000 Union Acceptance Corporation, Series 1999-A, Class A5, 5.870% 09/08/06........................................ 2,058 2,000 USAA Auto Owner Trust, Series 2001-2, Class A4, 3.910% 04/16/07........................................ 1,959 5,000 World Omni Auto Receivables Trust, Series 2001-B, Class A3, 3.790% 11/20/05........................................ 4,986 -------- 40,670 -------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 4.4% 2,500 American Express Credit Account Master Trust, Series 1999-1, Class A, 5.600% 11/15/06##...................................... 2,569 2,000 Capital One Master Trust, Series 2001-7A, Class A, 3.850% 08/15/07........................................ 1,970
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- (CONTINUED) $ 1,500 Chase Credit Card Master Trust, Series 1996-4, Class B, 2.250%** 07/15/06...................................... $ 1,502 3,000 Citibank Credit Card Master Trust I, Series 1998-3, Class B, 5.950% 02/07/05........................................ 3,074 5,000 Discover Card Master Trust I, Series 1998-6, Class A, 5.850% 01/17/06##...................................... 5,127 3,000 First USA Credit Card Master Trust, Series 1998-9, Class A, 5.280% 09/18/06........................................ 3,055 3,500 Fleet Credit Card Master Trust, Series 1999-A, Class A1, 6.000% 11/15/05##...................................... 3,570 3,145 MBNA Master Credit Card Trust, Series 1998-J, Class A, 5.250% 02/15/06........................................ 3,190 3,920 Metris Master Trust, Series 1997-1, Class B, 7.110% 10/20/05........................................ 3,927 -------- 27,984 -------- ASSET-BACKED -- HOME EQUITY LOANS -- 4.4% 10,462 EQCC Home Equity Loan Trust, Series 1998-1, Class A4F, 6.459% 03/15/21##...................................... 10,681 3,000 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29##...................................... 3,058 685 First Plus Home Loan Trust, Series 1998-2, Class M1, 7.220% 05/10/24........................................ 697 3,615 Residential Asset Securities Corporation, Series 1999-KS1, Class AI3, 6.110% 05/25/24........................................ 3,645 4,000 Residential Asset Securities Corporation, Series 2000-KS5, Class AI2, 6.935% 10/25/20........................................ 4,034 3,000 Residential Asset Securities Corporation, Series 2002-KS2, Class AI1, 2.019%** 11/25/17...................................... 2,999 858 Saxon Asset Securities Trust, Series 1998-1, Class MF1, 7.050% 12/25/27........................................ 863 1,989 UCFC Home Equity Loan, Series 1997-B, Class A6, 6.900% 10/15/28........................................ 2,066 -------- 28,043 -------- ASSET-BACKED -- OTHER -- 1.2% 1,260 Augusta Funding Ltd. IV, Class A1, 6.250% 11/15/02@....................................... 1,273 5,437 First Sierra Receivables, Series 1999-1, Class A4, 5.730% 09/15/04........................................ 5,551
SEE NOTES TO FINANCIAL STATEMENTS. 43 NATIONS FUNDS Nations Short-Term Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED -- OTHER -- (CONTINUED) $ 1,010 PSE&G Transition Funding LLC, Series 2001-1, Class A1, 5.460% 06/15/04........................................ $ 1,017 -------- 7,841 -------- TOTAL ASSET-BACKED SECURITIES (Cost: $103,254)....................................... 104,538 -------- CORPORATE BONDS AND NOTES -- 32.3% AUTOMOTIVE -- 1.4% 756 Delphi Automotive Systems Corporation, 6.125% 05/01/04........................................ 768 4,000 Ford Motor Credit Company, 6.700% 07/16/04........................................ 4,035 3,000 PACCAR Financial Corporation, 5.830% 03/14/03........................................ 3,062 1,030 Toyota Motor Credit Corporation, 5.625% 11/13/03(a)..................................... 1,057 -------- 8,922 -------- BROADCASTING AND CABLE -- 0.8% 2,200 Cox Communications, Inc., 6.500% 11/15/02(a)..................................... 2,234 3,000 Turner Broadcasting System, Inc., 7.400% 02/01/04........................................ 3,135 -------- 5,369 -------- CHEMICALS -- SPECIALTY -- 0.2% 1,100 Praxair, Inc., 6.750% 03/01/03........................... 1,135 -------- COMMERCIAL BANKING -- 4.9% 2,000 BB&T Corporation, 7.050% 05/23/03........................................ 2,065 5,050 First Maryland Bancorp, 8.375% 05/15/02##...................................... 5,083 2,865 First Union Corporation, 6.625% 06/15/04........................................ 2,995 2,500 First USA Bank, N.A., 7.650% 08/01/03##...................................... 2,622 2,000 Firstar Corporation, 6.500% 07/15/02........................................ 2,023 5,125 Golden State Holdings, Escrow Corporation, 7.000% 08/01/03............................................... 5,178 2,000 PNC Funding Corporation, 6.875% 03/01/03........................................ 2,061 4,000 Popular, Inc., MTN, 6.375% 09/15/03...................... 4,086 5,000 Wells Fargo & Company, 5.750% 02/01/03........................................ 5,113 -------- 31,226 -------- COMPUTER SERVICES -- 0.4% 2,500 Electronic Data Systems Corporation, 6.850% 10/15/04........................................ 2,612 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- CONGLOMERATES -- 0.9% $ 5,500 Waste Management, Inc., 7.700% 10/01/02........................................ $ 5,592 -------- CONSUMER CREDIT AND MORTGAGES -- 1.5% 2,000 Countrywide Home Loans, Inc., Series J, 5.250% 06/15/04........................................ 2,019 4,000 Household Finance Corporation, 5.875% 09/25/04........................................ 4,025 3,250 Washington Mutual Inc., 8.250% 10/01/02##...................................... 3,326 -------- 9,370 -------- DEPARTMENT AND DISCOUNT STORES -- 0.7% 4,000 Federated Department Stores, Inc., 8.500% 06/15/03........................................ 4,176 -------- DIVERSIFIED MANUFACTURING -- 0.2% 1,500 Bayer Corporation, 6.500% 10/01/02@##..................................... 1,526 -------- ELECTRIC POWER -- NON NUCLEAR -- 1.2% 2,300 Carolina Power & Light, 5.875% 01/15/04........................................ 2,348 2,000 Cinergy Corporation, 6.250% 09/01/04##...................................... 1,994 3,100 Pennsylvania Power Company, 6.375% 09/01/04........................................ 3,174 -------- 7,516 -------- ELECTRIC POWER -- NUCLEAR -- 0.3% 2,000 American Electric Power Company, Inc., 5.500% 05/15/03##...................................... 1,999 -------- ENERGY -- MISCELLANEOUS -- 0.8% 2,098 Nisource Finance Corporation, 7.500% 11/15/03........................................ 2,079 2,700 TXU Gas Company, 7.625% 10/15/02........................................ 2,757 -------- 4,836 -------- EXPLORATION AND PRODUCTION -- 0.9% 2,565 Amerada Hess Corporation, 5.300% 08/15/04##...................................... 2,584 3,000 Norcen Energy Resources Ltd., 6.800% 07/02/02##...................................... 3,027 -------- 5,611 -------- FINANCE -- MISCELLANEOUS -- 2.9% 3,000 Associates Corporation of North America, 5.500% 02/15/04##...................................... 3,075 1,050 Capital One Bank, Series 4, 6.500% 07/30/04........................................ 1,025 3,000 Caterpillar Financial Services Corporation, 6.875% 08/01/04........................................ 3,145 4,000 General Electric Capital Corporation, MTN, 4.250% 01/28/05(a)..................................... 3,949
SEE NOTES TO FINANCIAL STATEMENTS. 44 NATIONS FUNDS Nations Short-Term Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- (CONTINUED) $ 3,000 General Motors Acceptance Corporation, 5.950% 03/14/03........................................ $ 3,025 4,000 Morgan Stanley Dean Witter and Company, Series C, 7.375% 04/15/03........................................ 4,161 -------- 18,380 -------- FOOD AND DRUG STORES -- 0.5% 3,000 Safeway Inc., 6.850% 09/15/04........................................ 3,132 -------- FOOD PRODUCTS -- 1.0% 1,000 ConAgra Foods, Inc., 5.500% 10/15/02........................................ 1,013 3,000 Kellogg Company, 5.500% 04/01/03........................................ 3,046 2,075 Tyson Foods, Inc., Class A, 6.625% 10/01/04@....................................... 2,122 -------- 6,181 -------- HEALTH SERVICES -- 0.3% 2,100 American Home Products Corporation, 5.875% 03/15/04##...................................... 2,167 -------- HOUSEHOLD PRODUCTS -- 0.5% 3,000 The Gillette Company, 3.750% 12/01/04........................................ 2,958 -------- INSURANCE -- 2.0% 5,000 Aon Corporation, 7.400% 10/01/02##...................................... 5,091 4,000 Monumental Global Funding II, 6.950% 10/01/03@....................................... 4,124 2,000 New York Life Insurance Company, 6.400% 12/15/03@....................................... 2,056 1,200 Prudential Financial, 6.875% 04/15/03@....................................... 1,236 -------- 12,507 -------- INTEGRATED OIL -- 1.8% 2,000 Conoco Inc., 2.597%** 10/15/02##.................................... 2,002 3,500 Phillips Petroleum Company, 6.650% 03/01/03........................................ 3,568 4,000 Union Oil Company of California, 6.375% 02/01/04........................................ 4,085 2,000 Valero Energy Corporation, 6.750% 12/15/02@....................................... 2,026 -------- 11,681 -------- INVESTMENT SERVICES -- 3.0% 5,000 Bear Stearns Company, Inc., 6.125% 02/01/03##...................................... 5,050 4,000 Goldman Sachs Group LP, 7.125% 03/01/03@....................................... 4,116 3,000 Lehman Brothers Holdings Inc., 6.625% 04/01/04........................................ 3,112
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- INVESTMENT SERVICES -- (CONTINUED) $ 2,500 Merrill Lynch & Company, Inc., MTN, 5.880% 01/15/04........................................ $ 2,574 4,000 Salomon, Inc., 6.750% 02/15/03........................................ 4,126 -------- 18,978 -------- MEDICAL DEVICES AND SUPPLIES -- 0.3% 2,120 Abbott Laboratories, 5.125% 07/01/04##...................................... 2,160 -------- OIL REFINING AND MARKETING -- 0.3% 1,850 PDV America Inc., Gtd. Sr. Notes, 7.875% 08/01/03........................................ 1,855 -------- PAPER AND FOREST PRODUCTS -- 0.8% 2,259 International Paper Company, 8.000% 07/08/03........................................ 2,360 3,000 Weyerhaeuser Company, 5.500% 03/15/05@....................................... 2,988 -------- 5,348 -------- PUBLISHING AND ADVERTISING -- 0.6% 4,000 Gannett Company, Inc., 4.950% 04/01/05(a)................ 3,995 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.9% 2,326 FedEx Corporation, 6.625% 02/12/04........................................ 2,401 3,500 Illinois Central Railroad Company, 6.750% 05/15/03##...................................... 3,567 -------- 5,968 -------- REAL ESTATE -- 0.6% 3,500 EOP Operating LP, 6.625% 02/15/05##...................................... 3,573 -------- TELECOMMUNICATIONS SERVICES -- 1.7% 4,000 New York Telephone, 6.500% 03/01/05........................................ 4,140 2,000 Qwest Corporation, 7.200% 11/01/04........................................ 1,867 3,175 Sprint Capital Corporation, 5.875% 05/01/04........................................ 3,045 2,000 WorldCom, Inc. - WorldCom Group, 6.500% 05/15/04##...................................... 1,801 -------- 10,853 -------- UTILITIES -- MISCELLANEOUS -- 0.9% 3,000 Dominion Resources, Inc., 6.000% 01/31/03##...................................... 3,043 2,500 Transcontinental Gas Pipeline, 8.875% 09/15/02........................................ 2,501 -------- 5,544 -------- TOTAL CORPORATE BONDS AND NOTES (Cost: $203,664)....................................... 205,170 --------
SEE NOTES TO FINANCIAL STATEMENTS. 45 NATIONS FUNDS Nations Short-Term Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- 1.6% $ 2,479 Hanson Overseas B.V., 7.375% 01/15/03........................................ $ 2,545 3,000 Province of New Brunswick, 7.625% 06/29/04........................................ 3,228 4,000 Republic Of Italy, 7.250% 02/07/05........................................ 4,278 -------- TOTAL FOREIGN BONDS AND NOTES (Cost: $10,119)........................................ 10,051 -------- MORTGAGE-BACKED SECURITIES -- 1.2% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.2% 1,200 Nomura Depositor Trust, Series 1998-ST1, Class A4, 2.800%** 02/15/34...................................... 1,199 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 0.3% 1,401 6.000% 11/01/03 - 11/01/04##........................... 1,429 247 6.500% 08/01/04........................................ 254 364 7.500% 11/01/09........................................ 385 -------- 2,068 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 0.7% 4,396 6.375% 04/20/22........................................ 4,467 -------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $7,642)......................................... 7,734 -------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 8.7% FEDERAL HOME LOAN BANK (FHLB) -- 0.8% 5,000 3.875% 12/15/04##...................................... 4,930 -------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 6.6% 668 6.775% 11/01/03........................................ 690 42,000 3.250% 01/15/04##...................................... 41,612 -------- 42,302 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 1.3% 8,050 5.750% 04/15/03##...................................... 8,275 -------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost: $55,905)........................................ 55,507 -------- U.S. TREASURY OBLIGATIONS -- 36.5% U.S. TREASURY NOTES -- 33.5% 3,000 5.875% 09/30/02........................................ 3,055 12,000 5.750% 10/31/02(a)..................................... 12,240
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- U.S. TREASURY NOTES -- (CONTINUED) $28,900 4.750% 01/31/03(a)..................................... $ 29,410 60,800 6.250% 02/15/03(a)..................................... 62,672 9,800 3.875% 07/31/03(a)..................................... 9,901 51,625 5.250% 08/15/03(a)..................................... 53,088 29,500 4.250% 11/15/03(a)..................................... 29,896 12,200 3.250% 12/31/03(a)..................................... 12,141 324 5.250% 05/15/04(a)..................................... 334 -------- 212,737 -------- U.S. TREASURY STRIPS -- 3.0% 21,300 Principal only, 4.179%*** 11/15/04..................................... 19,069 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $232,708)....................................... 231,806 -------- SHARES (000) - --------- INVESTMENT COMPANIES -- 31.9% (Cost: $202,632) 202,632 Nations Cash Reserves, Capital Class Shares#............. 202,632 -------- TOTAL INVESTMENTS (Cost $815,924*)................................ 128.7% 817,438 -------- OTHER ASSETS AND LIABILITIES (NET)................ (28.7)% Receivable for investment securities sold................ $ 2,999 Receivable for Fund shares sold.......................... 4,735 Interest receivable...................................... 6,730 Variation margin/due to broker........................... (98) Collateral on securities loaned.......................... (177,178) Payable for Fund shares redeemed......................... (756) Investment advisory fee payable.......................... (106) Administration fee payable............................... (116) Shareholder servicing and distribution fees payable...... (54) Due to custodian......................................... (55) Distributions payable.................................... (1,567) Payable for investment securities purchased.............. (16,795) Accrued Trustees' fees and expenses...................... (54) Accrued expenses and other liabilities................... (187) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (182,502) -------- NET ASSETS........................................ 100.0% $634,936 ======== NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold and futures contracts...................................... $ (5,133) Net unrealized appreciation of investments and futures contracts.............................................. 12 Paid-in capital.......................................... 640,057 -------- NET ASSETS............................................... $634,936 ========
SEE NOTES TO FINANCIAL STATEMENTS. 46 NATIONS FUNDS Nations Short-Term Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE - -------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($493,457,070 / 50,233,307 shares outstanding)......... $9.82 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($99,453,331 / 10,113,414 shares outstanding).......... $9.83 ======== Maximum sales charge..................................... 1.00% Maximum offering price per share......................... $9.93 INVESTOR B SHARES: Net asset value and offering price per share& ($2,511,010 / 255,537 shares outstanding).............. $9.83 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($39,514,393 / 4,020,624 shares outstanding)........... $9.83 ========
- --------------- * Federal income tax information (see Note 12). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. @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. & 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 (Note 11). The portion that represents cash collateral is $177,178. ##All or a portion of security segregated as collateral for futures contracts. (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 $171,715 and $170,864, respectively. ABBREVIATIONS: MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS. 47 NATIONS FUNDS Nations Short-Intermediate Government Fund STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 7.0% ASSET-BACKED -- AUTO LOANS -- 3.8% $ 5,470 Capital Auto Receivables Asset Trust, Series 2001-2, Class A4, 5.000% 12/15/06##...................................... $ 5,547 4,084 Honda Auto Receivables Owner Trust, Series 1999-1, Class A4, 5.350% 10/15/04........................................ 4,133 2,931 MMCA Automobile Trust, Series 2000-1, Class A3, 7.000% 06/15/04........................................ 2,983 5,000 Onyx Acceptance Auto Trust, Series 2002-A, Class A3, 3.750% 04/15/06##...................................... 4,970 --------- 17,633 --------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 0.3% 1,150 Chase Credit Card Master Trust, Series 1996-4, Class B, 2.250%** 07/15/06...................................... 1,151 --------- ASSET-BACKED -- HOME EQUITY LOANS -- 2.7% 1,136 Chase Funding Mortgage Loan Asset-Backed, Series 2001-2, Class 1A1, 2.010%** 04/25/16...................................... 1,136 3,816 First Alliance Mortgage Loan Trust, Series 1996-2, Class A3, 8.225% 09/20/27##...................................... 3,895 1,200 GMAC Mortgage Corporation Loan Trust, Series 2002-HE2, Class A1, 2.030%** 06/25/27...................................... 1,200 1,633 Indymac Home Equity Loan Asset-Backed Trust, Series 2002-A, Class AF1, 2.100% 05/25/17........................................ 1,633 3,295 Residential Asset Mortgage Products, Inc., Series 2002-RS1, Class AI1, 2.100%** 08/25/20...................................... 3,295 1,200 Residential Asset Securities Corporation, Series 2002-KS2, Class AI1, 2.019%** 11/25/17...................................... 1,200 --------- 12,359 --------- ASSET-BACKED -- OTHER -- 0.2% 1,000 Conesco Finance, Series 2001-A, Class IA2, 5.940% 03/15/32##...................................... 1,015 --------- TOTAL ASSET-BACKED SECURITIES (Cost: $32,217)........................................ 32,158 --------- CORPORATE OBLIGATIONS -- 3.5% COMMERCIAL PAPER -- 3.5% 2,300 Consolidated Natural Gas Company Discount note 04/10/02................................. 2,299 2,300 DaimlerChrysler AG Discount note 04/08/02##............................... 2,299 2,300 General Mills, Inc. Discount note 04/05/02##............................... 2,299
PRINCIPAL AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------- COMMERCIAL PAPER -- (CONTINUED) $ 2,300 Powergen Discount note 04/10/02................................. $ 2,299 2,300 Time Warner Entertainment Discount note 04/10/02##............................... 2,299 2,300 Viacom Inc. Discount note 04/11/02................................. 2,299 2,300 Weyerhaeuser Company Discount note 04/02/02##............................... 2,299 --------- TOTAL CORPORATE OBLIGATIONS (Cost: $16,093)........................................ 16,093 --------- MORTGAGE-BACKED SECURITIES -- 37.8% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 5.6% 5,350 Chase Manhattan Bank - First Union National, Series 1999-1, Class A2, 7.439% 07/15/09##...................................... 5,699 5,000 DLJ Commercial Mortgage Corporation, Series 1999-CG2, Class A1B, 7.300% 06/10/09##...................................... 5,301 6,800 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32##...................................... 7,388 19,389 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Class IO, 0.667%** 12/15/30...................................... 853 1,765 PNC Mortgage Acceptance Corporation, Series 1999-CM1, Class A1B, 7.330% 10/10/09........................................ 1,863 4,546 PNC Mortgage Acceptance Corporation, Series 2001-C1, Class A1, 5.910% 03/12/34##...................................... 4,559 --------- 25,663 --------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES -- 6.1% 28,800 5.750% 01/15/12(a)....................................... 28,062 --------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 21.5% 42,000 7.000% 07/15/05(a)##..................................... 44,894 46,400 5.000% 01/15/07(a)....................................... 45,879 2,708 9.000% 04/01/16##........................................ 2,914 3,841 8.500% 04/01/17##........................................ 4,132 --------- 97,819 --------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 4.6% 6,735 6.375% 04/20/22##........................................ 6,842 5,989 5.323%** 06/20/29##...................................... 6,040 8,346 6.500% 07/15/29##........................................ 8,338 --------- 21,220 ---------
SEE NOTES TO FINANCIAL STATEMENTS. 48 NATIONS FUNDS Nations Short-Intermediate Government Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $173,959)....................................... $ 172,764 --------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 4.5% FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 4.5% $ 701 6.775% 11/01/03##........................................ 724 20,000 3.250% 01/15/04(a)....................................... 19,816 --------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost: $20,675)........................................ 20,540 --------- U.S. TREASURY OBLIGATIONS -- 30.2% U.S. TREASURY NOTES -- 23.4% 87,800 6.250% 02/15/03(a)....................................... 90,502 16,100 3.875% 07/31/03(a)....................................... 16,266 --------- 106,768 --------- U.S. TREASURY STRIPS -- 6.8% 34,875 Principal only, 4.179%*** 11/15/04##................................... 31,223 --------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $138,556)....................................... 137,991 --------- SHORT TERM INVESTMENTS -- 3.9% (Cost: $17,776) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES -- 3.9% 17,801 Discount note 04/30/02##............................... 17,776 --------- SHARES VALUE (000) (000) - --------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 50.3% (Cost $229,382) 229,382 Nations Cash Reserves, Capital Class Shares#............. $ 229,382 --------- TOTAL INVESTMENTS (Cost $628,658*)................................ 137.2% 626,704 --------- OTHER ASSETS AND LIABILITIES (NET)................ (37.2)% Cash..................................................... $ 27 Unrealized appreciation on swap contracts................ 491 Receivable for Fund shares sold.......................... 669 Interest receivable...................................... 3,670 Variation margin/due to broker........................... (235) Collateral on securities loaned.......................... (156,927) Payable for Fund shares redeemed......................... (1,352) Investment advisory fee payable.......................... (117) Administration fee payable............................... (86) Shareholder servicing and distribution fees payable...... (30) Distributions payable.................................... (1,122) Payable for investment securities purchased.............. (14,457) Accrued Trustees' fees and expenses...................... (72) Accrued expenses and other liabilities................... (254) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (169,795) --------- NET ASSETS........................................ 100.0% $ 456,909 ========= NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold, futures contracts and swaps............................ $ (1,222) Net unrealized depreciation of investments, futures contracts and swaps.................................... (3,613) Paid-in capital.......................................... 461,744 --------- NET ASSETS............................................... $ 456,909 =========
SEE NOTES TO FINANCIAL STATEMENTS. 49 NATIONS FUNDS Nations Short-Intermediate Government Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE - --------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($390,542,405 / 93,867,253 shares outstanding)......... $4.16 ========= PRIMARY B SHARES: Net asset value, offering and redemption price per share ($146,642 / 35,257 shares outstanding)................. $4.16 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($41,925,724 / 10,083,772 shares outstanding).......... $4.16 ========= Maximum sales charge..................................... 3.25% Maximum offering price per share......................... $4.30 INVESTOR B SHARES: Net asset value and offering price per share& ($17,474,380 / 4,199,967 shares outstanding)........... $4.16 ========= INVESTOR C SHARES: Net asset value and offering price per share& ($6,820,402 / 1,641,616 shares outstanding)............ $4.15 =========
- --------------- * Federal income tax information (see Note 12). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. & 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 (Note 11). The portion that represents cash collateral is $156,927. ##All or a portion of security segregated as collateral for futures contracts. (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 $154,133 and $151,653, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 50 NATIONS FUNDS Nations Government Securities Fund STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 7.6% ASSET-BACKED -- AUTO LOANS -- 3.2% $ 2,700 Capital Auto Receivables Asset Trust, Series 2001-2, Class A4, 5.000% 12/15/06##...................................... $ 2,739 2,399 Honda Auto Receivables Owner Trust, Series 1999-1, Class A4, 5.350% 10/15/04........................................ 2,427 1,675 MMCA Automobile Trust, Series 2000-1, Class A3, 7.000% 06/15/04........................................ 1,704 2,000 Onyx Acceptance Auto Trust, Series 2002-A, Class A3, 3.750% 04/15/06........................................ 1,988 -------- 8,858 -------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 0.3% 700 Chase Credit Card Master Trust, Series 1996-4, Class B, 2.250%** 07/15/06##.................................... 701 -------- ASSET-BACKED -- HOME EQUITY LOANS -- 3.7% 697 Chase Funding Mortgage Loan Asset-Backed, Series 2001-2, Class 1A1, 2.010%** 04/25/16...................................... 697 2,440 First Alliance Mortgage Loan Trust, Series 1996-2, Class A3, 8.225% 09/20/27........................................ 2,491 2,000 GMAC Mortgage Corporation Loan Trust, Series 2002-HE2, Class A1, 2.030%** 06/25/27...................................... 2,000 950 Indymac Home Equity Loan Asset-Backed Trust, Series 2002-A, Class AF1, 2.100% 05/25/17........................................ 950 1,883 Residential Asset Mortgage Products, Inc., Series 2002-RS1, Class AI1, 2.100%** 08/25/20...................................... 1,883 2,000 Residential Asset Securities Corporation, Series 2002-KS2, Class AI1, 2.019%** 11/25/17...................................... 1,999 -------- 10,020 -------- ASSET-BACKED -- OTHER -- 0.4% 1,064 Export Funding Trust, Series 1995-A, Class A, 8.210% 12/29/06##...................................... 1,155 -------- TOTAL ASSET-BACKED SECURITIES (Cost: $20,663)........................................ 20,734 -------- CORPORATE OBLIGATIONS -- 3.6% COMMERCIAL PAPER -- 3.6% 1,400 Consolidated Natural Gas Company Discount note 04/10/02............................................... 1,399 1,400 DaimlerChrysler AG Discount note 04/08/02................................. 1,399
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- COMMERCIAL PAPER -- (CONTINUED) $ 1,400 General Mills, Inc. Discount note 04/05/02................................. $ 1,400 1,400 Powergen Discount note 04/10/02................................. 1,399 1,400 Time Warner Entertainment Discount note 04/10/02................................. 1,399 1,400 Viacom Inc. Discount note 04/11/02................................. 1,399 1,400 Weyerhaeuser Company Discount note 04/02/02................................. 1,401 -------- TOTAL CORPORATE OBLIGATIONS (Cost: $9,796)......................................... 9,796 -------- MORTGAGE-BACKED SECURITIES -- 36.3% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.5% 4,180 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32##...................................... 4,543 11,627 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Class IO, 0.667%** 12/15/30...................................... 511 3,737 PNC Mortgage Acceptance Corporation, Series 2001-C1, Class A1, 5.910% 03/12/34........................................ 3,748 34,801 Vendee Mortgage Trust, Series 1998-1, Class 2, Interest only, 0.436%** 09/15/27................................ 438 33,692 Vendee Mortgage Trust, Series 1998-3, Class 1, Interest only, 0.301%** 03/15/29................................ 329 -------- 9,569 -------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES -- 7.1% 333 10.000% 05/01/05 - 09/01/18............................ 361 1,032 8.500% 01/01/06 - 09/01/20............................. 1,112 204 8.000% 08/01/07 - 08/01/17............................. 214 21 7.500% 02/01/08........................................ 22 198 9.000% 05/01/09 - 12/01/16............................. 213 15,000 5.750% 01/15/12##...................................... 14,615 798 9.500% 04/01/18 - 01/01/29............................. 860 2,026 6.500% 09/15/25##...................................... 2,040 -------- 19,437 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 21.6% 19,708 7.000% 07/01/03 - 07/15/05(a).......................... 21,062 869 10.000% 10/01/06 - 04/01/20............................ 939 20,715 5.000% 01/15/07(a)..................................... 20,482 35 8.250% 04/01/09........................................ 37 69 7.500% 06/01/09........................................ 72 43 8.000% 06/01/09........................................ 45 154 8.500% 12/01/11 - 07/01/21............................. 163 5,119 6.565% 07/01/16##...................................... 5,187 462 9.000% 12/01/16 - 09/01/24............................. 504 3,584 9.500% 04/01/20 - 08/01/21##........................... 3,918
SEE NOTES TO FINANCIAL STATEMENTS. 51 NATIONS FUNDS Nations Government Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- (CONTINUED) $ 6,800 6.625% 11/15/30(a)..................................... $ 6,853 136 6.244%** 08/01/36...................................... 139 -------- 59,401 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 4.1% 130 9.500% 08/15/02 - 04/20/06............................. 137 197 10.500% 03/15/03 - 04/15/21............................ 224 146 10.000% 11/15/03 - 03/15/21............................ 159 209 9.000% 06/15/07 - 03/15/27............................. 226 2,084 7.500% 09/15/07 - 12/15/25............................. 2,190 175 7.000% 02/15/09 - 06/15/23............................. 179 1,250 8.500% 10/15/09 - 02/20/29............................. 1,345 226 6.000% 12/15/10........................................ 229 24 13.000% 01/15/11 - 04/15/11............................ 29 2,181 8.000% 11/15/14 - 07/15/29............................. 2,320 62 11.000% 11/15/15 - 10/20/20............................ 71 4,247 6.500% 04/15/29 - 01/15/31##........................... 4,250 -------- 11,359 -------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $100,940)....................................... 99,766 -------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 4.8% FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 4.8% 390 6.775% 11/01/03........................................ 403 13,000 3.250% 01/15/04##...................................... 12,880 -------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost: $13,371)........................................ 13,283 -------- U.S. TREASURY OBLIGATIONS -- 29.0% U.S. TREASURY NOTES -- 26.0% 58,000 6.250% 02/15/03(a)..................................... 59,785 9,060 5.875% 11/15/04........................................ 9,456 2,000 6.750% 05/15/05##...................................... 2,138 -------- 71,379 -------- U.S. TREASURY STRIPS -- 3.0% 6,400 Principal only, 4.179%*** 11/15/04....................... 5,729 12,090 Principal only, 5.946%*** 11/15/27....................... 2,555 -------- 8,284 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $80,133)........................................ 79,663 -------- SHORT TERM INVESTMENTS -- 12.7% (Cost: $34,998) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 12.7% 35,000 Discount note 04/02/02................................... 34,998 -------- SHARES VALUE (000) (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 40.6% (Cost: $111,456) 111,456 Nations Cash Reserves, Capital Class Shares#............. $111,456 -------- TOTAL INVESTMENTS (Cost $371,357*)................................ 134.6% 369,696 -------- OTHER ASSETS AND LIABILITIES (NET)................ (34.6)% Cash..................................................... $ 20 Unrealized appreciation on swaps......................... 315 Receivable for investment securities sold................ 1,768 Receivable for Fund shares sold.......................... 692 Interest receivable...................................... 2,471 Variation margin/due to broker........................... (495) Collateral on securities loaned.......................... (94,797) Payable for Fund shares redeemed......................... (417) Investment advisory fee payable.......................... (94) Administration fee payable............................... (40) Shareholder servicing and distribution fees payable...... (56) Distributions payable.................................... (518) Payable for investment securities purchased.............. (3,780) Accrued Trustees' fees and expenses...................... (72) Accrued expenses and other liabilities................... (94) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (95,097) -------- NET ASSETS........................................ 100.0% $274,599 ======== NET ASSETS CONSIST OF: Distributions in excess of net investment income......... $ (394) Accumulated net realized loss on investments sold, futures contracts and swaps............................ (16,566) Net unrealized depreciation of investments, futures contracts and swaps.................................... (4,357) Paid-in capital.......................................... 295,916 -------- NET ASSETS............................................... $274,599 ========
SEE NOTES TO FINANCIAL STATEMENTS. 52 NATIONS FUNDS Nations Government Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE - -------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($168,621,346 / 17,221,910 shares outstanding)......... $9.79 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($54,166,806 / 5,539,816 shares outstanding)........... $9.78 ======== Maximum sales charge..................................... 4.75% Maximum offering price per share......................... $10.27 INVESTOR B SHARES: Net asset value and offering price per share& ($49,611,077 / 5,066,772 shares outstanding)........... $9.79 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($2,199,849 / 225,315 shares outstanding).............. $9.76 ========
- --------------- * Federal income tax information (see Note 12). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. & 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 (Note 11). The portion that represents cash collateral is $94,797. ##All or a portion of security segregated as collateral for futures contracts. (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 $92,593 and $91,623, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 53 NATIONS FUNDS Nations Intermediate Bond Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 99.7% Investment in Nations Master Investment Trust, Intermediate Bond Master Portfolio*.................... $327,712 -------- TOTAL INVESTMENTS................................. 99.7% 327,712 -------- OTHER ASSETS AND LIABILITIES (NET)................ 0.3% Receivable for Fund shares sold.......................... 1,817 Payable for Fund shares redeemed......................... (590) Administration fee payable............................... (47) Shareholder servicing and distribution fees payable...... (20) Accrued Trustees' fees and expenses...................... (44) Accrued expenses and other liabilities................... (54) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. 1,062 -------- NET ASSETS........................................ 100.0% $328,774 ======== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 172 Accumulated net realized loss on investments............. (2,265) Net unrealized depreciation of investments............... (3,575) Paid-in capital.......................................... 334,442 -------- NET ASSETS............................................... $328,774 ========
VALUE - -------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($261,018,360 / 27,746,857 shares outstanding)......... $9.41 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($58,166,639 / 6,166,809 shares outstanding)........... $9.43 ======== Maximum sales charge..................................... 3.25% Maximum offering price per share......................... $9.75 INVESTOR B SHARES: Net asset value and offering price per share& ($7,003,276 / 745,737 shares outstanding).............. $9.39 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($2,585,610 / 248,830 shares outstanding).............. $10.39 ========
- --------------- *The financial statements of the Intermediate Bond Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the Intermediate Bond 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. 54 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 10.9% ASSET-BACKED -- AUTO LOANS -- 2.1% $ 859 ANRC Auto Owner Trust, Series 1999-A, Class A3, 6.750% 12/15/03##...................................... $ 864 2,979 Chase Manhattan Auto Owner Trust, Series 1998-A, Class A4, 5.800% 12/16/02##...................................... 2,997 396 Chase Manhattan Auto Owner Trust, Series 2000-A, Class A2, 6.300% 06/15/03##...................................... 396 1,407 CPS Auto Trust, Series 1998-4, Class A3, 5.740% 09/15/03##...................................... 1,421 2,071 Daimler Chrysler Auto Trust, Series 2000-C, Class A2, 6.810% 07/06/03##...................................... 2,076 22,091 Distribution Financial Services RV Trust, Series 1999-1, Class A4, 5.840% 10/17/11##...................................... 22,647 6,610 Ford Credit Auto Owner Trust, Series 2002-B, Class B, 5.180% 10/16/06##...................................... 6,603 3,242 Honda Auto Receivables Owner Trust, Series 1999-1, Class A4, 5.350% 10/15/04##...................................... 3,280 656 MMAC Automobile Trust, Series 2000-2, Class A2, 6.720% 07/15/03##...................................... 658 3,350 MMCA Automobile Trust, Series 2000-1, Class A3, 7.000% 06/15/04##...................................... 3,409 1,000 MMCA Automobile Trust, Series 2001-2, Class B, 5.750% 06/15/07##...................................... 1,017 936 Premier Auto Trust, Series 1998-3, Class A4, 5.960% 10/08/02##...................................... 941 1,470 Toyota Auto Receivables Owner Trust, Series 2001-A, Class A2, 5.380% 12/15/03........................................ 1,475 ---------- 47,784 ---------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 3.5% 12,000 American Express Credit Account Master Trust, Series 1998-1, Class B, 2.150%** 01/17/06##.................................... 11,996 5,750 Chase Credit Card Master Trust, Series 1996-4, Class B, 2.250%** 07/15/06...................................... 5,757 4,000 Chase Credit Card Master Trust, Series 2000-2, Class B, 2.190%** 07/15/05##.................................... 4,000 2,165 Chase Credit Card Master Trust, Series 2002-2, Class C, 2.580%** 07/15/05##.................................... 2,162
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- (CONTINUED) $ 4,675 Chemical Master Credit Card Trust 1, Series 1995-3, Class B, 6.390% 04/15/05##...................................... $ 4,738 8,474 Discover Card Master Trust I, Series 1998-3, Class B, 2.190%** 09/16/05##.................................... 8,474 2,500 Discover Card Master Trust I, Series 2001-4, Class A, 1.990%** 10/16/06##.................................... 2,501 14,703 First USA Credit Card Master Trust, Series 1997-6, Class B, 6.580% 03/17/05##...................................... 14,873 15,000 Metris Master Trust, Series 1997-1, Class B, 7.110% 10/20/05##...................................... 15,028 10,000 World Financial Network Credit Card Master Trust, Series 1996-B, Class A, 6.950% 04/15/06##...................................... 10,405 ---------- 79,934 ---------- ASSET-BACKED -- HOME EQUITY LOANS -- 5.3% 4,499 Amresco Residential Securities Mortgage Loan Trust, Series 1996-2, Class A1, 7.925% 05/25/27##...................................... 4,488 2,724 Block Mortgage Finance Inc., Series 1997-2, Class A6, 2.110%** 05/25/27##.................................... 2,724 1,325 Bombardier Capital Mortgage Securitization, Series 1998-A, Class A3, 6.230% 04/15/28##...................................... 1,348 5,127 Conseco Finance, Series 2001-D, Class A1A, 2.150%** 11/15/32##.................................... 5,129 1,665 EQCC Home Equity Loan Trust, Series 1999-3, A2F, 6.887% 07/25/13##...................................... 1,679 13,700 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29##...................................... 13,965 7,373 First Alliance Mortgage Loan Trust, Series 1994-2, Class A1, 7.625% 07/25/25##...................................... 7,646 2,406 First Plus Home Loan Trust, Series 1998-2, Class M1, 7.220% 05/10/24##...................................... 2,450 16,800 GMAC Mortgage Corporation Loan Trust, Series 2002-HE2, Class A1, 2.030%** 06/27/27##.................................... 16,801 6,500 Green Tree Home Equity Loan Trust, Series 1999-D, Class A3, 7.300% 08/15/18........................................ 6,638
SEE NOTES TO FINANCIAL STATEMENTS. 55 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- ASSET-BACKED -- HOME EQUITY LOANS -- (CONTINUED) $ 1,950 Green Tree Home Improvement Loan Trust, Series 1998-D, Class HEA4, 6.250% 08/15/29##...................................... $ 1,958 2,351 IMC Home Equity Loan Trust, Series 1997-5, Class A7, 6.900% 01/20/22##...................................... 2,396 7,900 Indymac Home Equity Loan Asset-Backed Trust, Series 2002-A, Class AF1, 2.100% 05/25/17........................................ 7,900 5,177 Residential Asset Mortgage Products, Inc., Series 2002-RS1, Class AI1, 2.100%** 08/25/20...................................... 5,177 1,025 Residential Asset Securities Corporation, Series 1999-KS1, Class AI3, 6.110% 05/25/24##...................................... 1,034 2,665 Residential Asset Securities Corporation, Series 1999-KS1, Class AI4, 6.280% 08/25/25##...................................... 2,713 6,954 Residential Asset Securities Corporation, Series 2000-KS3, Class AI2, 7.760% 10/25/20........................................ 6,981 16,800 Residential Asset Securities Corporation, Series 2002-KS2, Class AI1, 2.019%** 11/25/17...................................... 16,795 10,338 Residential Funding Mortgage Securities II, Series 2001-HS3, Class AI1, 2.080%** 08/25/12...................................... 10,339 4,044 Residential Funding Mortgage Securities, Series 1999-HS2, Class AI4, 6.340% 07/25/29........................................ 4,074 2,632 Saxon Asset Securities Trust, Series 1998-1, Class MF1, 7.050% 12/25/27........................................ 2,648 ---------- 124,883 ---------- ASSET-BACKED -- OTHER -- 0.0%+ 362 Chase Manhattan Marine Owner Trust, Series 1997-A, Class A5, 6.420% 10/15/09##...................................... 364 475 Great American Leasing Receivables, Series 2000-1, Class A2, 7.360% 12/20/02........................................ 476 ---------- 840 ---------- TOTAL ASSET-BACKED SECURITIES (Cost: $252,449)....................................... 253,441 ---------- CORPORATE BONDS AND NOTES -- 36.2% AEROSPACE AND DEFENSE -- 0.3% 7,998 Boeing Capital Corporation, 5.650% 05/15/06##...................................... 7,913 ----------
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES -- (CONTINUED) AIRLINES -- 0.5% $ 2,000 AMR Corporation, 9.000% 08/01/12(a)..................................... $ 1,940 1,000 Continental Airlines, Inc., Class B, 8.000% 12/15/05##...................................... 965 1,491 Delta Air Lines, Inc., 8.300% 12/15/29(a)..................................... 1,266 7,580 US Airways, Inc., Series 2002-G, 8.020% 02/05/19........................................ 7,712 ---------- 11,883 ---------- APPAREL AND TEXTILES -- 0.1% 2,005 Levi Strauss & Company, 6.800% 11/01/03##...................................... 1,955 ---------- AUTOMOTIVE -- 3.7% 4,039 Delphi Automotive Systems Corporation, 6.125% 05/01/04##...................................... 4,102 9,789 Ford Motor Company, 7.450% 07/16/31##...................................... 8,842 12,015 Ford Motor Credit Company, 7.600% 08/01/05##...................................... 12,230 12,235 Ford Motor Credit Company, 5.800% 01/12/09##...................................... 11,023 8,758 Ford Motor Credit Company, 7.375% 10/28/09........................................ 8,591 7,330 General Motors Acceptance Corporation, 6.125% 09/15/06(a)..................................... 7,233 5,048 General Motors Acceptance Corporation, 6.150% 04/05/07(a)..................................... 4,953 9,787 General Motors Acceptance Corporation, 6.875% 09/15/11##...................................... 9,531 11,826 General Motors Acceptance Corporation, 8.000% 11/01/31........................................ 11,837 2,184 Lear Corporation, Series B, 8.110% 05/15/09##...................................... 2,231 6,875 Toyota Motor Credit Corporation, 5.625% 11/13/03(a)..................................... 7,054 ---------- 87,627 ---------- BROADCASTING AND CABLE -- 1.3% 1,352 Adelphia Communications Corporation, Class A, 10.250% 11/01/06(a).................................... 1,257 8,400 AOL Time Warner Inc., 7.625% 04/15/31##...................................... 8,330 6,464 Charter Communications Holdings LLC, 10.000% 05/15/11@##.................................... 6,173 3,193 Comcast Cable Communications, 7.125% 06/15/13##...................................... 3,136 2,546 EchoStar DBS Corporation, 9.125% 01/15/09@(a).................................... 2,622 2,168 Emmis Communications Corporation, Series B, 8.125% 03/15/09##...................................... 2,211
SEE NOTES TO FINANCIAL STATEMENTS. 56 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- BROADCASTING AND CABLE -- (CONTINUED) $ 1,000 Insight Communications Company, (0.000)% due 02/15/11 12.250% beginning 02/15/06##........................... $ 653 3,405 Time Warner Inc., 8.110% 08/15/06##...................................... 3,660 1,906 Walt Disney Company, 6.375% 03/01/12........................................ 1,858 ---------- 29,900 ---------- BUILDING MATERIALS -- 0.2% 2,278 American Standard Inc., 7.125% 02/15/03(a)..................................... 2,324 1,000 American Standard Inc., 7.375% 04/15/05##...................................... 1,010 2,040 Nortek, Inc., Series B, 9.875% 06/15/11##...................................... 2,106 ---------- 5,440 ---------- CHEMICALS -- BASIC -- 0.4% 6,561 IMC Global Inc., 6.500% 08/01/03##...................................... 6,610 1,522 Lyondell Chemical Company, Series B, 9.875% 05/01/07##...................................... 1,549 ---------- 8,159 ---------- CHEMICALS -- SPECIALTY -- 0.8% 3,530 Methanex Corporation, 7.400% 08/15/02##...................................... 3,546 4,320 NL Industries, Inc., 11.750% 10/15/03(a).................................... 4,363 3,059 Praxair, Inc., 6.500% 03/01/08##...................................... 3,100 500 Solutia Inc., 6.500% 10/15/02........................................ 482 4,207 The Dow Chemical Company, 6.125% 02/01/11(a)..................................... 4,058 3,000 The Dow Chemical Company, 7.375% 11/01/29##...................................... 3,062 ---------- 18,611 ---------- COMMERCIAL BANKING -- 2.0% 11,570 Bank One Corporation, 6.000% 08/01/08##...................................... 11,489 6,917 FleetBoston Financial Corporation, 7.250% 09/15/05##...................................... 7,320 1,900 PNC Funding Corporation, 7.000% 09/01/04##...................................... 1,987 4,605 PNC Funding Corporation, 5.750% 08/01/06........................................ 4,586 5,255 Popular North America Inc., Series E, 6.125% 10/15/06##...................................... 5,148 6,661 U.S. Bank NA, Minnesota, 6.375% 08/01/11##...................................... 6,625 8,885 Wachovia Corporation, 4.950% 11/01/06........................................ 8,631 ---------- 45,786 ----------
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 0.3% $ 3,433 Allied Waste North America, Inc., Series B, 10.000% 08/01/09....................................... $ 3,493 1,923 Coinmach Corporation, 9.000% 02/01/10@##..................................... 1,981 543 Vicar Operating Inc., 9.875% 12/01/09@##..................................... 570 ---------- 6,044 ---------- COMPUTER SERVICES -- 0.1% 3,181 Electronic Data Systems Corporation, 6.850% 10/15/04##...................................... 3,323 ---------- COMPUTERS AND OFFICE EQUIPMENT -- 0.2% 1,654 International Business Machines Corporation, 6.500% 01/15/28##...................................... 1,575 2,761 Seagate Technology International, 13.500%** 11/15/07@##.................................. 3,134 ---------- 4,709 ---------- CONGLOMERATES -- 0.2% 4,104 Waste Management, Inc., 7.375% 08/01/10##...................................... 4,069 ---------- CONSUMER CREDIT AND MORTGAGES -- 0.4% 10,237 Countrywide Home Loans, Inc., Series J, 5.500% 08/01/06........................................ 10,066 ---------- DEPARTMENT AND DISCOUNT STORES -- 0.6% 5,000 Sears Roebuck Acceptance Corporation, 6.750% 08/15/11(a)..................................... 4,972 2,581 Target Corporation, 5.875% 03/01/12........................................ 2,500 5,935 Wal-Mart Stores, Inc., 5.450% 08/01/06##...................................... 5,993 ---------- 13,465 ---------- DIVERSIFIED MANUFACTURING -- 0.4% 2,922 General Electric Global Insurance Holding Corporation, 7.000% 02/15/26##...................................... 2,850 831 The Scotts Company, 8.625% 01/15/09@....................................... 860 3,670 The Scotts Company, Class A, 8.625% 01/15/09##...................................... 3,798 3,322 Tyco International Group SA, 6.875% 01/15/29........................................ 2,793 ---------- 10,301 ---------- ELECTRIC POWER -- NON NUCLEAR -- 3.2% 4,955 AES Corporation, 8.750% 12/15/02(a)..................................... 4,608 11,915 American Electric Power Company, Inc., Series A, 6.125% 05/15/06(a)..................................... 11,829
SEE NOTES TO FINANCIAL STATEMENTS. 57 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- ELECTRIC POWER -- NON NUCLEAR -- (CONTINUED) Hy$2,217 Calpine Corporation, 8.500% 02/15/11(a)..................................... $ 1,768 4,320 Cinergy Corporation, 6.250% 09/01/04##...................................... 4,307 5,017 Constellation Energy Group, Inc., 7.600% 04/01/32##...................................... 4,938 3,775 DPL Inc., 6.875% 09/01/11##...................................... 3,579 3,697 Duke Energy Corporation, 6.250% 01/15/12##...................................... 3,615 10,800 Exelon Generation Company LLC, 6.950% 06/15/11##...................................... 10,755 4,062 FirstEnergy Corporation, Series B, 6.450% 11/15/11##...................................... 3,734 7,880 Progress Energy, Inc., 7.100% 03/01/11(a)..................................... 8,040 2,447 Progress Energy, Inc., 7.750% 03/01/31........................................ 2,544 8,515 PSEG Power LLC, 6.875% 04/15/06(a)..................................... 8,575 3,582 Southern Company Capital Funding, Series A, 5.300% 02/01/07........................................ 3,495 2,894 Virginia Electric and Power Company, Series A, 5.375% 02/01/07........................................ 2,828 ---------- 74,615 ---------- ELECTRICAL EQUIPMENT -- 0.1% 2,893 Flextronics International Ltd., 9.875% 07/01/10(a)..................................... 3,099 ---------- ENERGY -- MISCELLANEOUS -- 0.5% 8,392 Nisource Finance Corporation, 7.500% 11/15/03##...................................... 8,314 3,069 PSEG Energy Holdings Inc., 8.500% 06/15/11........................................ 2,935 ---------- 11,249 ---------- EXPLORATION AND PRODUCTION -- 0.5% 2,747 Anadarko Finance Company, Series B, 6.750% 05/01/11##...................................... 2,758 5,388 Anadarko Finance Company, Series B, 7.500% 05/01/31##...................................... 5,499 2,455 Pure Resources, Inc., 7.125% 06/15/11........................................ 2,324 ---------- 10,581 ---------- FINANCE -- MISCELLANEOUS -- 3.6% 4,636 Associates Corporation of North America, 6.950% 11/01/18##............................................. 4,660 7,203 Capital One Bank, 6.875% 02/01/06##...................................... 6,957 1,818 Capital One Bank, Series 4, 6.500% 07/30/04##...................................... 1,775 8,560 Caterpillar Finance Services Corporation, 5.950% 05/01/06##...................................... 8,630 10,108 Citigroup Inc., 7.250% 10/01/10##...................................... 10,636
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- (CONTINUED) $ 700 Citigroup Inc., 6.000% 02/21/12##...................................... $ 678 14,604 General Electric Capital Corporation, Series A, 6.750% 03/15/32........................................ 14,114 3,950 Household Finance Corporation, 6.500% 01/24/06##...................................... 3,960 8,766 Household Finance Corporation, 5.875% 02/01/09##...................................... 8,236 8,796 Household Finance Corporation, 6.750% 05/15/11........................................ 8,528 9,593 Prudential Funding LLC, 6.600% 05/15/08@....................................... 9,700 1,060 Rent-A-Center, Inc., 11.000% 08/15/08@##.................................... 1,124 4,000 Standard Credit Card Trust, Series B, 6.150% 10/07/04##...................................... 4,096 ---------- 83,094 ---------- FOOD AND DRUG STORES -- 0.4% 5,287 Fred Meyer, Inc., 7.450% 03/01/08##...................................... 5,586 1,030 Marsh Supermarkets, Inc., Series B, 8.875% 08/01/07##...................................... 1,030 2,037 Pathmark Stores Inc., 8.750% 02/01/12@(a).................................... 2,098 ---------- 8,714 ---------- FOOD PRODUCTS -- 1.4% 1,806 Del Monte Corporation, Series B, 9.250% 05/15/11##...................................... 1,896 7,115 Kellogg Company, Series B, 6.000% 04/01/06##...................................... 7,147 2,311 Land O' Lakes Inc., 8.750% 11/15/11@(a).................................... 2,299 841 Pilgrim's Pride Corporation, Class B, 9.625% 09/15/11........................................ 883 8,869 Sara Lee Corporation, 6.250% 09/15/11........................................ 8,781 1,090 The Great Atlantic & Pacific Tea Company, Inc., 7.750% 04/15/07##...................................... 1,082 7,187 Tyson Foods, Inc., Class A, 7.250% 10/01/06@##..................................... 7,347 2,700 Unilever Capital Corporation, 6.750% 11/01/03##...................................... 2,832 ---------- 32,267 ---------- HEALTH SERVICES -- 0.4% 2,235 Cardinal Health, Inc., 6.750% 02/15/11##...................................... 2,290 5,625 Wellpoint Health Networks Inc., 6.375% 06/15/06........................................ 5,704 807 Wellpoint Health Networks Inc., 6.375% 01/15/12##...................................... 790 ---------- 8,784 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 58 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- HOUSING AND FURNISHING -- 0.3% $ 3,055 Hanson Overseas B.V., 6.750% 09/15/05##...................................... $ 3,144 1,559 Standard Pacific Corporation, 8.500% 04/01/09........................................ 1,575 1,690 The Ryland Group, Inc., 8.000% 08/15/06........................................ 1,728 ---------- 6,447 ---------- INTEGRATED OIL -- 1.1% 4,165 Amerada Hess Corporation, 7.875% 10/01/29##...................................... 4,378 4,645 Conoco Funding Company, 6.350% 10/15/11##...................................... 4,605 10,000 Conoco Inc., 2.597%** 10/15/02##.................................... 10,012 6,389 PEMEX Master Trust, 8.625% 02/01/22@##..................................... 6,453 ---------- 25,448 ---------- INVESTMENT SERVICES -- 2.3% 5,976 Bear Stearns Companies, Inc., 7.800% 08/15/07##...................................... 6,363 3,847 Credit Suisse First Boston USA, Inc., 5.875% 08/01/06##...................................... 3,860 5,890 Credit Suisse First Boston USA, Inc., 6.125% 11/15/11##...................................... 5,668 11,652 Lehman Brothers Holdings Inc., 7.750% 01/15/05##...................................... 12,220 4,657 Merrill Lynch & Company, Inc., 6.000% 02/17/09(a)..................................... 4,602 4,849 Morgan Stanley Dean Witter & Company, 6.100% 04/15/06.... 4,947 12,300 Morgan Stanley Dean Witter & Company, 6.750% 04/15/11##............................................. 12,356 2,120 Washington Mutual Finance Corporation, 8.250% 06/15/05##...................................... 2,289 ---------- 52,305 ---------- LODGING AND RECREATION -- 1.0% 1,062 Argosy Gaming Company, 9.000% 09/01/11##...................................... 1,115 2,823 Aztar Corporation, 9.000% 08/15/11(a)..................................... 2,943 1,490 Choctaw Resort Development Enterprise, 9.250% 04/01/09##...................................... 1,535 2,664 Harrahs Operating Company Inc., 7.875% 12/15/05##...................................... 2,741 1,666 Horseshoe Gaming Holding Corporation, Series B, 8.625% 05/15/09##...................................... 1,741 3,324 Host Marriott Corporation, Series A, 7.875% 08/01/05##...................................... 3,299 1,132 Isle of Capri Casinos, Inc., 9.000% 03/15/12@(a).................................... 1,133
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- LODGING AND RECREATION -- (CONTINUED) $ 2,493 Meristar Hospitality Corporation, 9.125% 01/15/11@##..................................... $ 2,546 2,664 Park Place Entertainment Corporation, 8.125% 05/15/11(a)..................................... 2,677 3,036 Six Flags, Inc., 8.875% 02/01/10@....................................... 3,074 ---------- 22,804 ---------- METALS AND MINING -- 0.3% 4,000 Alcoa Inc., 7.375% 08/01/10##...................................... 4,251 581 Compass Minerals Group Inc., 10.000% 08/15/11@##.................................... 612 1,743 United States Steel LLC, 10.750% 08/01/08@(a)................................... 1,743 ---------- 6,606 ---------- NATURAL GAS PIPELINES -- 1.2% 4,899 EL Paso Corporation, 7.800% 08/01/31##...................................... 4,778 10,064 Kinder Morgan, Inc., 6.650% 03/01/05##...................................... 10,238 10,753 The Williams Companies, Inc., 6.500% 08/01/06##...................................... 10,242 1,537 The Williams Companies, Inc., 7.625% 07/15/19##...................................... 1,423 ---------- 26,681 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.1% 2,100 SBA Communications Corporation, 10.250% 02/01/09(a).................................... 1,444 ---------- OIL REFINING AND MARKETING -- 0.9% 11,965 PDV America Inc., Gtd. Sr. Notes, 7.875% 08/01/03##...................................... 11,999 8,117 USX Corporation, 6.650% 02/01/06##...................................... 8,291 ---------- 20,290 ---------- PACKAGING AND CONTAINERS -- 0.4% 2,274 Container Corporation of America, 9.750% 04/01/03##...................................... 2,308 2,545 Container Corporation of America, Series B, 10.750% 05/01/02##..................................... 2,552 2,218 Owens-Brockway, 8.875% 02/15/09@##..................................... 2,262 2,187 Riverwood International Corporation, 10.625% 08/01/07(a).................................... 2,318 ---------- 9,440 ---------- PAPER AND FOREST PRODUCTS -- 0.7% 3,200 Appleton Papers Inc., 12.500% 12/15/08@##.................................... 3,136 1,367 FiberMark, Inc., 10.750% 04/15/11(a).................................... 1,203 3,000 International Paper Company, 8.000% 07/08/03##...................................... 3,134
SEE NOTES TO FINANCIAL STATEMENTS. 59 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- (CONTINUED) $ 3,250 Tembec Finance Corporation, 9.875% 09/30/05##...................................... $ 3,357 1,270 Tembec Industries Inc., 8.500% 02/01/11........................................ 1,295 2,565 Tembec Industries Inc., 7.750% 03/15/12@....................................... 2,510 1,481 Weyerhaeuser Company, 7.375% 03/15/32@....................................... 1,444 ---------- 16,079 ---------- PHARMACEUTICALS -- 0.2% 4,800 Wyeth, 6.250% 03/15/06##...................................... 4,943 ---------- PUBLISHING AND ADVERTISING -- 0.4% 2,652 Gannett Company, Inc., 6.375% 04/01/12##...................................... 2,636 760 Lamar Advertising Company, 9.625% 12/01/06##...................................... 796 3,305 Viacom Inc., Class B, 6.625% 05/15/11(a)..................................... 3,309 3,188 Viacom Inc., Class B, 7.875% 07/30/30........................................ 3,440 ---------- 10,181 ---------- RAILROADS, TRUCKING AND SHIPPING -- 0.7% 4,413 Burlington Northern Santa Fe Corporation, 6.750% 07/15/11##...................................... 4,424 10,908 FedEx Corporation, 6.625% 02/12/04##...................................... 11,262 ---------- 15,686 ---------- REAL ESTATE -- 0.2% 4,586 EOP Operating LP, 7.000% 07/15/11##...................................... 4,567 ---------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.2% 2,140 Felcor Lodging LP, 9.500% 09/15/08##...................................... 2,257 1,481 iStar Financial Inc., 8.750% 08/15/08##...................................... 1,526 ---------- 3,783 ---------- RESTAURANTS -- 0.1% 1,479 Tricon Global Restaurants, Inc., 7.450% 05/15/05........................................ 1,501 ---------- TELECOMMUNICATIONS SERVICES -- 4.0% 23,425 AT&T Canada Inc., (0.000)% due 06/15/08 9.950% beginning 06/15/03##............................ 3,807 556 AT&T Corporation, 7.300% 11/15/11@##..................................... 537 1,905 AT&T Corporation, 8.000% 11/15/31@##..................................... 1,849
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) $ 4,376 AT&T Wireless Services Inc., 7.875% 03/01/11##...................................... $ 4,357 4,831 BellSouth Telecommunications Inc., 6.375% 06/01/28##...................................... 4,480 2,800 Cingular Wireless, 7.125% 12/15/31@....................................... 2,654 6,346 Cox Communications, Inc., Class A, 7.750% 11/01/10##...................................... 6,468 3,253 Dobson Communications Corporation, Class A, 10.875% 07/01/10(a).................................... 3,155 5,175 MCI Communications Corporation, 6.125% 04/15/02##...................................... 5,165 3,422 Nextel Communications, Inc., Class A, 9.375% 11/15/09(a)..................................... 2,250 4,604 Qwest Capital Funding, Inc., 7.000% 08/03/09........................................ 3,750 4,895 Qwest Capital Funding, Inc., 6.875% 07/15/28##...................................... 3,459 3,210 Rural Cellular Corporation, Class A, 9.750% 01/15/10@(a).................................... 2,648 8,454 SBC Communications Inc., 6.250% 03/15/11(a)..................................... 8,391 1,805 Sprint Capital Corporation, 6.125% 11/15/08........................................ 1,611 3,630 Sprint Capital Corporation, 8.375% 03/15/12@....................................... 3,575 3,491 Sprint Capital Corporation, 6.900% 05/01/19........................................ 2,879 4,118 TELUS Corporation, 7.500% 06/01/07(a)..................................... 4,202 7,473 Verizon Global Funding Corporation, 7.750% 12/01/30##...................................... 7,794 5,836 Verizon New England Inc., 6.500% 09/15/11........................................ 5,699 6,101 Verizon Pennsylvania, Series A, 5.650% 11/15/11........................................ 5,595 3,887 WorldCom, Inc. - WorldCom Group, 8.000% 05/15/06........................................ 3,424 2,488 WorldCom, Inc. - WorldCom Group, 7.500% 05/15/11##...................................... 2,087 7,625 WorldCom, Inc. - WorldCom Group, 8.250% 05/15/31##...................................... 6,064 ---------- 95,900 ---------- TOBACCO -- 0.5% 2,014 DIMON Inc., Series B, 9.625% 10/15/11##...................................... 2,135 9,370 R.J. Reynolds Tobacco Holdings, Inc., 7.375% 05/15/03##...................................... 9,639 ---------- 11,774 ---------- TOTAL CORPORATE BONDS AND NOTES (Cost: $866,773)....................................... 837,533 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 60 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- 3.8% $20,000 Banco Latinoamericano de Exportaciones, SA, Class E, 7.200% 05/28/02@##..................................... $ 20,089 3,074 Canadian National Railway Company, 6.900% 07/15/28##...................................... 2,977 9,000 CBS Corporation, 8.375% 06/15/02........................................ 9,102 1,915 Compagnie Generale de Geophysique SA, 10.625% 11/15/07(a)............................................ 1,982 808 Compagnie Generale de Geophysique SA, 10.625% 11/15/07@##............................................ 836 12,210 Corp Andina de Fomento, 8.875% 06/01/05##...................................... 13,286 4,800 Government of Canada, 5.250% 11/05/08##...................................... 4,714 4,000 Hellenic Republic, 6.950% 03/04/08(a)..................................... 4,184 3,322 Kimberly-Clark de Mexico, SA de CV, Class A, 8.875% 08/01/09@##..................................... 3,539 9,000 New Plan Realty Trust, 6.800% 05/15/02##...................................... 9,026 7,214 Republic of Italy, 6.000% 02/22/11(a)..................................... 7,184 4,810 Republic of Italy, 6.875% 09/27/23(a)..................................... 4,952 4,809 United Mexican States, 8.375% 01/14/11(a)..................................... 5,037 ---------- TOTAL FOREIGN BONDS AND NOTES (Cost: $86,480)........................................ 86,908 ---------- MORTGAGE-BACKED SECURITIES -- 38.8% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.6% 7 Criimi Mae CMBS Corporation, Series 1998-1, Class A1, 5.697% 06/20/30@....................................... 7 4,500 CS First Boston Mortgage Securities Corporation, Series 2000-C1, Class A2, 7.545% 04/14/62##................... 4,817 8,000 DLJ Commercial Mortgage Corporation, Series 1999-CG2, Class A1B, 7.300% 06/10/09##...................................... 8,481 21,966 First Union National Bank Commercial Mortgage, Series 2000-C1, Class A2, 7.841% 05/17/32##...................................... 23,870 72,173 GMAC Commercial Mortgage Securities Inc., Series 1997-C1, Class X, Interest only, 1.494%** 07/15/27##.................................... 4,502
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- (CONTINUED) $88,152 JP Morgan Commercial Mortgage Finance Corporation, Series 1997-C4, Class X, Interest only, 1.229%** 12/26/28##.................................... $ 3,740 98,545 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Class IO, 0.990%** 12/15/30...................................... 4,334 4,800 Nomura Depositor Trust, Series 1998-ST1, Class A4, 2.800%** 02/15/34##.................................... 4,795 10,000 PNC Mortgage Acceptance Corporation, Series 2000-C2, Class A2, 7.300% 10/12/33##...................................... 10,558 10,492 Salomon Brothers Mortgage Securities VII, Series 2000-C1, Class A2, 7.520% 12/18/09##...................................... 11,193 2,855 Salomon Brothers Mortgage Securities, Series 2000-NL1, Class A1, 6.601% 04/15/08@##..................................... 2,956 4,948 Washington Mutual, Series 2000-1, Class A1, 2.190%** 06/25/24...................................... 4,952 ---------- 84,205 ---------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES -- 0.1% 17 9.000% 01/01/05........................................ 17 227 8.000% 11/01/09 - 04/01/10............................. 240 1,124 8.500% 11/01/26##...................................... 1,198 ---------- 1,455 ---------- FEDERAL HOUSING AUTHORITY (FHA) CERTIFICATES -- 0.3% 6,350 7.000% 01/01/40(c)(d).................................. 6,348 ---------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 32.3% 1,006 7.000% 12/01/02 - 07/01/03............................. 1,019 345 8.250% 03/25/06##...................................... 359 87,175 6.000% 03/01/17(b)..................................... 86,848 3,204 7.500% 06/15/22........................................ 3,322 170,000 7.000% 05/01/30(b)..................................... 172,390 487,975 6.500% 02/01/32(b)..................................... 485,384 ---------- 749,322 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 61 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------- NzGovernment National Mortgage ASSOCIATION (GNMA) CERTIFICATES -- 2.5% $ 23 8.500% 12/15/05 - 04/15/06............................. $ 25 146 8.000% 11/15/07 - 05/15/17............................. 157 30 9.500% 06/15/09 - 09/15/09............................. 33 3,447 8.000% 12/01/09##...................................... 3,612 25 13.000% 01/15/11 - 02/15/11............................ 28 1,659 7.000% 10/01/11##...................................... 1,727 93 9.000% 07/15/17........................................ 102 11,582 7.500% 12/15/23##...................................... 12,171 915 8.500% 02/15/25##...................................... 985 8,340 7.500% 07/20/28##...................................... 8,655 18,333 7.000% 01/15/30........................................ 18,746 11,555 6.500% 01/15/31##...................................... 11,542 ---------- 57,783 ---------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $904,284)....................................... 899,113 ---------- CONTRACTS ------- NzPurchased options -- 1.0% 5,000(e) Call option Polish Government Bond Strike price 75.88 Expire 5/7/02.......................................... 18,800 1,000(e) Call option Polish Government Bond Strike Price 78.40 Expire 5/7/02.......................................... 3,805 ---------- TOTAL PURCHASED OPTIONS (Cost: $21,549)........................................ 22,605 ---------- PRINCIPAL AMOUNT (000) ------- NzU.S. Treasury obligations -- 2.1% U.S. TREASURY NOTES -- 1.3% $30,000 3.875% 07/31/03........................................ 30,309 ---------- U.S. TREASURY STRIPS -- 0.8% 13,000 Principal only, 4.179%*** 11/15/04..................................... 11,639 12,900 Principal only, 6.278%*** 11/15/21..................................... 3,827 17,000 Principal only, 5.946%*** 11/15/27..................................... 3,592 ---------- 19,058 ---------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $49,591)........................................ 49,367 ---------- SHARES VALUE (000) (000) - ---------------------------------------------------------------------------------- NzInvestment companies -- 44.7% 12,816 International Bond Portfolio@@........................... $ 128,546 882,862 Nations Cash Reserves, Capital Class Shares#.................................. 882,862 1,594 Nations Convertible Securities Fund, Primary A Class@@... 25,558 ---------- TOTAL INVESTMENT COMPANIES (Cost: $1,036,478)..................................... 1,036,966 ---------- TOTAL INVESTMENTS (Cost $3,217,604*).............................. 137.5% 3,185,933 ---------- OTHER ASSETS AND LIABILITIES (NET)................ (37.5)% Cash..................................................... $ 130 Unrealized appreciation on forward foreign exchange contracts.............................................. 5,307 Receivable for investment securities sold................ 197,128 Receivable for Fund shares sold.......................... 4,474 Dividends receivable..................................... 470 Interest receivable...................................... 23,935 Unrealized depreciation on forward foreign exchange contracts.............................................. (3,889) Unrealized depreciation on swap contracts................ (3,645) Variation margin/due to broker........................... (802) Collateral on securities loaned.......................... (82,854) Payable for Fund shares redeemed......................... (4,179) Investment advisory fee payable.......................... (783) Administration fee payable............................... (434) Shareholder servicing and distribution fees payable...... (25) Distributions payable.................................... (7,639) Payable for investment securities purchased.............. (993,138) Accrued Trustees' fees and expenses...................... (91) Accrued expenses and other liabilities................... (3,085) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (869,120) ---------- NET ASSETS........................................ 100.0% $2,316,813 ========== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 2,558 Accumulated net realized gain on investments sold, futures contracts, swaps, options and currency contracts.............................................. 7,259 Net unrealized depreciation of investments, futures contracts, swaps, options and currency contracts....... (41,126) Paid-in capital.......................................... 2,348,122 ---------- NET ASSETS............................................... $2,316,813 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 62 NATIONS FUNDS Nations Bond Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE - ---------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($2,256,646,993 / 233,723,186 shares outstanding)...... $9.66 ========== INVESTOR A SHARES: Net asset value and redemption price per share ($40,901,713 / 4,237,314 shares outstanding)........... $9.65 ========== Maximum sales charge..................................... 3.25% Maximum offering price per share......................... $9.97 INVESTOR B SHARES: Net asset value and offering price per share& ($16,877,080 / 1,747,902 shares outstanding)........... $9.66 ========== INVESTOR C SHARES: Net asset value and offering price per share& ($2,386,875 / 247,252 shares outstanding).............. $9.65 ==========
- --------------- * Federal income tax information (see Note 12). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. @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. @@Mutual fund registered under the Investment Company Act of 1940, as amended, and Sub-advised by Banc of America Capital Management, LLC. & The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. + 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 (Note 11). The portion that represents cash collateral is $82,854. ##All or a portion of security segregated as collateral for futures contracts, TBA and construction loan. (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 $76,947 and $75,435, respectively. (b) TBA -- Securities purchased on a forward commitment basis. (c) Construction loan security. Security was issued on a when-issued basis. (d) Fair valued security. (e) Principal amount denominated in Polish Zloty. SEE NOTES TO FINANCIAL STATEMENTS. 63 NATIONS FUNDS Nations Strategic Income Fund STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 1.0% ASSET-BACKED -- AUTO LOANS -- 0.6% $ 750 Americredit Automobile Receivables Trust, Series 2001-B, Class A4, 5.370% 06/12/08##...................................... $ 760 200 Ford Credit Auto Owner Trust, Series 2002-B, Class B, 5.180% 10/16/06........................................ 200 400 MMCA Automobile Trust, Series 2001-1, Class A4, 5.340% 12/15/05##...................................... 407 -------- 1,367 -------- ASSET-BACKED -- HOME EQUITY LOANS -- 0.4% 800 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29##...................................... 816 74 First Plus Home Loan Trust, Series 1998-2, Class M1, 7.220% 05/10/24........................................ 75 -------- 891 -------- TOTAL ASSET-BACKED SECURITIES (Cost: $2,225)......................................... 2,258 -------- CORPORATE BONDS AND NOTES -- 11.0% AEROSPACE AND DEFENSE -- 0.2% 400 Boeing Capital Corporation, 5.650% 05/15/06##...................................... 396 -------- AIRLINES -- 0.2% 400 US Airways, Inc., Series 2002-G, 8.020% 02/05/19##...................................... 407 -------- AUTOMOTIVE -- 1.2% 124 Delphi Automotive Systems Corporation, 6.125% 05/01/04##...................................... 126 328 Ford Motor Company, 7.450% 07/16/31........................................ 296 425 Ford Motor Credit Company, 7.600% 08/01/05##...................................... 434 410 Ford Motor Credit Company, 5.800% 01/12/09##...................................... 369 145 Ford Motor Credit Company, 7.375% 10/28/09........................................ 142 246 General Motors Acceptance Corporation, 6.125% 09/15/06##...................................... 243 172 General Motors Acceptance Corporation, 6.150% 04/05/07##...................................... 169 328 General Motors Acceptance Corporation, 6.875% 09/15/11........................................ 319 390 General Motors Acceptance Corporation, 8.000% 11/01/31........................................ 390 400 Toyota Motor Credit Corporation, 5.625% 11/13/03(a)##................................... 410 -------- 2,898 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- BROADCASTING AND CABLE -- 0.3% $ 280 AOL Time Warner Inc., 7.625% 04/15/31##...................................... $ 277 105 Comcast Cable Communications, 7.125% 06/15/13##...................................... 103 121 Time Warner Inc., 8.110% 08/15/06........................................ 130 58 Walt Disney Company, 6.375% 03/01/12........................................ 57 -------- 567 -------- CHEMICALS -- SPECIALTY -- 0.1% 82 Praxair, Inc., 6.500% 03/01/08........................................ 83 139 The Dow Chemical Company, 6.125% 02/01/11(a)..................................... 134 98 The Dow Chemical Company, 7.375% 11/01/29##...................................... 100 -------- 317 -------- COMMERCIAL BANKING -- 0.6% 400 Bank One Corporation, 6.000% 08/01/08##...................................... 398 194 FleetBoston Financial Corporation, 7.250% 09/15/05........................................ 205 156 PNC Funding Corporation, 5.750% 08/01/06........................................ 155 180 Popular North America Inc., Series E, 6.125% 10/15/06##...................................... 176 200 U.S. Bank NA, Minnesota, 6.375% 08/01/11##...................................... 199 280 Wachovia Corporation, 4.950% 11/01/06##...................................... 272 -------- 1,405 -------- COMPUTER SERVICES -- 0.1% 112 Electronic Data Systems Corporation, 6.850% 10/15/04##...................................... 117 -------- COMPUTERS AND OFFICE EQUIPMENT -- 0.1% 223 International Business Machines Corporation, 6.500% 01/15/28........................................ 212 -------- CONGLOMERATES -- 0.1% 125 Waste Management, Inc., 7.375% 08/01/10##...................................... 124 -------- CONSUMER CREDIT AND MORTGAGES -- 0.2% 383 Countrywide Home Loans, Inc., Series J, 5.500% 08/01/06##...................................... 377 -------- DEPARTMENT AND DISCOUNT STORES -- 0.2% 120 Sears Roebuck Acceptance Corporation, 6.750% 08/15/11##...................................... 119 76 Target Corporation, 5.875% 03/01/12##...................................... 74 182 Wal-Mart Stores, Inc., 5.450% 08/01/06##...................................... 184 -------- 377 --------
SEE NOTES TO FINANCIAL STATEMENTS. 64 NATIONS FUNDS Nations Strategic Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING -- 0.1% $ 80 General Electric Global Insurance Holding Corporation, 7.000% 02/15/26........................................ $ 78 96 Tyco International Group SA, 6.875% 01/15/29........................................ 81 -------- 159 -------- ELECTRIC POWER -- NON NUCLEAR -- 1.2% 410 American Electric Power Company, Inc., Series A, 6.125% 05/15/06##...................................... 407 144 Cinergy Corporation, 6.250% 09/01/04........................................ 144 145 Constellation Energy Group, Inc., 7.600% 04/01/32........................................ 143 500 Consumers Energy Company, Series B, 6.200% 05/01/03##...................................... 500 127 DPL Inc., 6.875% 09/01/11........................................ 120 116 Duke Energy Corporation, 6.250% 01/15/12........................................ 113 400 Exelon Generation Company LLC, 6.950% 06/15/11@##..................................... 398 134 FirstEnergy Corporation, Series B, 6.450% 11/15/11........................................ 123 200 Progress Energy, Inc., 7.100% 03/01/11##...................................... 204 82 Progress Energy, Inc., 7.750% 03/01/31........................................ 85 400 PSEG Power LLC, 6.875% 04/15/06##...................................... 403 110 Southern Company Capital Funding, Series A, 5.300% 02/01/07........................................ 107 90 Virginia Electric and Power Company, Series A, 5.375% 02/01/07##...................................... 88 -------- 2,835 -------- ENERGY -- MISCELLANEOUS -- 0.1% 280 Nisource Finance Corporation, 7.500% 11/15/03##...................................... 277 -------- EXPLORATION AND PRODUCTION -- 0.2% 90 Anadarko Finance Company, Series B, 6.750% 05/01/11##...................................... 90 162 Anadarko Finance Company, Series B, 7.500% 05/01/31##...................................... 166 75 Pure Resources, Inc., 7.125% 06/15/11........................................ 71 -------- 327 -------- FINANCE -- MISCELLANEOUS -- 1.3% 137 Associates Corporation of North America, 6.950% 11/01/18##...................................... 138 226 Capital One Bank, 6.875% 02/01/06##...................................... 218 60 Capital One Bank, Series 4, 6.500% 07/30/04##...................................... 59
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- (CONTINUED) $ 316 Citigroup Inc., 7.250% 10/01/10##...................................... $ 333 13 Citigroup Inc., 6.000% 02/21/12........................................ 13 422 General Electric Capital Corporation, Series A, 6.750% 03/15/32........................................ 407 283 Household Finance Corporation, 5.875% 02/01/09........................................ 266 283 Household Finance Corporation, 6.750% 05/15/11........................................ 274 417 Kern River Funding Corporation, 6.676% 07/31/16@##..................................... 405 400 Monumental Global Funding II, 6.050% 01/19/06@##..................................... 407 400 Prudential Funding LLC, 6.600% 05/15/08@##..................................... 404 181 Washington Mutual, Inc., 7.500% 08/15/06##...................................... 192 -------- 3,116 -------- FOOD PRODUCTS -- 0.4% 200 Kellogg Company, Series B, 6.000% 04/01/06##...................................... 201 293 Sara Lee Corporation, 6.250% 09/15/11##...................................... 291 235 Tyson Foods, Inc., Class A, 7.250% 10/01/06@##..................................... 240 110 Unilever Capital Corporation, 6.750% 11/01/03##...................................... 115 -------- 847 -------- HEALTH SERVICES -- 0.1% 180 Wellpoint Health Networks Inc., 6.375% 06/15/06##...................................... 182 22 Wellpoint Health Networks Inc., 6.375% 01/15/12........................................ 22 -------- 204 -------- HEAVY MACHINERY -- 0.2% 400 Caterpillar Inc., 7.300% 05/01/31##...................................... 418 -------- HOUSING AND FURNISHING -- 0.0%+ 95 Hanson Overseas B.V., 6.750% 09/15/05##...................................... 98 -------- INSURANCE -- 0.3% 600 American International Group, Inc., 5.850% 08/01/08@##..................................... 593 -------- INTEGRATED OIL -- 0.2% 121 Amerada Hess Corporation, 7.875% 10/01/29##...................................... 127 155 Conoco Funding Company, 6.350% 10/15/11##...................................... 154 197 PEMEX Master Trust, 8.625% 02/01/22@....................................... 199 -------- 480 --------
SEE NOTES TO FINANCIAL STATEMENTS. 65 NATIONS FUNDS Nations Strategic Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- INVESTMENT SERVICES -- 0.5% $ 110 Credit Suisse First Boston USA, Inc., 5.875% 08/01/06##...................................... $ 110 195 Credit Suisse First Boston USA, Inc., 6.125% 11/15/11##...................................... 188 400 Lehman Brothers Holdings Inc., 7.750% 01/15/05##...................................... 420 150 Merrill Lynch & Company, Inc., 6.000% 02/17/09........................................ 148 150 Morgan Stanley Dean Witter & Company, 6.100% 04/15/06##...................................... 153 -------- 1,019 -------- MEDICAL DEVICES AND SUPPLIES -- 0.2% 400 Abbott Laboratories, 5.125% 07/01/04##...................................... 408 -------- METALS AND MINING -- 0.1% 131 Alcoa Inc., 7.375% 08/01/10##...................................... 139 -------- NATURAL GAS PIPELINES -- 0.4% 156 EL Paso Corporation, 7.800% 08/01/31........................................ 152 300 Kinder Morgan, Inc., 6.650% 03/01/05##...................................... 306 286 The Williams Companies, Inc., 6.500% 08/01/06##...................................... 272 51 The Williams Companies, Inc., 7.625% 07/15/19##...................................... 47 -------- 777 -------- OIL REFINING AND MARKETING -- 0.3% 405 PDV America Inc., Gtd. Sr. Notes, 7.875% 08/01/03##...................................... 406 310 USX Corporation, 6.650% 02/01/06##...................................... 317 -------- 723 -------- PAPER AND FOREST PRODUCTS -- 0.1% 98 International Paper Company, 8.000% 07/08/03........................................ 102 44 Weyerhaeuser Company, 7.375% 03/15/32@....................................... 43 -------- 145 -------- PHARMACEUTICALS -- 0.2% 400 Wyeth, 6.250% 03/15/06........................................ 412 -------- PUBLISHING AND ADVERTISING -- 0.1% 78 Gannett Company, Inc., 6.375% 04/01/12##...................................... 78 105 Viacom Inc., Class B, 6.625% 05/15/11........................................ 105 105 Viacom Inc., Class B, 7.875% 07/30/30........................................ 113 -------- 296 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- RAILROADS, TRUCKING AND SHIPPING -- 0.2% $ 141 Burlington Northern Santa Fe Corporation, 6.750% 07/15/11(a)..................................... $ 141 330 FedEx Corporation, 6.625% 02/12/04##...................................... 341 -------- 482 -------- REAL ESTATE -- 0.1% 147 EOP Operating LP, 7.000% 07/15/11........................................ 146 -------- TELECOMMUNICATIONS SERVICES -- 1.2% 500 AT&T Canada Inc., (0.000)% due 06/15/08 9.950% beginning 06/15/03##............................ 81 66 AT&T Corporation, 8.000% 11/15/31@##..................................... 64 123 AT&T Wireless Services Inc., 7.875% 03/01/11##...................................... 122 147 BellSouth Telecommunications Inc., 6.375% 06/01/28........................................ 136 90 Cingular Wireless, 7.125% 12/15/31@##..................................... 85 191 Cox Communications, Inc., Class A, 7.750% 11/01/10##...................................... 195 107 Qwest Capital Funding, Inc., 7.000% 08/03/09##...................................... 87 165 Qwest Capital Funding, Inc., 6.875% 07/15/28........................................ 117 257 SBC Communications Inc., 6.250% 03/15/11........................................ 255 58 Sprint Capital Corporation, 6.125% 11/15/08##...................................... 52 180 Sprint Capital Corporation, 8.375% 03/15/12@....................................... 177 115 Sprint Capital Corporation, 6.900% 05/01/19........................................ 95 136 TELUS Corporation, 7.500% 06/01/07........................................ 139 247 Verizon Global Funding Corporation, 7.750% 12/01/30##...................................... 259 194 Verizon New England Inc., 6.500% 09/15/11........................................ 189 216 Verizon Pennsylvania, Series A, 5.650% 11/15/11........................................ 198 117 WorldCom, Inc.-WorldCom Group, 8.000% 05/15/06........................................ 103 82 WorldCom, Inc.-WorldCom Group, 7.500% 05/15/11##...................................... 69 247 WorldCom, Inc.-WorldCom Group, 8.250% 05/15/31##...................................... 196 -------- 2,619 --------
SEE NOTES TO FINANCIAL STATEMENTS. 66 NATIONS FUNDS Nations Strategic Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- TOBACCO -- 0.2% $ 40 Philip Morris Companies, Inc., 7.750% 01/15/27........................................ $ 40 294 R.J. Reynolds Tobacco Holdings, Inc., 7.375% 05/15/03##...................................... 302 -------- 342 -------- TOTAL CORPORATE BONDS AND NOTES (Cost: $24,845)........................................ 24,059 -------- FOREIGN BONDS AND NOTES -- 0.8% 375 Banco Latinoamericano de Exportaciones, SA, Class E, 7.200% 05/28/02@##..................................... 377 405 Corp Andina de Fomento, 8.875% 06/01/05##...................................... 440 159 Government of Canada, 5.250% 11/05/08##...................................... 156 135 Hellenic Republic, 6.950% 03/04/08##...................................... 141 110 Kimberly-Clark de Mexico, SA de CV, Class A, 8.875% 08/01/09@....................................... 117 238 Republic of Italy, 6.000% 02/22/11##...................................... 237 159 Republic of Italy, 6.875% 09/27/23........................................ 164 159 United Mexican States, 8.375% 01/14/11........................................ 167 -------- TOTAL FOREIGN BONDS AND NOTES (Cost: $1,783)......................................... 1,799 -------- MORTGAGE-BACKED SECURITIES -- 14.5% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.8% 810 CS First Boston Mortgage Securities Corporation, Series 2000-C1, Class A2, 7.545% 04/14/62........................................ 867 290 DLJ Commercial Mortgage Corporation, Series 1999-CG2, Class A1B, 7.300% 06/10/09##...................................... 307 850 First Union National Bank Commercial Mortgage, Series 1999-C4, Class A2, 7.390% 11/15/09##...................................... 904 2,999 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Class IO, 0.990%** 12/15/30...................................... 132 100 Nomura Depositor Trust, Series 1998-ST1, Class A4, 2.800%** 02/15/34...................................... 100
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- (CONTINUED) $ 470 PNC Mortgage Acceptance Corporation, Series 2000-C1, Class A2, 7.610% 02/15/10##...................................... $ 504 1,000 Salomon Brothers Mortgage Securities VII, Series 2000-C1, Class A2, 7.520% 12/18/09##...................................... 1,067 -------- 3,881 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 12.3% 1,385 7.000% 07/15/05(a)..................................... 1,480 565 5.000% 01/15/07(a)..................................... 559 3,030 6.000% 03/01/17(b)..................................... 3,019 6,200 7.000% 05/01/30(b)..................................... 6,288 305 6.625% 11/15/30(a)..................................... 307 15,350 6.500% 02/01/32(b)..................................... 15,267 -------- 26,920 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 0.4% 788 6.500% 01/15/31##........................................ 787 -------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $31,582)........................................ 31,588 -------- U.S. TREASURY OBLIGATIONS -- 2.5% U.S. TREASURY NOTES -- 2.1% 700 6.250% 02/15/03(a)....................................... 722 3,715 5.750% 08/15/03.......................................... 3,844 -------- 4,566 -------- U.S. TREASURY STRIPS -- 0.4% 2,980 Principal only, 6.278%*** 11/15/21##................................... 884 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $5,475)......................................... 5,450 -------- SHARES (000) - --------- INVESTMENT COMPANIES -- 83.1% 7,450 High Yield Portfolio@@................................... 71,739 7,504 International Bond Portfolio@@........................... 75,265 33,653 Nations Cash Reserves, Capital Class Shares#.................................. 33,653 -------- TOTAL INVESTMENT COMPANIES (Cost: $184,192)....................................... 180,657 --------
SEE NOTES TO FINANCIAL STATEMENTS. 67 NATIONS FUNDS Nations Strategic Income Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $250,102*)................................ 112.9% $245,811 -------- OTHER ASSETS AND LIABILITIES (NET)................ (12.9)% Cash..................................................... $ 1 Receivable for investment securities sold................ 6,507 Receivable for Fund shares sold.......................... 319 Dividends receivable..................................... 912 Interest receivable...................................... 649 Variation margin/due to broker........................... (6) Collateral on securities loaned.......................... (3,388) Payable for Fund shares redeemed......................... (105) Investment advisory fee payable.......................... (74) Administration fee payable............................... (40) Shareholder servicing and distribution fees payable...... (46) Distributions payable.................................... (784) Payable for investment securities purchased.............. (31,715) Accrued Trustees' fees and expenses...................... (55) Accrued expenses and other liabilities................... (203) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (28,028) -------- NET ASSETS........................................ 100.0% $217,783 ======== NET ASSETS CONSIST OF: Undistributed net investment income...................... $ 421 Accumulated net realized loss on investments sold, futures contracts, options and currency contracts...... (20,399) Net unrealized depreciation of investments, futures contracts and currency contracts....................... (4,309) Paid-in capital.......................................... 242,070 -------- NET ASSETS............................................... $217,783 ======== VALUE - -------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($143,283,405 / 14,912,415 shares outstanding)......... $9.61 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($26,542,675 / 2,765,395 shares outstanding)........... $9.60 ======== Maximum sales charge..................................... 4.75% Maximum offering price per share......................... $10.08 INVESTOR B SHARES: Net asset value and offering price per share& ($45,959,831 / 4,784,833 shares outstanding)........... $9.61 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($1,997,492 / 208,123 shares outstanding).......................... $9.60 ========
- --------------- * Federal income tax information (see Note 12). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. ***Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. @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. @@Mutual fund registered under the Investment Company Act of 1940, as amended, and Sub-advised by Banc of America Capital Management, LLC. + Amount represents less than 0.1%. & 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 (Note 11). The portion that represents cash collateral is $3,388. ## All or a portion of security segregated as collateral for futures contracts and TBA. (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 $3,289 and $3,257, respectively. (b)TBA -- Securities purchased on a forward commitment basis. SEE NOTES TO FINANCIAL STATEMENTS. 68 NATIONS FUNDS Nations High Yield Bond Fund STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 98.5% Investment in Nations Master Investment Trust, High Yield Bond Master Portfolio*................................. $301,218 -------- TOTAL INVESTMENTS................................. 98.5% 301,218 -------- OTHER ASSETS AND LIABILITIES (NET)................ 1.5% Receivable for Fund shares sold.......................... $ 4,895 Payable for Fund shares redeemed......................... (151) Administration fee payable............................... (47) Shareholder servicing and distribution fees payable...... (69) Accrued Trustees' fees and expenses...................... (29) Accrued expenses and other liabilities................... (95) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. 4,504 -------- NET ASSETS........................................ 100.0% $305,722 ======== NET ASSETS CONSIST OF: Distributions in excess of net investment income......... $ (257) Accumulated net realized loss on investments sold........ (136) Net unrealized depreciation of investments............... (9,007) Paid-in capital.......................................... 315,122 -------- NET ASSETS............................................... $305,722 ======== VALUE - -------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($194,866,590 / 21,981,585 shares outstanding)......... $8.86 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($31,551,201 / 3,583,906 shares outstanding)........... $8.80 ======== Maximum sales charge..................................... 4.75% Maximum offering price per share......................... $9.24 INVESTOR B SHARES: Net asset value and offering price per share& ($64,091,028 / 7,280,879 shares outstanding)........... $8.80 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($15,212,883 / 1,734,441 shares outstanding)........... $8.77 ========
- --------------- *The financial statements of the High Yield Bond Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the High Yield Bond 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. 69 NATIONS FUNDS STATEMENTS OF OPERATIONS For the year ended March 31, 2002
SHORT- SHORT-TERM INTERMEDIATE INCOME GOVERNMENT --------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Interest.................................................... $ 23,977 $ 24,153 Dividends (Net of foreign withholding taxes of $0, $0, $0, $0, $61, $7 and $0, respectively)......................... -- -- Dividend income from affiliated funds....................... 433 2,859 Securities lending.......................................... 261 344 Allocated from portfolio: Interest+................................................... -- -- Dividends+.................................................. -- -- Dividend income from affiliated funds+...................... -- -- Securities lending+......................................... -- -- Expenses+................................................... -- -- -------------- -------------- Total investment income................................. 24,671 27,356 -------------- -------------- EXPENSES: Investment advisory fee..................................... 1,414 1,655 Administration fee.......................................... 1,037 1,214 Transfer agent fees......................................... 137 178 Custodian fees.............................................. 37 60 Legal and audit fees........................................ 178 188 Registration and filing fees................................ 39 43 Trustees' fees and expenses................................. 28 34 Printing expense............................................ 43 42 Interest expense............................................ -- -- Other....................................................... 22 21 -------------- -------------- Subtotal................................................ 2,935 3,435 Shareholder servicing and distribution fees: Primary B Shares.......................................... -- 1 Investor A Shares......................................... 125 109 Investor B Shares......................................... 26 120 Investor C Shares......................................... 146 39 -------------- -------------- Total expenses.......................................... 3,232 3,704 Fees waived by investment advisor, administrator and/or distributor............................................... (471) --* Fees reduced by credits allowed by the custodian............ (5) (16) -------------- -------------- Net expenses............................................ 2,756 3,688 -------------- -------------- NET INVESTMENT INCOME/(LOSS)................................ 21,915 23,668 -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... 2,985 18,809 Swap contracts............................................ -- -- Written options........................................... -- -- Futures contracts......................................... 1,803 (773) Foreign currency and net other assets..................... -- -- Allocated from Portfolio: Security transactions+.................................... -- -- Foreign currency and net other assets+.................... -- -- -------------- -------------- Net realized gain/(loss) on investments..................... 4,788 18,036 -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities (Note 13)...................................... (4,988) (12,365) Swap contracts............................................ -- 491 Written options........................................... -- -- Futures contracts......................................... (1,502) (2,630) Foreign currency and net other assets..................... -- -- Securities allocated from Portfolio (Note 13)+............ -- -- -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (6,490) (14,504) -------------- -------------- Net realized and unrealized gain/(loss) on investments...... (1,702) 3,532 -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ 20,213 $ 27,200 ============== ==============
- --------------- * Amount represents less than $500. + Allocated from Intermediate Bond Master Portfolio and High Yield Bond Master Portfolio, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 70 NATIONS FUNDS STATEMENTS OF OPERATIONS (CONTINUED)
GOVERNMENT INTERMEDIATE STRATEGIC HIGH YIELD SECURITIES BOND BOND INCOME BOND - -------------------------------------------------------------------------------------- $ 12,825 $ -- $ 128,291 $ 7,011 $ -- -- -- 5,683 6,788 -- 1,701 -- 11,916 933 -- 127 -- 293 21 -- -- 8,364 -- -- 18,085 -- 214 -- -- 546 -- 272 -- -- 546 -- 67 -- -- 51 -- (766) -- -- (1,177) -------------- -------------- -------------- -------------- -------------- 14,653 8,151 146,183 14,753 18,051 -------------- -------------- -------------- -------------- -------------- 1,362 -- 9,614 1,122 -- 626 265 5,288 494 326 90 45 735 72 56 34 -- 190 30 -- 190 115 177 172 120 48 56 53 38 66 29 29 29 28 29 31 35 100 68 27 -- -- 8 -- -- 33 35 86 20 6 -------------- -------------- -------------- -------------- -------------- 2,443 580 16,280 2,044 630 -- -- -- -- -- 146 153 121 68 43 425 34 124 480 390 22 15 18 17 63 -------------- -------------- -------------- -------------- -------------- 3,036 782 16,543 2,609 1,126 (366) (122) (8) (224) (122) (7) -- (47) (2) -- -------------- -------------- -------------- -------------- -------------- 2,663 660 16,488 2,383 1,004 -------------- -------------- -------------- -------------- -------------- 11,990 7,491 129,695 12,370 17,047 -------------- -------------- -------------- -------------- -------------- 8,551 -- 37,010 1,890 -- -- -- 2,511 (231) -- -- -- 48 -- -- (324) -- (2,545) (574) -- -- -- 2,807 653 -- -- (222) -- -- 1,256 -- -- -- -- (43) -------------- -------------- -------------- -------------- -------------- 8,227 (222) 39,831 1,738 1,213 -------------- -------------- -------------- -------------- -------------- (6,411) -- (58,186) (5,747) -- 315 -- (4,066) -- -- -- -- (72) -- -- (3,011) -- (5,641) (10) -- -- -- 1,418 (2,026) -- -- (5,096) -- -- (6,728) -------------- -------------- -------------- -------------- -------------- (9,107) (5,096) (66,547) (7,783) (6,728) -------------- -------------- -------------- -------------- -------------- (880) (5,318) (26,716) (6,045) (5,515) -------------- -------------- -------------- -------------- -------------- $ 11,110 $ 2,173 $ 102,979 $ 6,325 $ 11,532 ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 71 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
SHORT-TERM INCOME -------------------------------- YEAR ENDED YEAR ENDED 3/31/02 3/31/01 -------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ 21,915 $ 23,079 Net realized gain/(loss) on investments..................... 4,788 (1,697) Net change in unrealized appreciation/(depreciation) of investments............................................... (6,490) 12,829 -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ 20,213 34,211 Distributions to shareholders from net investment income: Primary A Shares.......................................... (19,342) (22,396) Primary B Shares.......................................... -- -- Investor A Shares......................................... (2,012) (510) Investor B Shares......................................... (98) (135) Investor C Shares......................................... (463) (38) Distributions to shareholders from net realized gain on investments: Primary A Shares.......................................... -- -- Primary B Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- Net increase/(decrease) in net assets from Fund share transactions.............................................. 266,820 (55,666) -------------- -------------- Net increase/(decrease) in net assets....................... 265,118 (44,534) NET ASSETS: Beginning of year........................................... 369,818 414,352 -------------- -------------- End of year................................................. $ 634,936 $ 369,818 ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of year........... $ -- $ -- ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 72 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SHORT-INTERMEDIATE GOVERNMENT GOVERNMENT SECURITIES --------------------------------- -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/02 3/31/01 3/31/02 3/31/01 - -------------------------------------------------------------------------- $23,668 $ 32,003 $ 11,990 $ 13,539 18,036 6,886 8,227 5,314 (14,504) 21,293 (9,107) 6,389 -------------- -------------- -------------- -------------- 27,200 60,182 11,110 25,242 (21,398) (29,250) (8,056) (8,845) (5) (8) -- -- (1,783) (2,358) (2,458) (3,332) (371) (357) (1,401) (1,346) (111) (30) (74) (16) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (97,107) (29,689) 35,286 34,979 -------------- -------------- -------------- -------------- (93,575) (1,510) 34,407 46,682 550,484 551,994 240,192 193,510 -------------- -------------- -------------- -------------- $456,909 $ 550,484 $ 274,599 $ 240,192 ============== ============== ============== ============== $-- $ -- $ (394) $ (394) ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 73 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INTERMEDIATE BOND --------------------------------- YEAR ENDED YEAR ENDED 3/31/02 3/31/01 --------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ 7,491 $ 5,980 Net realized gain/(loss) on investments..................... -- -- Net realized gain/(loss) on investments allocated from Portfolio+................................................ (222) (310) Net change in unrealized appreciation/(depreciation) of investments............................................... -- -- Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio+..................... (5,096) 4,599 -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ 2,173 10,269 Distributions to shareholders from net investment income: Primary A Shares.......................................... (4,301) (1,943) Primary B Shares.......................................... -- -- Investor A Shares......................................... (2,957) (3,664) Investor B Shares......................................... (139) (30) Investor C Shares......................................... (52) (7) Seafirst Shares**......................................... -- (317) Distributions to shareholders from net realized gain on investments: Primary A Shares.......................................... -- -- Primary B Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- Net increase/(decrease) in net assets from Fund share transactions.............................................. 218,168 21,054 -------------- -------------- Net increase/(decrease) in net assets....................... 212,892 25,362 NET ASSETS: Beginning of year........................................... 115,882 90,520 -------------- -------------- End of year................................................. $ 328,774 $ 115,882 ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of year........... $ 172 $ 31 ============== ==============
- --------------- **Seafirst Shares converted into Investor A Shares on June 23, 2000. + Allocated from Intermediate Bond Master Portfolio and High Yield Bond Master Portfolio, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 74 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
BOND STRATEGIC INCOME HIGH YIELD BOND ------------------------------- ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/02 3/31/01 3/31/02 3/31/01 3/31/02 3/31/01 - ------------------------------------------------------------------------------------------------------- $ 129,695 $ 147,003 $ 12,370 $ 15,691 $ 17,047 $ 3,641 39,831 (4,839) 1,738 (404) -- -- -- -- -- -- 1,213 (93) (66,547) 106,779 (7,783) 10,840 -- -- -- -- -- -- (6,728) (2,109) -------------- -------------- -------------- -------------- -------------- -------------- 102,979 248,943 6,325 26,127 11,532 1,439 (128,531) (145,064) (9,041) (10,763) (11,689) (2,270) -- -- -- -- -- -- (2,500) (1,573) (1,597) (1,881) (1,624) (353) (530) (311) (2,460) (2,987) (3,444) (1,197) (80) (55) (86) (77) (556) (69) -- -- -- -- -- -- -- -- -- -- (650) -- -- -- -- -- -- -- -- -- -- -- (97) -- -- -- -- -- (233) -- -- -- -- -- (39) -- (23,763) 443,394 (34,115) 41,862 219,000 82,722 -------------- -------------- -------------- -------------- -------------- -------------- (52,425) 545,334 (40,974) 52,281 212,200 80,272 2,369,238 1,823,904 258,757 206,476 93,522 13,250 -------------- -------------- -------------- -------------- -------------- -------------- 2,316,813 $ 2,369,238 $ 217,783 $ 258,757 $ 305,722 $ 93,522 ============== ============== ============== ============== ============== ============== $ 2,558 $ -- $ 421 $ 511 $ (257) $ (127) ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 75 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY
SHORT-TERM INCOME YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 30,951 $ 306,405 7,590 $ 72,733 Issued as reinvestment of dividends....................... 146 1,438 163 1,561 Redeemed.................................................. (17,472) (172,544) (13,057) (124,893) ------- --------- ------- --------- Net increase/(decrease)................................... 13,625 $ 135,299 (5,304) $ (50,599) ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 12,696 $ 125,866 1,102 $ 10,572 Issued as reinvestment of dividends....................... 173 1,718 39 377 Redeemed.................................................. (3,536) (35,084) (1,604) (15,359) ------- --------- ------- --------- Net increase/(decrease)................................... 9,333 $ 92,500 (463) $ (4,410) ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 7 $ 71 3 $ 33 Issued as reinvestment of dividends....................... 9 85 12 114 Redeemed.................................................. (17) (165) (65) (624) ------- --------- ------- --------- Net increase/(decrease)................................... (1) $ (9) (50) $ (477) ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 4,495 $ 44,577 74 $ 718 Issued as reinvestment of dividends....................... 36 354 4 35 Redeemed.................................................. (595) (5,901) (97) (933) ------- --------- ------- --------- Net increase/(decrease)................................... 3,936 $ 39,030 (19) $ (180) ======= ========= ======= ========= Total net increase/(decrease)............................. 26,893 $ 266,820 (5,836) $ (55,666) ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 76 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
SHORT-INTERMEDIATE GOVERNMENT YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 40,021 $ 168,268 24,744 $ 99,348 Issued in exchange for assets of: Boatmen's Trust Company Intermediate Government Fund (Note 13)............................................. -- -- 5,337 21,135 Bank IV Kansas U.S. Treasury Fund (Note 13)............. -- -- 4,829 19,124 Issued as reinvestment of dividends....................... 66 275 33 131 Redeemed.................................................. (66,010) (278,359) (41,301) (165,953) ------- --------- ------- --------- Net increase/(decrease)................................... (25,923) $(109,816) (6,358) $ (26,215) ======= ========= ======= ========= PRIMARY B SHARES: Sold...................................................... -- $ -- -- $ -- Issued as reinvestment of dividends....................... 1 6 2 8 Redeemed.................................................. -- -- (19) (74) ------- --------- ------- --------- Net increase/(decrease)................................... 1 $ 6 (17) $ (66) ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 12,325 $ 51,443 4,924 $ 20,104 Issued as reinvestment of dividends....................... 262 1,097 347 1,397 Redeemed.................................................. (13,175) (54,988) (6,103) (24,735) ------- --------- ------- --------- Net increase/(decrease)................................... (588) $ (2,448) (832) $ (3,234) ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 3,228 $ 13,587 603 $ 2,460 Issued as reinvestment of dividends....................... 61 257 58 234 Redeemed.................................................. (1,066) (4,465) (815) (3,255) ------- --------- ------- --------- Net increase/(decrease)................................... 2,223 $ 9,379 (154) $ (561) ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 1,698 $ 7,092 319 $ 1,290 Issued as reinvestment of dividends....................... 22 93 6 23 Redeemed.................................................. (339) (1,413) (232) (926) ------- --------- ------- --------- Net increase/(decrease)................................... 1,381 $ 5,772 93 $ 387 ======= ========= ======= ========= Total net increase/(decrease)............................. (22,906) $ (97,107) (7,268) $ (29,689) ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 77 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
GOVERNMENT SECURITIES YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 -------------------- ------------------- SHARES DOLLARS SHARES DOLLARS --------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 12,885 $ 128,421 4,596 $ 43,985 Issued in exchange for assets of Boatmen's Trust Company Taxable Bond Fund (Note 13)............................. -- -- 4,855 45,638 Issued in exchange for Primary A Shares of Nations U.S. Government Bond Fund (Note 13).......................... 5,428 52,977 -- -- Issued as reinvestment of dividends....................... 18 182 25 241 Redeemed.................................................. (16,691) (166,581) (5,493) (52,530) ------- --------- ------- -------- Net increase/(decrease)................................... 1,640 $ 14,999 3,983 $ 37,334 ======= ========= ======= ======== INVESTOR A SHARES: Sold...................................................... 17,645 $ 175,244 9,666 $ 93,188 Issued in exchange for Investor A Shares of Nations U.S. Government Bond Fund (Note 13).......................... 826 8,053 -- -- Issued as reinvestment of dividends....................... 164 1,626 233 2,223 Redeemed.................................................. (18,943) (188,163) (10,186) (98,023) ------- --------- ------- -------- Net increase/(decrease)................................... (308) $ (3,240) (287) $ (2,612) ======= ========= ======= ======== INVESTOR B SHARES: Sold...................................................... 2,125 $ 21,209 544 $ 5,290 Issued in exchange for Investor B Shares of Nations U.S. Government Bond Fund (Note 13).......................... 1,173 11,447 -- -- Issued as reinvestment of dividends....................... 111 1,099 102 974 Redeemed.................................................. (1,132) (11,229) (732) (6,974) ------- --------- ------- -------- Net increase/(decrease)................................... 2,277 $ 22,526 (86) $ (710) ======= ========= ======= ======== INVESTOR C SHARES: Sold...................................................... 395 $ 3,920 115 $ 1,134 Issued in exchange for Investor C Shares of Nations U.S. Government Bond Fund (Note 13).......................... 95 920 -- -- Issued as reinvestment of dividends....................... 5 51 1 10 Redeemed.................................................. (393) (3,890) (18) (177) ------- --------- ------- -------- Net increase/(decrease)................................... 102 $ 1,001 98 $ 967 ======= ========= ======= ======== Total net increase/(decrease)............................. 3,711 $ 35,286 3,708 $ 34,979 ======= ========= ======= ========
SEE NOTES TO FINANCIAL STATEMENTS. 78 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
INTERMEDIATE BOND YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 25,831 $247,227 4,119 $ 38,361 Issued as reinvestment of dividends....................... 7 65 6 56 Redeemed.................................................. (3,466) (33,029) (763) (7,077) ------ -------- ------ -------- Net increase/(decrease)................................... 22,372 $214,263 3,362 $ 31,340 ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 3,587 $ 34,481 4,794 $ 44,054 Issued as reinvestment of dividends....................... 179 1,714 176 1,635 Redeemed.................................................. (4,159) (39,960) (3,352) (31,152) ------ -------- ------ -------- Net increase/(decrease)................................... (393) $ (3,765) 1,618 $ 14,537 ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 702 $ 6,722 116 $ 1,090 Issued as reinvestment of dividends....................... 12 113 3 24 Redeemed.................................................. (104) (992) (11) (105) ------ -------- ------ -------- Net increase/(decrease)................................... 610 $ 5,843 108 $ 1,009 ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 194 $ 2,054 77 $ 793 Issued as reinvestment of dividends....................... 2 23 --* 3 Redeemed.................................................. (24) (250) (3) (24) ------ -------- ------ -------- Net increase/(decrease)................................... 172 $ 1,827 74 $ 772 ====== ======== ====== ======== SEAFIRST SHARES:** Sold...................................................... -- $ -- --* $ 12 Issued as reinvestment of dividends....................... -- -- 31 317 Redeemed.................................................. -- -- (2,592) (26,933) ------ -------- ------ -------- Net increase/(decrease)................................... -- $ -- (2,561) $(26,604) ====== ======== ====== ======== Total net increase/(decrease)............................. 22,761 $218,168 2,601 $ 21,054 ====== ======== ====== ========
- --------------- * Amount represents less than 500 shares and/or $500, as applicable. **Seafirst Shares converted into Investor A Shares on June 23, 2000. SEE NOTES TO FINANCIAL STATEMENTS. 79 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
BOND YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 56,303 $ 551,000 65,505 $ 620,433 Issued in exchange for assets of:......................... -- Boatmen's Trust Company Intermediate Taxable Bond Fund (Note 13)............................................... -- -- 12,412 116,422 Bank IV Kansas Intermediate Bond Fund (Note 13)........... -- -- 8,123 76,191 BCA High Grade Income Bond Fund (Note 13)................. -- -- 23,402 219,513 Issued as reinvestment of dividends....................... 1,177 11,540 861 8,216 Redeemed.................................................. (62,339) (611,501) (63,233) (601,516) ------- --------- ------- --------- Net increase/(decrease)................................... (4,859) $ (48,961) 47,070 $ 439,259 ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 9,251 $ 90,523 1,963 $ 18,679 Issued as reinvestment of dividends....................... 116 1,139 121 1,147 Redeemed.................................................. (7,913) (77,736) (1,801) (17,151) ------- --------- ------- --------- Net increase/(decrease)................................... 1,454 $ 13,926 283 $ 2,675 ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 1,242 $ 12,189 239 $ 2,304 Issued as reinvestment of dividends....................... 45 438 29 276 Redeemed.................................................. (253) (2,483) (155) (1,463) ------- --------- ------- --------- Net increase/(decrease)................................... 1,034 $ 10,144 113 $ 1,117 ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 266 $ 2,623 54 $ 518 Issued as reinvestment of dividends....................... 6 60 5 49 Redeemed.................................................. (159) (1,555) (24) (224) ------- --------- ------- --------- Net increase/(decrease)................................... 113 $ 1,128 35 $ 343 ======= ========= ======= ========= Total net increase/(decrease)............................. (2,258) $ (23,763) 47,501 $ 443,394 ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 80 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
STRATEGIC INCOME YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 3,877 $ 37,864 12,232 $116,097 Issued as reinvestment of dividends....................... 25 248 265 2,545 Redeemed.................................................. (6,975) (68,083) (6,948) (66,777) ------ -------- ------ -------- Net increase/(decrease)................................... (3,073) $(29,971) 5,549 $ 51,865 ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 404 $ 3,938 382 $ 3,727 Issued as reinvestment of dividends....................... 87 846 98 935 Redeemed.................................................. (670) (6,551) (778) (7,431) ------ -------- ------ -------- Net increase/(decrease)................................... (179) $ (1,767) (298) $ (2,769) ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 691 $ 6,753 520 $ 4,982 Issued as reinvestment of dividends....................... 166 1,616 205 1,962 Redeemed.................................................. (1,154) (11,268) (1,517) (14,447) ------ -------- ------ -------- Net increase/(decrease)................................... (297) $ (2,899) (792) $ (7,503) ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 88 $ 854 60 $ 582 Issued as reinvestment of dividends....................... 8 78 8 72 Redeemed.................................................. (42) (410) (40) (385) ------ -------- ------ -------- Net increase/(decrease)................................... 54 $ 522 28 $ 269 ====== ======== ====== ======== Total net increase/(decrease)............................. (3,495) $(34,115) 4,487 $ 41,862 ====== ======== ====== ========
SEE NOTES TO FINANCIAL STATEMENTS. 81 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
HIGH YIELD BOND YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 19,447 $174,045 6,797 $ 64,265 Issued as reinvestment of dividends....................... 251 2,226 49 466 Redeemed.................................................. (4,319) (37,701) (1,192) (11,616) ------ -------- ------ -------- Net increase/(decrease)................................... 15,379 $138,570 5,654 $ 53,115 ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 3,667 $ 32,600 858 $ 8,053 Issued as reinvestment of dividends....................... 148 1,295 31 282 Redeemed.................................................. (1,136) (10,188) (21) (198) ------ -------- ------ -------- Net increase/(decrease)................................... 2,679 $ 23,707 868 $ 8,137 ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 5,271 $ 46,714 2,206 $ 21,032 Issued as reinvestment of dividends....................... 257 2,257 76 711 Redeemed.................................................. (648) (5,706) (228) (2,160) ------ -------- ------ -------- Net increase/(decrease)................................... 4,880 $ 43,265 2,054 $ 19,583 ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 1,591 $ 14,007 202 $ 1,911 Issued as reinvestment of dividends....................... 36 318 4 37 Redeemed.................................................. (99) (867) (6) (61) ------ -------- ------ -------- Net increase/(decrease)................................... 1,528 $ 13,458 200 $ 1,887 ====== ======== ====== ======== Total net increase/(decrease)............................. 24,466 $219,000 8,776 $ 82,722 ====== ======== ====== ========
SEE NOTES TO FINANCIAL STATEMENTS. 82 [This page intentionally left blank] 83 NATIONS FUNDS FINANCIAL HIGHLIGHTS 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 ------------------------------------------------------------------------- SHORT-TERM INCOME PRIMARY A SHARES Year ended 3/31/2002#..................... $9.80 $0.48 $ 0.02 $0.50 $(0.48) Year ended 3/31/2001...................... 9.51 0.58 0.29 0.87 (0.58) Year ended 3/31/2000...................... 9.79 0.56 (0.28) 0.28 (0.56) Year ended 3/31/1999...................... 9.77 0.56 0.02 0.58 (0.56) Year ended 3/31/1998...................... 9.68 0.56 0.09 0.65 (0.56) INVESTOR A SHARES Year ended 3/31/2002#..................... $9.81 $0.45 $ 0.02 $0.47 $(0.45) Year ended 3/31/2001...................... 9.51 0.56 0.30 0.86 (0.56) Year ended 3/31/2000...................... 9.79 0.54 (0.28) 0.26 (0.54) Year ended 3/31/1999...................... 9.77 0.54 0.02 0.56 (0.54) Year ended 3/31/1998...................... 9.68 0.54 0.09 0.63 (0.54) INVESTOR B SHARES Year ended 3/31/2002#..................... $9.80 $0.38 $ 0.03 $0.41 $(0.38) Year ended 3/31/2001...................... 9.51 0.48 0.29 0.77 (0.48) Year ended 3/31/2000...................... 9.79 0.51 (0.28) 0.23 (0.51) Year ended 3/31/1999...................... 9.77 0.52 0.02 0.54 (0.52) Year ended 3/31/1998...................... 9.68 0.53 0.09 0.62 (0.53) INVESTOR C SHARES Year ended 3/31/2002#..................... $9.80 $0.38 $ 0.03 $0.41 $(0.38) Year ended 3/31/2001...................... 9.51 0.48 0.29 0.77 (0.48) Year ended 3/31/2000...................... 9.79 0.47 (0.28) 0.19 (0.47) Year ended 3/31/1999...................... 9.77 0.52 0.02 0.54 (0.52) Year ended 3/31/1998...................... 9.68 0.53 0.09 0.62 (0.53)
- --------------- ++ 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. (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. 84 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING NET ASSET END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD AVERAGE NET TO AVERAGE TURNOVER AVERAGE END OF PERIOD RETURN++ (000) ASSETS NET ASSETS RATE NET ASSETS - ----------------------------------------------------------------------------------------------------------- $9.82 5.19% $493,457 0.52%(a) 4.79% 80% 0.62%(a) 9.80 9.44 358,812 0.51(a) 6.04 42 0.61(a) 9.51 3.00 398,620 0.50(a) 5.86 62 0.63(a) 9.79 6.07 397,467 0.50(a) 5.70 64 0.80(a) 9.77 6.89 331,961 0.56(a)(b) 5.75 66 0.86(a) $9.83 4.91% $ 99,453 0.77%(a) 4.54% 80% 0.87%(a) 9.81 9.28 7,658 0.76(a) 5.79 42 0.86(a) 9.51 2.76 11,831 0.73(a) 5.63 62 0.88(a) 9.79 5.85 14,652 0.70(a) 5.50 64 1.05(a) 9.77 6.67 13,688 0.76(a)(b) 5.55 66 1.06(a) $9.83 4.25% $ 2,511 1.52%(a) 3.79% 80% 1.62%(a) 9.80 8.36 2,515 1.51(a) 5.04 42 1.61(a) 9.51 2.40 2,914 1.05(a) 5.31 62 1.63(a) 9.79 5.70 5,825 0.85(a) 5.35 64 1.80(a) 9.77 6.51 4,602 0.91(a)(b) 5.40 66 1.21(a) $9.83 4.23% $ 39,515 1.52%(a) 3.79% 80% 1.62%(a) 9.80 8.37 833 1.51(a) 5.04 42 1.61(a) 9.51 1.97 987 1.50(a) 4.86 62 1.63(a) 9.79 5.64 1,744 1.01(a) 5.19 64 1.80(a) 9.77 6.51 2,992 0.91(a)(b) 5.40 66 1.21(a)
SEE NOTES TO FINANCIAL STATEMENTS. 85 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 ------------------------------------------------------------------------- SHORT-INTERMEDIATE GOVERNMENT PRIMARY A SHARES Year ended 3/31/2002#..................... $4.15 $0.18 $ 0.01 $0.19 $(0.18) Year ended 3/31/2001...................... 3.94 0.23 0.21 0.44 (0.23) Year ended 3/31/2000...................... 4.10 0.22 (0.16) 0.06 (0.22) Year ended 3/31/1999...................... 4.12 0.22 (0.02) 0.20 (0.22) Year ended 3/31/1998...................... 3.99 0.23 0.13 0.36 (0.23) PRIMARY B SHARES Year ended 3/31/2002#..................... $4.15 $0.16 $ 0.01 $0.17 $(0.16) Year ended 3/31/2001...................... 3.94 0.21 0.21 0.42 (0.21) Year ended 3/31/2000...................... 4.10 0.21 (0.16) 0.05 (0.21) Year ended 3/31/1999#..................... 4.12 0.21 (0.02) 0.19 (0.21) Year ended 3/31/1998...................... 3.99 0.21 0.13 0.34 (0.21) INVESTOR A SHARES Year ended 3/31/2002#..................... $4.15 $0.17 $ 0.01 $0.18 $(0.17) Year ended 3/31/2001...................... 3.94 0.22 0.21 0.43 (0.22) Year ended 3/31/2000...................... 4.10 0.22 (0.16) 0.06 (0.22) Year ended 3/31/1999...................... 4.12 0.21 (0.02) 0.19 (0.21) Year ended 3/31/1998...................... 3.99 0.22 0.13 0.35 (0.22) INVESTOR B SHARES Year ended 3/31/2002#..................... $4.15 $0.13 $ 0.01 $0.14 $(0.13) Year ended 3/31/2001...................... 3.94 0.19 0.21 0.40 (0.19) Year ended 3/31/2000...................... 4.10 0.19 (0.16) 0.03 (0.19) Year ended 3/31/1999...................... 4.12 0.19 (0.02) 0.17 (0.19) Year ended 3/31/1998...................... 3.99 0.20 0.13 0.33 (0.20) INVESTOR C SHARES Year ended 3/31/2002#..................... $4.14 $0.12 $ 0.01 $0.13 $(0.12) Year ended 3/31/2001...................... 3.93 0.19 0.21 0.40 (0.19) Year ended 3/31/2000...................... 4.09 0.19 (0.16) 0.03 (0.19) Year ended 3/31/1999...................... 4.12 0.19 (0.03) 0.16 (0.19) Year ended 3/31/1998...................... 3.99 0.20 0.13 0.33 (0.20)
- --------------- ++ 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. (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. 86 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING NET ASSET END OF EXPENSES INCOME/(LOSS) PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER AVERAGE END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------- $4.16 4.68% $390,543 0.62%(a) 4.35% 486% 0.62%(a) 4.15 11.56 496,821 0.59(a) 5.77 108 0.59(a) 3.94 1.63 497,392 0.60(a) 5.59 177 0.65(a) 4.10 4.97 589,092 0.58(a) 5.36 242 0.78(a) 4.12 9.11 663,833 0.61 5.53 538 0.81 $4.16 4.16% $ 147 1.12%(a) 3.85% 486% 1.22%(a) 4.15 11.01 141 1.09(a) 5.27 108 1.19(a) 3.94 1.23 200 0.99(a) 5.20 177 1.25(a) 4.10 4.61 273 0.93(a) 5.01 242 1.38(a) 4.12 8.74 261 0.96 5.18 538 1.16 $4.16 4.42% $ 41,926 0.87%(a) 4.10% 486% 0.87%(a) 4.15 11.31 44,244 0.82(a) 5.54 108 0.84(a) 3.94 1.43 45,341 0.80(a) 5.39 177 0.90(a) 4.10 4.76 44,793 0.78(a) 5.16 242 1.03(a) 4.12 8.89 49,478 0.81 5.33 538 1.01 $4.16 3.64% $ 17,474 1.62%(a) 3.35% 486% 1.62%(a) 4.15 10.46 8,199 1.59(a) 4.77 108 1.59(a) 3.94 0.70 8,400 1.51(a) 4.68 177 1.65(a) 4.10 4.14 9,591 1.38(a) 4.56 242 1.78(a) 4.12 8.35 9,815 1.34 4.80 538 1.54 $4.15 3.63% $ 6,820 1.62%(a) 3.35% 486% 1.62%(a) 4.14 10.49 1,079 1.59(a) 4.77 108 1.59(a) 3.93 0.74 661 1.54(a) 4.65 177 1.65(a) 4.09 4.05 1,190 1.34(a) 4.60 242 1.78(a) 4.12 8.45 1,808 1.31 4.83 538 1.51
SEE NOTES TO FINANCIAL STATEMENTS. 87 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 ------------------------------------------------------------------------- GOVERNMENT SECURITIES PRIMARY A SHARES Year ended 3/31/2002#..................... $9.87 $0.44 $(0.08) $0.36 $(0.44) Year ended 3/31/2001...................... 9.38 0.60 0.48 1.08 (0.59) Year ended 3/31/2000...................... 9.86 0.58 (0.48) 0.10 (0.58) Year ended 3/31/1999#..................... 9.90 0.58 (0.05) 0.53 (0.57) Year ended 3/31/1998...................... 9.39 0.55 0.51 1.06 (0.55) INVESTOR A SHARES Year ended 3/31/2002#..................... $9.86 $0.42 $(0.08) $0.34 $(0.42) Year ended 3/31/2001...................... 9.37 0.57 0.49 1.06 (0.57) Year ended 3/31/2000...................... 9.86 0.57 (0.50) 0.07 (0.56) Year ended 3/31/1999#..................... 9.90 0.56 (0.05) 0.51 (0.55) Year ended 3/31/1998...................... 9.39 0.52 0.51 1.03 (0.52) INVESTOR B SHARES Year ended 3/31/2002#..................... $9.87 $0.34 $(0.08) $0.26 $(0.34) Year ended 3/31/2001...................... 9.38 0.50 0.49 0.99 (0.50) Year ended 3/31/2000...................... 9.86 0.49 (0.48) 0.01 (0.49) Year ended 3/31/1999#..................... 9.90 0.49 (0.04) 0.45 (0.49) Year ended 3/31/1998...................... 9.39 0.47 0.51 0.98 (0.47) INVESTOR C SHARES Year ended 3/31/2002#..................... $9.84 $0.34 $(0.08) $0.26 $(0.34) Year ended 3/31/2001...................... 9.34 0.52 0.48 1.00 (0.50) Year ended 3/31/2000...................... 9.86 0.49 (0.52) (0.03) (0.49) Year ended 3/31/1999#..................... 9.90 0.49 (0.04) 0.45 (0.49) Year ended 3/31/1998...................... 9.39 0.48 0.51 0.99 (0.48)
- --------------- ++ 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. (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. 88 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING NET ASSET END OF EXPENSES INCOME/(LOSS) PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER AVERAGE END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------- $9.79 3.70% $168,621 0.73%(a) 4.44% 522% 0.86%(a) 9.87 11.97 153,799 0.75(a) 6.21 183 0.86(a) 9.38 1.12 108,798 0.78(b) 6.17 348 0.90 9.86 5.41 119,659 0.73(a) 5.70 600 0.84(a) 9.90 11.65 75,796 0.85(a)(b) 5.63 303 0.99(a) $9.78 3.45% $ 54,167 0.98%(a) 4.19% 522% 1.11%(a) 9.86 11.70 57,641 1.00(a) 5.96 183 1.11(a) 9.37 0.80 57,485 1.03(b) 5.92 348 1.15 9.86 5.16 19,167 0.98(a) 5.45 600 1.09(a) 9.90 11.37 8,509 1.10(a)(b) 5.38 303 1.24(a) $9.79 2.67% $ 49,611 1.73%(a) 3.44% 522% 1.86%(a) 9.87 10.86 27,544 1.75(a) 5.21 183 1.86(a) 9.38 0.22 26,988 1.72(b) 5.23 348 1.90 9.86 4.53 30,109 1.58(a) 4.85 600 1.84(a) 9.90 10.78 32,391 1.63(a)(b) 4.85 303 1.77(a) $9.76 2.68% $ 2,200 1.73%(a) 3.44% 522% 1.86%(a) 9.84 11.03 1,213 1.75(a) 5.21 183 1.86(a) 9.34 (0.22) 238 1.78(b) 5.17 348 1.90 9.86 4.52 213 1.59(a) 4.84 600 1.84(a) 9.90 10.84 735 1.58(a)(b) 4.90 303 1.72(a)
SEE NOTES TO FINANCIAL STATEMENTS. 89 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 ------------------------------------------------------------------------- INTERMEDIATE BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $ 9.52 $0.49 $(0.11) $0.38 $(0.49) Year ended 3/31/2001#..................... 9.13 0.58 0.39 0.97 (0.58) Period ended 3/31/2000**.................. 9.52 0.49 (0.37) 0.12 (0.51) INVESTOR A SHARES* Year ended 3/31/2002#..................... $ 9.55 $0.47 $(0.12) $0.35 $(0.47) Year ended 3/31/2001#..................... 9.15 0.56 0.40 0.96 (0.56) Period ended 3/31/2000.................... 9.50 0.46 (0.34) 0.12 (0.47) Period ended 5/14/1999.................... 9.52 0.10 (0.04) 0.06 (0.08) Year ended 2/28/1999...................... 9.69 0.50 (0.03) 0.47 (0.53) Year ended 2/28/1998...................... 9.54 0.49 0.20 0.69 (0.51) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 9.51 $0.40 $(0.12) $0.28 $(0.40) Year ended 3/31/2001#..................... 9.13 0.47 0.42 0.89 (0.51) Period ended 3/31/2000**.................. 9.52 0.22 (0.36) (0.14) (0.25) INVESTOR C SHARES* Year ended 3/31/2002#..................... $10.47 $0.39 $(0.08) $0.31 $(0.39) Year ended 3/31/2001#..................... 9.32 0.47 1.09 1.56 (0.41) Period ended 3/31/2000.................... 9.56 0.34 (0.23) 0.11 (0.35) Period ended 5/14/1999.................... 9.59 0.09 (0.04) 0.05 (0.08) Year ended 2/28/1999...................... 9.72 0.46 -- 0.46 (0.48) Year ended 2/28/1998...................... 9.54 0.44 0.19 0.63 (0.42) DISTRIBUTIONS FROM NET REALIZED GAINS ------------- INTERMEDIATE BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Period ended 3/31/2000**.................. -- INVESTOR A SHARES* Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Period ended 3/31/2000.................... -- Period ended 5/14/1999.................... -- Year ended 2/28/1999...................... (0.11) Year ended 2/28/1998...................... (0.03) INVESTOR B SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Period ended 3/31/2000**.................. -- INVESTOR C SHARES* Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Period ended 3/31/2000.................... -- Period ended 5/14/1999.................... -- Year ended 2/28/1999...................... (0.11) Year ended 2/28/1998...................... (0.03)
- --------------- + 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. * The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Intermediate Bond Fund A, and K Shares, which were reorganized into the Intermediate Bond Investor A and Investor C Shares, respectively, as of May 21, 1999. Prior to May 21, 1999, the Fund's investment adviser was Bank of America National Trust and Savings Association. Effective May 21, 1999, its investment adviser became Banc of America Advisors, LLC and its investment sub-adviser became Banc of America Capital Management, LLC. **Intermediate Bond Primary A and Investor B Shares commenced operations on May 21, 1999 and October 20, 1999. # Per share net investment income has been calculated using the monthly average shares method. SEE NOTES TO FINANCIAL STATEMENTS. 90 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING TOTAL DIVIDENDS NET ASSET END OF EXPENSES INCOME/(LOSS) EXPENSES TO AND VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS NET ASSETS - ------------------------------------------------------------------------------------------------------- $(0.49) $ 9.41 4.04% $261,018 0.78% 4.80% 0.86% (0.58) 9.52 11.04 51,178 0.78 6.31 0.81 (0.51) 9.13 1.29 18,365 0.81+ 6.08+ 1.05+ $(0.47) $ 9.43 3.66% $ 58,167 1.03% 4.55% 1.11% (0.56) 9.55 10.88 62,617 1.03 6.06 1.06 (0.47) 9.15 1.34 45,207 1.06+ 5.83+ 1.30+ (0.08) 9.50 0.66 61,412 1.09+ 4.90+ 1.12+ (0.64) 9.52 4.89 63,404 0.90 5.14 0.90 (0.54) 9.69 7.40 41,875 0.90 5.50 1.21 $(0.40) $ 9.39 2.94% $ 7,003 1.78% 3.80% 1.86% (0.51) 9.51 9.99 1,290 1.78 5.31 1.81 (0.25) 9.13 1.33 256 1.81+ 5.08+ 2.05+ $(0.39) $10.39 2.94% $ 2,586 1.78% 3.80% 1.86% (0.41) 10.47 17.06 797 1.78 5.31 1.81 (0.35) 9.32 1.18 15 1.81+ 5.08+ 2.05+ (0.08) 9.56 0.47 469 1.57+ 4.42+ 1.84+ (0.59) 9.59 4.76 495 1.39 4.67 1.65 (0.45) 9.72 6.80 513 1.39 4.99 1.73
SEE NOTES TO FINANCIAL STATEMENTS. 91 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 ------------------------------------------------------------------------- BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $ 9.78 $0.54 $(0.12) $ 0.42 $(0.54) Year ended 3/31/2001...................... 9.37 0.62 0.41 1.03 (0.62) Year ended 3/31/2000...................... 9.93 0.59 (0.52) 0.07 (0.59) Year ended 3/31/1999...................... 10.03 0.59 (0.04) 0.55 (0.59) Year ended 3/31/1998...................... 9.62 0.58 0.41 0.99 (0.58) INVESTOR A SHARES Year ended 3/31/2002#..................... $ 9.78 $0.51 $(0.13) $ 0.38 $(0.51) Year ended 3/31/2001...................... 9.37 0.60 0.41 1.01 (0.60) Year ended 3/31/2000...................... 9.93 0.57 (0.52) 0.05 (0.57) Year ended 3/31/1999...................... 10.03 0.57 (0.04) 0.53 (0.57) Year ended 3/31/1998...................... 9.62 0.56 0.41 0.97 (0.56) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 9.78 $0.44 $(0.12) $ 0.32 $(0.44) Year ended 3/31/2001...................... 9.37 0.52 0.41 0.93 (0.52) Year ended 3/31/2000...................... 9.93 0.50 (0.52) (0.02) (0.50) Year ended 3/31/1999...................... 10.03 0.51 (0.04) 0.47 (0.51) Year ended 3/31/1998...................... 9.62 0.51 0.41 0.92 (0.51) INVESTOR C SHARES Year ended 3/31/2002#..................... $ 9.78 $0.44 $(0.13) $ 0.31 $(0.44) Year ended 3/31/2001...................... 9.37 0.52 0.41 0.93 (0.52) Year ended 3/31/2000...................... 9.93 0.48 (0.52) (0.04) (0.48) Year ended 3/31/1999...................... 10.03 0.51 (0.04) 0.47 (0.51) Year ended 3/31/1998...................... 9.62 0.52 0.41 0.93 (0.52) DISTRIBUTIONS FROM NET REALIZED GAINS ------------- BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001...................... -- Year ended 3/31/2000...................... (0.04) Year ended 3/31/1999...................... (0.06) Year ended 3/31/1998...................... -- INVESTOR A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001...................... -- Year ended 3/31/2000...................... (0.04) Year ended 3/31/1999...................... (0.06) Year ended 3/31/1998...................... -- INVESTOR B SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001...................... -- Year ended 3/31/2000...................... (0.04) Year ended 3/31/1999...................... (0.06) Year ended 3/31/1998...................... -- INVESTOR C SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001...................... -- Year ended 3/31/2000...................... (0.04) Year ended 3/31/1999...................... (0.06) 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 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. 92 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING TOTAL DIVIDENDS NET ASSET END OF EXPENSES INCOME/(LOSS) PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------------------------------- $(0.54) $ 9.66 4.33% $2,256,647 0.68%(a)(b) 5.41% 314% 0.68%(a) (0.62) 9.78 11.39 2,333,703 0.67(a) 6.53 120 0.67(a) (0.63) 9.37 0.97 1,793,913 0.67 6.20 63 0.69 (0.65) 9.93 5.61 1,798,155 0.68(a) 5.86 107 0.78(a) (0.58) 10.03 10.53 1,681,990 0.72(a)(b) 5.86 244 0.83(a) $(0.51) $ 9.65 3.96% $ 40,902 0.93%(a)(b) 5.16% 314% 0.93%(a) (0.60) 9.78 11.11 27,220 0.92(a) 6.28 120 0.92(a) (0.61) 9.37 0.74 23,420 0.90 5.97 63 0.94 (0.63) 9.93 5.40 32,119 0.88(a) 5.66 107 1.03(a) (0.56) 10.03 10.30 26,054 0.92(a)(b) 5.66 244 1.03(a) $(0.44) $ 9.66 3.29% $ 16,877 1.68%(a)(b) 4.41% 314% 1.68%(a) (0.52) 9.78 10.29 6,994 1.67(a) 5.53 120 1.67(a) (0.54) 9.37 0.05 5,637 1.59 5.28 63 1.69 (0.57) 9.93 4.76 5,440 1.48(a) 5.06 107 1.78(a) (0.51) 10.03 9.73 2,662 1.47(a)(b) 5.11 244 1.58(a) $(0.44) $ 9.65 3.18% $ 2,387 1.68%(a)(b) 4.41% 314% 1.68%(a) (0.52) 9.78 10.28 1,321 1.67(a) 5.53 120 1.67(a) (0.52) 9.37 (0.24) 934 1.67 5.20 63 1.69 (0.57) 9.93 4.90 1,137 1.40(a) 5.14 107 1.78(a) (0.52) 10.03 9.87 943 1.42(a)(b) 5.16 244 1.53(a)
SEE NOTES TO FINANCIAL STATEMENTS. 93 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 -------------------------------------------------------------------------- STRATEGIC INCOME PRIMARY A SHARES Year ended 3/31/2002#..................... $ 9.89 $0.60 $(0.28) $ 0.32 $(0.60) Year ended 3/31/2001#..................... 9.53 0.66 0.35 1.01 (0.65) Year ended 3/31/2000...................... 10.31 0.68 (0.78) (0.10) (0.68) Year ended 3/31/1999#..................... 10.55 0.66 (0.14) 0.52 (0.66) Year ended 3/31/1998...................... 10.11 0.65 0.44 1.09 (0.65) INVESTOR A SHARES Year ended 3/31/2002#..................... $ 9.88 $0.57 $(0.28) $ 0.29 $(0.57) Year ended 3/31/2001#..................... 9.52 0.63 0.36 0.99 (0.63) Year ended 3/31/2000...................... 10.31 0.65 (0.79) (0.14) (0.65) Year ended 3/31/1999#..................... 10.55 0.63 (0.14) 0.49 (0.63) Year ended 3/31/1998...................... 10.11 0.63 0.44 1.07 (0.63) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 9.89 $0.50 $(0.28) $ 0.22 $(0.50) Year ended 3/31/2001#..................... 9.52 0.56 0.37 0.93 (0.56) Year ended 3/31/2000...................... 10.31 0.59 (0.79) (0.20) (0.59) Year ended 3/31/1999#..................... 10.55 0.57 (0.14) 0.43 (0.57) Year ended 3/31/1998...................... 10.11 0.57 0.44 1.01 (0.57) INVESTOR C SHARES Year ended 3/31/2002#..................... $ 9.88 $0.50 $(0.28) $ 0.22 $(0.50) Year ended 3/31/2001#..................... 9.52 0.56 0.36 0.92 (0.56) Year ended 3/31/2000...................... 10.31 0.58 (0.79) (0.21) (0.58) Year ended 3/31/1999#..................... 10.55 0.57 (0.14) 0.43 (0.57) Year ended 3/31/1998...................... 10.11 0.58 0.44 1.02 (0.58) DISTRIBUTIONS FROM NET REALIZED GAINS -------------- STRATEGIC INCOME PRIMARY A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Year ended 3/31/2000...................... (0.00)## Year ended 3/31/1999#..................... (0.10) Year ended 3/31/1998...................... -- INVESTOR A SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Year ended 3/31/2000...................... (0.00)## Year ended 3/31/1999#..................... (0.10) Year ended 3/31/1998...................... -- INVESTOR B SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Year ended 3/31/2000...................... (0.00)## Year ended 3/31/1999#..................... (0.10) Year ended 3/31/1998...................... -- INVESTOR C SHARES Year ended 3/31/2002#..................... $ -- Year ended 3/31/2001#..................... -- Year ended 3/31/2000...................... (0.00)## Year ended 3/31/1999#..................... (0.10) 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 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 expenses ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 94 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING TOTAL DIVIDENDS NET ASSET END OF EXPENSES INCOME/(LOSS) PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------------------------- $(0.60) $ 9.61 3.30% $143,283 0.81%(a) 5.76% 199% 0.91%(a) (0.65) 9.89 11.06 177,877 0.72 6.76 238 0.84 (0.68) 9.53 (0.95) 118,458 0.71(a) 6.80 107 0.90(a) (0.76) 10.31 5.00 317,937 0.70(a) 6.27 94 0.80(a) (0.65) 10.55 11.07 263,840 0.73(a) 6.27 203 0.83(a) $(0.57) $ 9.60 3.05% $ 26,543 1.06%(a) 5.51% 199% 1.16%(a) (0.63) 9.88 10.80 29,102 0.97 6.51 238 1.09 (0.65) 9.52 (1.30) 30,870 0.96(a) 6.55 107 1.15(a) (0.73) 10.31 4.74 12,954 0.95(a) 6.02 94 1.05(a) (0.63) 10.55 10.80 11,946 0.98(a) 6.02 203 1.08(a) $(0.50) $ 9.61 2.28% $ 45,960 1.81%(a) 4.76% 199% 1.91%(a) (0.56) 9.89 10.08 50,251 1.72 5.76 238 1.84 (0.59) 9.52 (1.98) 55,946 1.65(a) 5.86 107 1.90(a) (0.67) 10.31 4.11 67,651 1.55(a) 5.42 94 1.80(a) (0.57) 10.55 10.18 65,248 1.55(a) 5.45 203 1.65(a) $(0.50) $ 9.60 2.28% $ 1,997 1.81%(a) 4.76% 199% 1.91%(a) (0.56) 9.88 9.98 1,527 1.72 5.76 238 1.84 (0.58) 9.52 (2.04) 1,202 1.71(a) 5.80 107 1.90(a) (0.67) 10.31 4.09 1,474 1.56(a) 5.41 94 1.80(a) (0.58) 10.55 10.27 2,090 1.46(a) 5.54 203 1.56(a)
SEE NOTES TO FINANCIAL STATEMENTS. 95 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 ----------------------------------------------------------------------------- HIGH YIELD BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $ 9.27 $0.86 $(0.34) $ 0.52 $(0.88) Year ended 3/31/2001#..................... 9.90 0.96 (0.54) 0.42 (1.05) Period ended 3/31/2000*#.................. 10.00 0.09 (0.11) (0.02) (0.08) INVESTOR A SHARES Year ended 3/31/2002#..................... $ 9.22 $0.80 $(0.32) $ 0.48 $(0.85) Year ended 3/31/2001#..................... 9.88 0.96 (0.58) 0.38 (1.04) Period ended 3/31/2000*#.................. 10.00 0.08 (0.12) (0.04) (0.08) INVESTOR B SHARES Year ended 3/31/2002#..................... $ 9.21 $0.76 $(0.33) $ 0.43 $(0.79) Year ended 3/31/2001#..................... 9.88 0.92 (0.62) 0.30 (0.97) Period ended 3/31/2000**#................. 10.00 0.07 (0.12) (0.05) (0.07) INVESTOR C SHARES Year ended 3/31/2002#..................... $ 9.19 $0.76 $(0.34) $ 0.42 $(0.79) Year ended 3/31/2001#..................... 9.87 0.90 (0.61) 0.29 (0.97) Period ended 3/31/2000***#................ 10.02 0.04 (0.12) (0.08) (0.07) DISTRIBUTIONS FROM NET REALIZED GAINS -------------- HIGH YIELD BOND PRIMARY A SHARES Year ended 3/31/2002#..................... $(0.05) Year ended 3/31/2001#..................... -- Period ended 3/31/2000*#.................. -- INVESTOR A SHARES Year ended 3/31/2002#..................... $(0.05) Year ended 3/31/2001#..................... -- Period ended 3/31/2000*#.................. -- INVESTOR B SHARES Year ended 3/31/2002#..................... $(0.05) Year ended 3/31/2001#..................... -- Period ended 3/31/2000**#................. -- INVESTOR C SHARES Year ended 3/31/2002#..................... $(0.05) Year ended 3/31/2001#..................... -- Period ended 3/31/2000***#................ --
- --------------- + 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. * High Yield Bond Primary A and Investor A Shares commenced operations on February 14, 2000. **High Yield Bond Investor B Shares commenced operations on February 17, 2000. ***High Yield Bond Investor C Shares commenced operations on March 8, 2000. # Per share net investment income has been calculated using the monthly average shares method. SEE NOTES TO FINANCIAL STATEMENTS. 96 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING TOTAL DIVIDENDS NET ASSET END OF EXPENSES INCOME/(LOSS) EXPENSES TO AND VALUE TOTAL PERIOD TO AVERAGE TO AVERAGE AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS NET ASSETS - ------------------------------------------------------------------------------------------------------- $(0.93) $8.86 6.05% $194,867 0.93% 9.75% 1.00% (1.05) 9.27 4.51 61,181 0.93 10.97 1.45 (0.08) 9.90 (0.12) 9,394 0.93+ 7.03+ 12.66+ $(0.90) $8.80 5.69% $ 31,551 1.18% 9.50% 1.25% (1.04) 9.22 3.99 8,344 1.18 10.72 1.70 (0.08) 9.88 (0.33) 371 1.18+ 6.78 12.91+ $(0.84) $8.80 5.06% $ 64,091 1.93% 8.75% 2.00% (0.97) 9.21 3.29 22,106 1.93 9.97 2.45 (0.07) 9.88 (0.47) 3,426 1.93+ 6.03+ 13.66+ $(0.84) $8.77 4.96% $ 15,213 1.93% 8.75% 2.00% (0.97) 9.19 3.20 1,891 1.93 9.97 2.45 (0.07) 9.87 (0.76) 59 1.93+ 6.03+ 13.66+
SEE NOTES TO FINANCIAL STATEMENTS. 97 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS Nations Fund Trust (the "Trust"), 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, the Trust offered thirty-three separate portfolios, Reserves offered thirteen separate portfolios and Funds Trust offered eighteen separate portfolios. These financial statements pertain only to the following U.S. government and corporate bond portfolios of the Trust, Reserves and Funds Trust: Short-Term Income Fund, Short-Intermediate Government Fund, Government Securities Fund, Intermediate Bond Fund, Bond Fund, Strategic Income Fund and High Yield Bond Fund (each a "Fund" and collectively, the "Funds"). Financial statements for the other portfolios of the Trust, 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. In addition, Short-Intermediate Government Fund also offers Primary B 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. Intermediate Bond Fund and High Yield Bond Fund (the "Feeder Funds") seek to achieve their investment objectives by investing substantially all of their assets in Intermediate Bond Master Portfolio and High Yield Bond 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 (92.1% for Intermediate Bond Master Portfolio and 92.3% for High Yield Bond 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 and managed by Banc of America Advisors, LLC ("BA Advisors"), whose financial statements are not presented here, also invest in the Master Portfolios. 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 are generally valued using prices provided by a pricing service or based upon broker-dealer quotations. Certain prices provided by broker-dealers or the pricing service may be based on a matrix pricing system, which considers such factors as security prices, yields and maturities. Certain securities may be valued based upon quotes provided by one or more principal market makers. Securities, including options and 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 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. 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. 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: The Short-Term Income, Short-Intermediate Government, Government Securities, Bond and Strategic Income Funds may invest in futures contracts for the purposes of hedging against changes in values of the Fund's securities or changes in the 98 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 the changes in 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, 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. Options: The Funds may purchase and write call and put options on non-U.S. stock index and interest rate futures contracts. A Fund may use such options on futures contracts in connection with its hedging strategies in lieu of purchasing and writing options directly on the underlying securities or stock indices or purchasing and selling the underlying futures, and to seek to enhance return. The Funds may write covered call options and put options on securities in which they are permitted to invest from time to time in seeking to attain each Fund's objective. Call options written by a Fund give the holder the right to buy the underlying securities from the Fund at a stated exercise price; put options give the holder the right to sell the underlying security to the Fund at a stated price. In the case of put options, a Fund is required to maintain in a separate account liquid assets with a value equal to or greater than the exercise price of the underlying securities. The Funds may also write combinations of puts and covered calls on the same underlying security. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. The Funds typically receive a premium from writing a put or call option, which would increase the Funds' return in the event the option expires unexercised or is closed out at a profit. The amount of the premium would reflect, among other things, the relationship of the market price of the underlying security to the exercise price of the option, the term of the option and the volatility of the market price of the underlying security. By writing a call option, a Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, a Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then current market value, resulting in a potential capital loss if the purchase price exceeds the market value plus the amount of the premium received. A Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Fund will realize a profit or loss from such transaction if the cost of such transaction is less or more than the premium received from the writing of the option. In the case of a put option, any loss so incurred may be partially or entirely offset by the premium received from a simultaneous or subsequent sale of a different put option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by a Fund. 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 99 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. Swaps: The Funds may engage in swap transactions such as interest rate, total return, index or currency swaps, consistent with its investment objective and policies. Swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest or total return throughout the lives of the agreements. The interest to be paid or received on interest rate swaps is included in interest income. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statement of net assets. A realized gain or loss is recorded upon termination of swap agreements and is equal to the difference between the Fund's basis in the swap and the proceeds from (or cost of ) the closing transaction. Swap agreements are stated at fair value. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. If there is a default by the counterparty to a swap contract, a Fund will be limited to contractual remedies pursuant to the agreements related to the transaction. There is no assurance that the swap contract counterparties will be able to meet their obligations pursuant to the swap contracts or that, in the event of default, a Fund will succeed in pursuing contractual remedies. A Fund thus assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to the swap contracts. The creditworthiness of the swap contract counterparties is closely monitored in order to minimize this risk. 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. When-issued/delayed delivery securities: Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after trade date; interest income is not accrued until settlement date. At the time a Fund enters into such transactions, it instructs its custodian to segregate assets with a current value at least equal to the amount of its when-issued or delayed- delivery purchase commitments. Stripped securities: Stripped mortgage-backed securities are derivative multi-class mortgage securities structured so that one class receives most, if not all, of the principal from the underlying mortgage assets, while the other class receives most, if not all, of the interest and the remainder of the principal. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in an interest-only security. The market value of these securities consisting entirely of principal payments can be extremely volatile in response to changes in interest rates. Credit risk reflects the risk that a Fund may not receive all or part of its principal 100 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) because the issuer or credit enhancer has defaulted on its obligation. 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. 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. Effective April 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies which requires the Funds to classify gains and losses realized on principal paydowns received on mortgage-backed securities, previously included in realized gain/loss, as part of interest income. The adoption of this accounting principle has no effect on the Funds' net asset value but changed the classification between interest income and realized gain/loss on the Statement of operations and Statement of changes in net assets. The Statement of operations, Statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change. The impact of the adoption of this principle is not material to the financial statements. Dividends and distributions to shareholders: It is the policy of each Fund (except Intermediate Bond and High Yield Bond) to declare dividends from net investment income daily and to pay such dividends monthly. Intermediate Bond and High Yield Bond Funds declare and pay dividends monthly. Each Fund will distribute net realized capital gains (including net short-term capital gains) 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. Expenses: General expenses of the Trust, 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 the Trust and Funds 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 ----------- Short-Term Income, Short-Intermediate Government................................ 0.30% Bond........................................ 0.40% Strategic Income............................ 0.50%
FEES ON FEES ON FEES ON AVERAGE DAILY AVERAGE AVERAGE NET ASSETS DAILY NET DAILY NET BETWEEN ASSETS ASSETS UP TO $200 AND EXCEEDING $200 MILLION $250 MILLION $250 MILLION --------------------------------------------- Government Securities......... 0.50% 0.45% 0.40%
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). 101 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Each of the Trust and Funds Trust has entered into a sub-advisory agreement with BA Advisors and Banc of America Capital Management, LLC ("BACAP"), a wholly-owned subsidiary of Bank of America, pursuant to which BACAP is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.15% of each Fund's average daily net assets. The Feeder Funds indirectly pay for sub-advisory services through their investments in their corresponding Master Portfolios (See Note 2 of Notes to financial statements of the Master Portfolios). Stephens Inc. ("Stephens") and BA Advisors serve as co-administrators of the Trust, 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 all Funds except for Intermediate Bond Fund, which pays a monthly fee at the maximum annual rate of 0.17% of its average daily net assets and High Yield Bond Fund, which pays a monthly fee at the maximum annual rate of 0.18% of its average daily net assets. For the period beginning August 1, 2001 and until July 31, 2002, Stephens has agreed to waive 0.05% of its co- administration fees for Government Securities Fund. Prior to August 1, 2001, there was no waiver in effect for this Fund. The Bank of New York ("BNY") serves as sub-administrator of the Trust, Reserves and Funds Trust pursuant to agreements with BA Advisors. For the year ended March 31, 2002, Stephens and BA Advisors earned 0.08% and 0.10%, 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. During the year ended March 31, 2002 and until July 31, 2002, BA Advisors has agreed to waive its advisory fees for the Funds set forth below (as a percentage of the Funds' average daily net assets): Short-Term Income............................ 0.10% Government Securities........................ 0.10%* Strategic Income............................. 0.10%
- --------------- *This percentage could fluctuate slightly, as the advisory waiver is subject to change in order to maintain a maximum advisory fee of 0.40% of Government Securities' average daily net assets. In addition, during the year ended March 31, 2002 and until July 31, 2002, BA Advisors and/or the sub-advisers and/or Stephens have agreed to reimburse expenses and/or waive their fees to the extent that the total expenses (excluding shareholder servicing and distribution fees), as a percentage of the respective Fund's average daily net assets, exceed the following annual rates:
FUND ANNUAL RATE - ------------------------------------------------------- Intermediate Bond Fund.................... 0.81% High Yield Bond Fund...................... 0.93%
BNY serves as the custodian of the Trust's, Reserves' and Funds Trust's assets. For the year ended March 31, 2002, expenses of the Funds were reduced by $76,478 under expense offset arrangements with BNY. The Funds could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if they had not entered into such arrangements. PFPC Inc. ("PFPC") serves as the transfer agent for the Funds' shares. Bank of America serves as the sub-transfer agent for the Primary A and Primary B Shares of the Funds. For the year ended March 31, 2002, Bank of America earned approximately $33,909 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 $633,850 in front-end sales charges for sales of Investor A Shares and $356,865 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, BA Advisors or BACAP, or any affiliate thereof, receives any compensation from the Trust, Reserves and Funds Trust for serving as Trustee or Officer of the Trust, Reserves and Funds Trust. The Trust's, Reserves' and Funds Trust's eligible Trustees may participate in non-qualified deferred compensation and retirement plans which may be terminated at any time. All benefits provided under these plans are unfunded and any payments to plan participants are paid solely out of the Funds' assets. Income earned on each plan participant's deferral account is based on the rate of return of the eligible mutual funds selected by the participants or, if no funds are selected, on the rate of return of Nations Treasury Fund, a portfolio of Nations Fund, Inc., another registered investment company in the Nations Funds family. The expense for the deferred compensation and retirement plans is included in "Trustees' fees and expenses" in the Statements of 102 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) operations. Effective January 1, 2002, the retirement plan was terminated. The Trust's, 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. Certain Funds have made daily investments of cash balances in the Nations Cash Reserves, a portfolio of 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". Certain Funds have invested in portfolios contained within the various Nations Trusts, pursuant to an exemptive order received from the Securities and Exchange Commission. Bond Fund has invested in Convertible Securities Fund and International Bond Portfolio, portfolios of Reserves and the Master Trust, respectively. Strategic Income has invested in High Yield Portfolio and International Bond Portfolio, portfolios of the Master Investment Trust. The income earned by the Fund from such investments in included in its Statement of operations as "Dividend income from affiliated funds". 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. 3. SHAREHOLDER SERVICING AND DISTRIBUTION PLANS The Trust, Reserves and Funds Trust each has adopted shareholder servicing plans and distribution plans for the Investor B and Investor C Shares of each Fund and a combined distribution and shareholder servicing plan for the Investor A Shares of each Fund. In addition, the Trust has adopted a shareholder administration plan for Primary B Shares of Short-Intermediate Government Fund. The shareholder servicing plans permit the Funds to compensate or reimburse servicing agents for shareholder services provided by the servicing agents. The administration plan permits the Short-Intermediate Government Fund to compensate institutions for shareholder administration services provided to their customers that own Primary B Shares. 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 applicable classes' shares. Payments are made at an annual rate, as a percentage of average daily net assets, set from time to time by the Board of Trustees/Directors, and are charged as expenses of each Fund directly to the applicable 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 RATE (AFTER FEE PLAN WAIVERS) LIMIT --------------------- PRIMARY B SHAREHOLDER ADMINISTRATION PLAN: Short-Intermediate Government... 0.50%* 0.60% INVESTOR A COMBINED DISTRIBUTION AND SHAREHOLDER SERVICING 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%
- --------------- * During the year ended March 31, 2002 and until July 31, 2002 BA Advisors and Stephens have agree to waive Primary B Shareholder Administration fees as a percentage of the Short Intermediate Government Fund's average daily net assets at an annual rate of 0.10%. **Short-Term Income Fund pays its shareholder servicing fees under a separate servicing plan. 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) ------------------------ Short-Term Income........... $ 157,206 $ 46,465 Short-Intermediate Government................ 110,241 45,546 Government Securities....... 34,559 32,056 Bond........................ 9,695,746 2,024,624 Strategic Income............ 191,522 252,623
The aggregate cost of purchases and proceeds from sales of long-term U.S. government securities for the year ended March 31, 2002 were as follows:
PURCHASES SALES (000) (000) ------------------------ Short-Term Income........... $ 545,365 $ 314,176 Short-Intermediate Government................ 2,583,250 2,740,936 Government Securities....... 1,537,658 1,572,357 Bond........................ 4,410,633 7,011,898 Strategic Income............ 302,700 267,326
103 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. FUTURES CONTRACTS At March 31, 2002, the following Funds had futures contracts open:
UNREALIZED VALUE OF CONTRACT MARKET VALUE OF APPRECIATION/ NUMBER OF WHEN OPENED CONTRACTS (DEPRECIATION) DESCRIPTION CONTRACTS (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INCOME FUND: U.S. 2 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 695 $145,085 $143,583 $(1,502) ======= SHORT-INTERMEDIATE GOVERNMENT FUND: U.S. 2 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 445 93,019 91,934 $(1,085) U.S. 5 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 360 38,088 37,344 (744) U.S. 10 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 228 23,680 23,359 (321) ------- Total net unrealized depreciation.................. $(2,150) ======= GOVERNMENT SECURITIES FUND: U.S. Treasury Bond Futures (long position) expiring June 2002(a)..................................................... 384 39,535 37,692 $(1,843) U.S. 2 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 90 18,812 18,593 (219) U.S. 5 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 105 10,995 10,892 (103) U.S. 10 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 320 33,631 32,785 (846) ------- Total net unrealized depreciation.................. $(3,011) ======= BOND FUND: U.S. Treasury Bond Futures (long position) expiring June 2002(a)..................................................... 845 87,567 82,942 $(4,625) U.S. 5 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 1,564 165,035 162,240 (2,795) U.S. 10 year Treasury Note Futures (short position) expiring June 2002(a)................................................ (610) (62,688) (62,496) 192 ------- Total net unrealized depreciation.................. $(7,228) ======= STRATEGIC INCOME FUND: U.S. Treasury Bond Futures (long position) expiring June 2002(a)..................................................... 7 705 687 $ (18) U.S. 5 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 10 1,037 1,037 -- ------- Total net unrealized depreciation.................. $ (18) =======
- --------------- (a)Securities have been segregated as collateral for the Fund's open futures contracts. 6. WRITTEN OPTIONS Written options for the Bond Fund for the year ended March 31, 2002 aggregated the following:
PREMIUM NUMBER OF RECEIVED SUMMARY OF WRITTEN OPTIONS CONTRACTS (000) - ---------------------------------------------------------------------------------- Outstanding at March 31, 2001............................................ 2 $(143) Contracts opened.......................................... 0 0 Contracts closed.......................................... 2 143 -- ----- Outstanding at March 31, 2002............................................ 0 $ 0 == =====
104 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. FORWARD FOREIGN CURRENCY CONTRACTS At March 31, 2002, the following Funds had forward foreign currency contracts outstanding:
VALUE OF VALUE OF UNREALIZED CONTRACT CONTRACT MARKET VALUE APPRECIATION/ WHEN OPENED WHEN OPENED OF CONTRACT (DEPRECIATION) LOCAL (LOCAL CURRENCY) (US DOLLARS) (US DOLLARS) (US DOLLARS) DESCRIPTION CURRENCY (000) (000) (000) (000) - --------------------------------------------------------------------------------------------------------------------------------- BOND: CONTRACTS TO BUY: Expiring May 8, 2002......................... Euro 25,000 $ 22,354 $ 21,776 $ (578) Expiring May 8, 2002......................... Euro 24,000 21,481 20,905 (576) Expiring May 8, 2002......................... Euro 3,000 2,674 2,613 (61) Expiring May 30, 2002........................ Japanese Yen 6,370,650 50,000 48,221 (1,779) ------- Net unrealized depreciation.................. $(2,994) ======= CONTRACTS TO SELL: Expiring May 8, 2002......................... Euro (24,000) (21,387) (20,905) 482 Expiring May 8, 2002......................... Euro (28,000) (24,727) (24,390) 337 Expiring June 6, 2002........................ Hong Kong Dollar (194,985) (25,000) (24,989) 11 Expiring May 30, 2002........................ Japanese Yen (1,531,250) (12,500) (11,590) 910 Expiring May 30, 2002........................ Japanese Yen (1,521,000) (12,500) (11,513) 987 Expiring May 30, 2002........................ Japanese Yen (3,161,000) (25,000) (23,927) 1,073 Expiring May 30, 2002........................ Japanese Yen (157,400) (1,238) (1,191) 47 Expiring September 12, 2002.................. Japanese Yen (3,175,950) (25,000) (24,209) 791 Expiring September 12, 2002.................. Japanese Yen (3,192,000) (25,000) (24,331) 669 Expiring May 10, 2002........................ Polish Zloty (50,000) (11,574) (12,040) (466) Expiring May 10, 2002........................ Polish Zloty (46,000) (10,648) (11,077) (429) ------- Net unrealized appreciation.................. $ 4,412 ------- Total net unrealized appreciation... $ 1,418 ======= STRATEGIC INCOME: CONTRACTS TO BUY: Expiring June 10, 2002....................... Hong Kong Dollar 5,600 718 718 --* ------- Total net unrealized appreciation... --* ------- CONTRACTS TO SELL: Expiring June 10, 2002....................... Hong Kong Dollar (5,600) (718) (718) --* ------- Net unrealized depreciation................ --* ------- Total net unrealized depreciation.......... --* -------
- --------------- *Amount represents less than $500. 105 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. SWAP CONTRACTS At March 31, 2002, the following Funds had swap contracts outstanding:
FLOATING RATE/ TOTAL RETURN UNREALIZED NOTIONAL FIXED RATE/TOTAL PAYMENTS APPRECIATION/ AMOUNT RETURN PAYMENTS RECEIVED BY DEPRECIATION DESCRIPTION (000) MADE BY THE FUND THE FUND (000) - ------------------------------------------------------------------------------------------------------------------- SHORT-INTERMEDIATE GOVERNMENT FUND: Contract with Lehman Brothers, effective May 1, 2001, expiring May 01, 2004(a)........................... $ 18,000 3-month LIBOR 5.074% $ 324 Contract with Lehman Brothers, effective May 1, 2001, expiring May 01, 2006(a)........................... 14,000 3-month LIBOR 5.474 167 -------- Total net unrealized appreciation.............. $ 491 ======== GOVERNMENT SECURITIES FUND: Contract with Lehman Brothers, effective May 1, 2001, expiring May 01, 2004(a)........................... $ 13,200 3-month LIBOR 5.074% $ 237 Contract with Lehman Brothers, effective May 1, 2001, expiring May 01, 2006(a)........................... 6,500 3-month LIBOR 5.474 78 -------- Total net unrealized appreciation.............. $ 315 ======== BOND FUND: Contract with Goldman Sachs, effective January 29, 2002, expiring January 29, 2007(a)................. $ 73,000 5.100% 3-month LIBOR $ 840 Contract with Goldman Sachs, effective January 29, 2002, expiring January 29, 2012(a)................. 90,000 3-month LIBOR 5.788 (1,749) Contract with Goldman Sachs, effective January 29, 2002, expiring January 29, 2004(a)................. 193,000 3.565 3-month LIBOR 1,296 Contract with Merrill Lynch, effective January 18, 2002, expiring January 18, 2012(a)................. 233,000 5.490 3-month LIBOR 9,691 Contract with Merrill Lynch, effective January 18, 2002, expiring January 18, 2007(a)................. 737,000 3-month LIBOR 4.720 (20,143) Contract with Merrill Lynch, effective January 18, 2002, expiring January 18, 2004(a)................. 766,000 3.155 3-month LIBOR 10,067 Lehman AAA Contract with Morgan Stanley, effective January 31, Rated 6-8.5 year 2002, expiring April 30, 2002(a)................... 50,000 3-month LIBOR Index (1,322) World Government Salomon US Contract with Salomon Smith Barney, effective January Bond Index Total Treasury Index 31, 2002, expiring November 30, 2003(a)............ 130,000 Return Total Return (2,325) -------- Total net unrealized depreciation.............. $ (3,645) ========
- --------------- (a) Fair valued 9. SHARES OF BENEFICIAL INTEREST/CAPITAL STOCK As of March 31, 2002, an unlimited number of shares of beneficial interest without par value were authorized for each of the Trust, Reserves and Funds Trust. The Trust's, Reserves' and Funds Trust's Declarations of Trust authorize the Board 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. 10. LINES OF CREDIT The Trust, 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 106 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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, 2002, borrowings by the Funds under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST FUND (000) RATE - ------------------------------------------------------------- Bond.............................. $159 5.17%
11. 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) - ----------------------------------------------------------------- Short-Term Income.......... $170,864 $177,178 Short-Intermediate Government............... 151,653 156,927 Government Securities...... 91,623 94,797 Bond....................... 75,435 82,854 Strategic Income........... 3,257 3,388
12. INCOME TAXES Information on the tax components of capital is as follows:
NET TAX UNREALIZED APPRECIATION/ (DEPRECIATION) NET TAX ON DERIVATIVES UNDISTRIBUTED COST OF UNREALIZED AND FOREIGN ORDINARY INVESTMENTS GROSS TAX GROSS TAX APPRECIATION/ CURRENCY AND INCOME/ FOR TAX UNREALIZED UNREALIZED (DEPRECIATION) NET OTHER (ACCUMULATED PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS ASSETS ORDINARY LOSS) FUND (000) (000) (000) (000) (000) (000) - -------------------------------------------------------------------------------------------------------------------------- Short-Term Income......... $ 816,026 $ 4,533 $ (3,121) $ 1,412 $ -- $ -- Short-Intermediate Government.............. 629,106 1,234 (3,636) (2,402) 491 -- Government Securities..... 371,858 863 (3,025) (2,162) 315 (394) Intermediate Bond......... n/a* n/a* n/a* (2,777) -- 172 Bond...................... 3,218,222 35,446 (67,735) (32,289) (4,697) 5,677 Strategic Income.......... 250,148 440 (4,777) (4,337) -- 421 High Yield................ n/a* n/a* n/a* (9,334) -- -- UNDISTRIBUTED LONG-TERM GAINS/ (ACCUMULATED CAPITAL LOSS) FUND (000) - -------------------------- ------------- Short-Term Income......... $ (6,533) Short-Intermediate Government.............. (2,924) Government Securities..... (19,076) Intermediate Bond......... (3,063) Bond...................... -- Strategic Income.......... (20,371) High Yield................ (66)
- --------------- * 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 EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING IN 2003 IN 2005 IN 2007 IN 2008 IN 2009 IN 2010 FUND (000) (000) (000) (000) (000) (000) - ----------------------------------------------------------------------------------------------------------------------------- Short-Term Income.................................... $ 651 $ 122 $ -- $ 2,435 $3,076 $ -- Short-Intermediate Government........................ -- -- -- 2,924 -- -- Government Securities................................ 2,220 2,304 2,883 -- -- -- Intermediate Bond.................................... -- -- 1,126 504 52 74 Bond................................................. -- -- -- -- -- -- Strategic Income..................................... -- -- -- 11,355 3,544 1,942 High Yield........................................... -- -- -- -- -- --
The capital loss carryforward for the Government Securities Fund is subject to certain limitations. 107 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the year ended March 31, 2002, the following Funds utilized capital losses as follows:
CAPITAL LOSSES UTILIZED PORTFOLIO (000) - ----------------------------------------------------------- Short-Term Income......................... $ 2,998 Short-Intermediate Government............. 15,842 Government Securities..................... 6,586 Bond...................................... 20,301 Strategic Income.......................... 849
Under the current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended March 31, 2002, the following Funds elected to defer losses occurring between November 1, 2001 and March 31, 2002 under these rules, as follows:
CAPITAL LOSSES DEFERRED FUND (000) - ---------------------------------------------------------- Short-Term Income......................... $ 249 Government Securities..................... 1,010 Intermediate Bond......................... 1,307 Strategic Income.......................... 3,466 High Yield Bond........................... 183
Such deferred losses will be treated as arising on the first day of the fiscal year ending March 31, 2003. The tax composition of dividends (other than return of capital dividends for the year) was as follows:
LONG-TERM ORDINARY CAPITAL FUND INCOME GAINS - -------------------------------------------------------- Short-Term Income................ $ 21,915 $-- Short-Intermediate Government.... 23,668 -- Government Securities............ 11,990 -- Intermediate Bond................ 7,449 -- Bond............................. 131,641 -- Strategic Income................. 13,185 -- High Yield Bond.................. 18,332 --
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 paydowns, foreign exchange transactions and use of the tax accounting practice known as equalization. 13. REORGANIZATIONS CONVERSION OF COMMON TRUST FUNDS On June 16, 2000, certain Funds, as listed below (each an "Acquiring Fund"), acquired the assets of certain common trust funds, managed by Bank of America, also listed below (each an "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 108 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Schedules of capital stock activity. Net assets and unrealized appreciation/(depreciation) as of the conversion date were as follows:
TOTAL NET ASSETS ACQUIRED FUND TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED APPRECIATION/ OF ACQUIRED FUND OF ACQUIRING FUND AFTER CONVERSION (DEPRECIATION) ACQUIRING FUND ACQUIRED FUND (000) (000) (000) (000) - ----------------------------------------------------------------------------------------------------------------------- Short-Intermediate Boatmen's Government Trust Company Intermediate Government Fund $ 21,135 $ 537,543 $ 558,678 $ 135 Short-Intermediate Bank IV Government Kansas U.S. Treasury Fund 19,124 537,543 556,667 21 Government Boatmen's Securities Trust Company Taxable Bond Fund 45,638 188,006 233,644 (951) Bond Boatmen's Trust Company Intermediate Taxable Bond Fund 116,422 1,868,792 1,985,214 (818) Bond Bank IV Kansas Intermediate Bond Fund 76,191 1,868,792 1,944,983 (923) Bond BCA High Grade Income Bond Fund 219,513 1,868,792 2,088,305 (2,009)
FUND REORGANIZATION On June 8, 2001, the Government Securities Fund (the "Acquiring Fund"), acquired the assets and assumed the liabilities of the Nations U.S. Government Bond 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 FUND TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION APPRECIATION (000) (000) (000) (000) - ---------------------------------------------------------------------- $73,397 $232,156 $305,553 $352
CHANGE OF REGISTERED INVESTMENT COMPANY On June 8, 2001, the Government Securities Fund, a newly established shell portfolio of Funds Trust (the "Successor Fund"), acquired the assets and liabilities of its predecessor fund, which was a series of the Company, pursuant to a plan of reorganization approved by the predecessor fund's shareholders. The predecessor fund had the same name, investment objective and principal investment strategies as the Successor Fund. The acquisition was accomplished by a tax-free exchange of shares of the Successor Fund in an amount equal to the value of the outstanding shares of the predecessor fund. The financial statements of the Successor Fund reflect the historical financial results of the predecessor fund prior to the reorganization. 109 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. 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, 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 Funds in Delaware, under a Delaware business trust structure that management believes provides greater flexibility and efficiency in certain corporate and organizational matters.
FUND REORGANIZED INTO A NEWLY CREATED SUCCESSOR - --------------------------------------------------------------------------------------------- Short-Term Income Short-Term Income Short-Intermediate Government Short-Intermediate Government Intermediate Bond Intermediate Bond Bond Bond Strategic Income Strategic Income
110 NATIONS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF NATIONS FUND TRUST, 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 Short-Term Income Fund, Nations Short-Intermediate Government Fund, Nations Government Securities Fund, Nations Intermediate Bond Fund, Nations Bond Fund, Nations Strategic Income Fund and Nations High Yield Bond Fund (constituting parts of Nations Fund Trust, Nations Reserves, or Nations Funds Trust, hereafter collectively 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, 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. PricewaterhouseCoopers LLP New York, New York May 23, 2002 111 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio and Nations High Yield Bond Master Portfolio Annual Report MARCH 31, 2002 The following pages should be read in conjunction with Nations Intermediate Bond and Nations High Yield Bond Funds' Annual Report. 112 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 1.8% ASSET-BACKED -- AUTO LOANS -- 1.0% $ 1,000 Americredit Automobile Receivables Trust, Series 2001-B, Class A4, 5.370% 06/12/08##...................................... $ 1,013 827 Daimler-Benz Vehicle Trust, Series 1998-A, Class A4, 5.220% 12/22/03##...................................... 831 1,015 Ford Credit Auto Owner Trust, Series 2002-B, Class B, 5.180% 10/16/06........................................ 1,014 800 MMCA Automobile Trust, Series 2001-1, Class A4, 5.340% 12/15/05........................................ 815 -------- 3,673 -------- ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 0.3% 1,005 First Chicago Master Trust II, Series 1995-0, Class A, 2.130%** 02/15/04##.................................... 1,006 -------- ASSET-BACKED -- HOME EQUITY LOANS -- 0.5% 1,400 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29##...................................... 1,427 370 First Plus Home Loan Trust, Series 1998-2, Class M1, 7.220% 05/10/24........................................ 377 -------- 1,804 -------- TOTAL ASSET-BACKED SECURITIES (Cost: $6,430)......................................... 6,483 -------- CORPORATE BONDS AND NOTES -- 28.3% AEROSPACE AND DEFENSE -- 0.3% 1,239 Boeing Capital Corporation, 5.650% 05/15/06##...................................... 1,226 -------- AIRLINES -- 0.3% 1,000 US Airways, Inc., Series 2002-G, 8.020% 02/05/19........................................ 1,017 -------- AUTOMOTIVE -- 3.8% 605 Delphi Automotive Systems Corporation, 6.125% 05/01/04........................................ 614 1,904 Ford Motor Credit Company, 7.600% 08/01/05........................................ 1,938 2,069 Ford Motor Credit Company, 5.800% 01/12/09##...................................... 1,864 3,326 Ford Motor Credit Company, 7.375% 10/28/09##...................................... 3,263 1,195 General Motors Acceptance Corporation, 6.125% 09/15/06........................................ 1,179 853 General Motors Acceptance Corporation, 6.150% 04/05/07##...................................... 837
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- AUTOMOTIVE -- (CONTINUED) $ 3,697 General Motors Acceptance Corporation, 6.875% 09/15/11........................................ $ 3,600 650 Toyota Motor Credit Corporation, 5.625% 11/13/03(a)..................................... 667 -------- 13,962 -------- BROADCASTING AND CABLE -- 0.4% 251 Comcast Cable Communications, 7.125% 06/15/13........................................ 247 890 Time Warner Inc., 8.110% 08/15/06##...................................... 956 160 Walt Disney Company, 6.375% 03/01/12........................................ 156 -------- 1,359 -------- CHEMICALS -- SPECIALTY -- 0.7% 1,600 Praxair, Inc., 6.750% 03/01/03##...................................... 1,650 195 Praxair, Inc., 6.500% 03/01/08........................................ 198 545 The Dow Chemical Company, 6.125% 02/01/11##...................................... 526 -------- 2,374 -------- COMMERCIAL BANKING -- 2.2% 1,801 Bank One Corporation, 6.000% 08/01/08........................................ 1,788 325 BB&T Corporation, 7.050% 05/23/03........................................ 336 1,020 FleetBoston Financial Corporation, 7.250% 09/15/05##...................................... 1,079 700 PNC Funding Corporation, 7.000% 09/01/04........................................ 732 700 PNC Funding Corporation, 5.750% 08/01/06........................................ 697 859 Popular North America Inc., Series E, 6.125% 10/15/06........................................ 842 1,043 U.S. Bank NA, Minnesota, 6.375% 08/01/11##...................................... 1,037 1,368 Wachovia Corporation, 4.950% 11/01/06........................................ 1,329 -------- 7,840 -------- COMPUTER SERVICES -- 0.2% 566 Electronic Data Systems Corporation, 6.850% 10/15/04........................................ 591 -------- CONGLOMERATES -- 0.1% 363 Waste Management, Inc., 7.375% 08/01/10........................................ 360 -------- CONSUMER CREDIT AND MORTGAGES -- 0.5% 1,796 Countrywide Home Loans, Inc., Series J, 5.500% 08/01/06##...................................... 1,766 --------
SEE NOTES TO FINANCIAL STATEMENTS. 113 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- DEPARTMENT AND DISCOUNT STORES -- 0.5% $ 695 Sears Roebuck Acceptance Corporation, 6.750% 08/15/11(a)..................................... $ 691 390 Target Corporation, 5.875% 03/01/12........................................ 378 545 Wal-Mart Stores, Inc., 5.450% 08/01/06........................................ 550 -------- 1,619 -------- DIVERSIFIED MANUFACTURING -- 0.1% 502 Tyco International Group SA, 6.375% 10/15/11........................................ 447 -------- ELECTRIC POWER -- NON NUCLEAR -- 3.1% 1,633 American Electric Power Company, Inc., Series A, 6.125% 05/15/06(a)..................................... 1,621 350 Cinergy Corporation, 6.250% 09/01/04........................................ 349 748 Constellation Energy Group, Inc., 6.350% 04/01/07........................................ 744 1,400 Consumers Energy Company, Series B, 6.200% 05/01/03##...................................... 1,397 576 DPL Inc., 6.875% 09/01/11........................................ 546 879 Duke Energy Corporation, 6.250% 01/15/12........................................ 859 1,702 Exelon Generation Company LLC, 6.950% 06/15/11@##..................................... 1,696 343 FirstEnergy Corporation, Series B, 6.450% 11/15/11........................................ 315 617 PPL Electric Utilities, 6.250% 08/15/09........................................ 610 1,094 Progress Energy, Inc., 7.100% 03/01/11##...................................... 1,116 1,138 PSEG Power LLC, 6.875% 04/15/06........................................ 1,146 324 Southern Company Capital Funding, Series A, 5.300% 02/01/07........................................ 316 435 Virginia Electric and Power Company, Series A, 5.375% 02/01/07........................................ 425 -------- 11,140 -------- ENERGY -- MISCELLANEOUS -- 0.3% 490 Nisource Finance Corporation, 7.500% 11/15/03........................................ 485 504 PSEG Energy Holdings Inc., 8.500% 06/15/11........................................ 482 -------- 967 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- EXPLORATION AND PRODUCTION -- 0.2% $ 379 Anadarko Finance Company, Series B, 6.750% 05/01/11........................................ $ 381 184 Pure Resources, Inc., 7.125% 06/15/11........................................ 174 -------- 555 -------- FINANCE -- MISCELLANEOUS -- 3.6% 664 Capital One Bank, 6.875% 02/01/06##...................................... 641 272 Capital One Bank, Series 4, 6.500% 07/30/04##...................................... 265 700 Caterpillar Finance Services Corporation, 5.950% 05/01/06........................................ 706 823 Citigroup Inc., 7.250% 10/01/10........................................ 866 1,043 Citigroup Inc., 6.000% 02/21/12........................................ 1,010 4,464 General Electric Capital Corporation, Series A, 5.375% 03/15/07(a)..................................... 4,415 725 Household Finance Corporation, 6.500% 01/24/06........................................ 727 1,257 Household Finance Corporation, 5.875% 02/01/09........................................ 1,181 1,247 Household Finance Corporation, 6.750% 05/15/11........................................ 1,209 700 National Rural Utilities Cooperative Finance Corporation, 6.000% 05/15/06##...................................... 694 700 Prudential Funding LLC, 6.600% 05/15/08@....................................... 708 820 Washington Mutual, Inc., 7.500% 08/15/06........................................ 869 -------- 13,291 -------- FOOD AND DRUG STORES -- 0.8% 910 Fred Meyer, Inc., 7.450% 03/01/08##...................................... 961 1,750 Nabisco Inc., 6.125%** 02/01/33##.................................... 1,773 -------- 2,734 -------- FOOD PRODUCTS -- 1.4% 1,050 Kellogg Company, Series B, 6.000% 04/01/06##...................................... 1,055 1,306 Sara Lee Corporation, 6.250% 09/15/11........................................ 1,293 1,089 Tyson Foods, Inc., Class A, 7.250% 10/01/06@##..................................... 1,113 215 Unilever Capital Corporation, 6.750% 11/01/03........................................ 225 1,175 Unilever Capital Corporation, 7.125% 11/01/10........................................ 1,244 -------- 4,930 --------
SEE NOTES TO FINANCIAL STATEMENTS. 114 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- HEALTH SERVICES -- 0.4% $ 408 Cardinal Health, Inc., 6.750% 02/15/11##...................................... $ 418 475 Wellpoint Health Networks Inc., 6.375% 06/15/06........................................ 482 434 Wellpoint Health Networks Inc., 6.375% 01/15/12........................................ 425 -------- 1,325 -------- HOUSING AND FURNISHING -- 0.2% 561 Hanson Overseas B.V., 6.750% 09/15/05........................................ 577 -------- INSURANCE -- 0.4% 750 American International Group, Inc., 5.850% 08/01/08@....................................... 741 771 Principal Life Global, 6.250% 02/15/12@....................................... 747 -------- 1,488 -------- INTEGRATED OIL -- 0.2% 695 Conoco Funding Company, 6.350% 10/15/11........................................ 689 -------- INVESTMENT SERVICES -- 1.7% 813 Bear Stearns Companies, Inc., 7.800% 08/15/07........................................ 866 535 Credit Suisse First Boston USA, Inc., 5.875% 08/01/06........................................ 537 890 Credit Suisse First Boston USA, Inc., 6.125% 11/15/11........................................ 856 650 Lehman Brothers Holdings Inc., 7.750% 01/15/05........................................ 682 708 Merrill Lynch & Company, Inc., 6.000% 02/17/09##...................................... 700 678 Morgan Stanley Dean Witter & Company, 6.100% 04/15/06........................................ 692 1,708 Morgan Stanley Dean Witter & Company, 6.750% 04/15/11........................................ 1,715 -------- 6,048 -------- METALS AND MINING -- 0.2% 520 Alcoa Inc., 7.375% 08/01/10........................................ 553 -------- NATURAL GAS PIPELINES -- 0.6% 721 EL Paso Corporation, 7.000% 05/15/11(a)..................................... 701 650 Kinder Morgan, Inc., 6.650% 03/01/05........................................ 661 716 The Williams Companies, Inc., 6.500% 08/01/06........................................ 682 -------- 2,044 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- OIL REFINING AND MARKETING -- 0.6% $ 750 PDV America Inc., Gtd. Sr. Notes, 7.875% 08/01/03##...................................... $ 752 1,296 USX Corporation, 6.650% 02/01/06........................................ 1,324 -------- 2,076 -------- PAPER AND FOREST PRODUCTS -- 0.3% 409 International Paper Company, 8.000% 07/08/03........................................ 427 544 Weyerhaeuser Company, 6.750% 03/15/12@....................................... 535 -------- 962 -------- PHARMACEUTICALS -- 0.5% 891 Eli Lilly and Company, 6.000% 03/15/12........................................ 879 823 Wyeth, 6.250% 03/15/06........................................ 848 -------- 1,727 -------- PUBLISHING AND ADVERTISING -- 0.4% 388 Gannett Company, Inc., 6.375% 04/01/12........................................ 386 985 Viacom Inc., Class B, 6.625% 05/15/11........................................ 986 -------- 1,372 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.5% 615 Burlington Northern Santa Fe Corporation, 6.750% 07/15/11........................................ 617 961 FedEx Corporation, 6.625% 02/12/04........................................ 992 -------- 1,609 -------- REAL ESTATE -- 0.2% 699 EOP Operating LP, 7.000% 07/15/11........................................ 696 -------- TELECOMMUNICATIONS SERVICES -- 3.2% 70 AT&T Canada Inc., (0.000)% due 06/15/08 9.950% beginning 06/15/03##............................ 11 427 AT&T Corporation, 7.300% 11/15/11@##..................................... 412 541 AT&T Wireless Services Inc., 7.875% 03/01/11##...................................... 539 272 BellSouth Corporation, 5.000% 10/15/06........................................ 267 651 Cingular Wireless, 6.500% 12/15/11@....................................... 626 556 Cox Communications, Inc., Class A, 7.750% 11/01/10##...................................... 567 1,248 Qwest Capital Funding, Inc., 7.000% 08/03/09........................................ 1,016 1,217 SBC Communications Inc., 6.250% 03/15/11##...................................... 1,208 715 Sprint Capital Corporation, 6.125% 11/15/08........................................ 638
SEE NOTES TO FINANCIAL STATEMENTS. 115 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) $ 1,466 Sprint Capital Corporation, 8.375% 03/15/12@....................................... $ 1,444 346 TELUS Corporation, 7.500% 06/01/07........................................ 353 1,691 Verizon New England Inc., 6.500% 09/15/11........................................ 1,650 1,116 Verizon Pennsylvania, Series A, 5.650% 11/15/11........................................ 1,023 285 Vodafone Group plc, 7.625% 02/15/05........................................ 304 1,255 WorldCom, Inc. - WorldCom Group, 8.000% 05/15/06........................................ 1,106 776 WorldCom, Inc. - WorldCom Group, 7.500% 05/15/11##...................................... 651 -------- 11,815 -------- TOBACCO -- 0.4% 1,366 R.J. Reynolds Tobacco Holdings, Inc., 7.375% 05/15/03........................................ 1,405 -------- TOTAL CORPORATE BONDS AND NOTES (Cost: $101,740)....................................... 100,564 -------- FOREIGN BONDS AND NOTES -- 2.1% 1,385 Banco Latinoamericano de Exportaciones, SA, Class E, 7.200% 05/28/02@##..................................... 1,391 970 Corp Andina de Fomento, 8.875% 06/01/05##...................................... 1,055 380 Government of Canada, 5.250% 11/05/08##...................................... 373 328 Hellenic Republic, 6.950% 03/04/08........................................ 343 403 Kimberly-Clark de Mexico, SA de CV, Class A, 8.875% 08/01/09@....................................... 429 470 Ontario (Province of), 7.000% 08/04/05........................................ 501 733 Pemex Finance Ltd., 5.720% 11/15/03##...................................... 746 2,080 Republic of Italy, 6.000% 02/22/11(a)..................................... 2,072 683 United Mexican States, 8.375% 01/14/11........................................ 715 -------- TOTAL FOREIGN BONDS AND NOTES (Cost: $7,648)......................................... 7,625 -------- MORTGAGE-BACKED SECURITIES -- 12.0% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 5.5% 1,200 Chase Manhattan Bank - First Union National, Series 1999-1, Class A2, 7.439% 07/15/09........................................ 1,278
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES -- (CONTINUED) $ 1,950 Commercial Mortgage Acceptance Corporation, Series 1999-C1, Class A2, 7.030% 05/15/09##...................................... $ 2,041 615 Criimi Mae CMBS Corporation, Series 1998-1, Class A1, 5.697% 06/20/30@##..................................... 628 500 CS First Boston Mortgage Securities Corporation, Series 1998-C2, Class A2, 6.300% 11/15/08##...................................... 504 1,750 CS First Boston Mortgage Securities Corporation, Series 2000-C1, Class A2, 7.545% 04/14/62........................................ 1,873 2,250 DLJ Commercial Mortgage Corporation, Series 1999-CG2, Class A1B, 7.300% 06/10/09##...................................... 2,384 1,000 DLJ Commercial Mortgage Corporation, Series 2000-CF1, Class A1B, 7.620% 05/10/10##...................................... 1,077 1,800 First Union National Bank Commercial Mortgage, Series 1999-C4, Class A2, 7.390% 11/15/09##...................................... 1,914 300 JP Morgan Chase Commercial Mortgage Securities Corporation, Series 2001-CIBC, Class A3, 6.260% 03/15/33##...................................... 297 7,039 JP Morgan Commercial Mortgage Finance Corporation, Series 1997-C4, Class X, Interest only, 1.229%** 12/26/28##.................................... 299 15,068 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Class IO, 0.667%** 12/15/30...................................... 663 400 Nomura Depositor Trust, Series 1998-ST1, Class A4, 2.800%** 02/15/34...................................... 400 1,100 PNC Mortgage Acceptance Corporation, Series 2000-C1, Class A2, 7.610% 02/15/10##...................................... 1,179 1,850 Salomon Brothers Mortgage Securities VII, Series 2000-C1, Class A2, 7.520% 12/18/09##...................................... 1,974 1,900 Salomon Brothers Mortgage Securities VII, Series 2000-C2, Class A2, 7.455% 04/18/10........................................ 2,025 40,393 Vendee Mortgage Trust, Series 1998-1, Class 2, Interest only, 0.436%** 09/15/27...................................... 509 41,849 Vendee Mortgage Trust, Series 1998-3, Class 1, Interest only, 0.301%** 03/15/29...................................... 409 -------- 19,454 --------
SEE NOTES TO FINANCIAL STATEMENTS. 116 NATIONS MASTER INVESTMENT TRUST Nations Intermediate Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.2% $ 810 6.000% 06/15/11........................................ $ 807 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 6.2% 20,700 7.000% 07/15/05........................................ 22,126 256 6.244%** 08/01/36##.................................... 261 -------- 22,387 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 0.1% 184 10.000% 07/15/16 - 08/15/17##.......................... 209 -------- TOTAL MORTGAGE-BACKED SECURITIES (Cost: $43,103)........................................ 42,857 -------- U.S. TREASURY OBLIGATIONS -- 49.3% U.S. TREASURY NOTES -- 43.3% 73,400 6.250% 02/15/03(a)##................................... 75,660 202 2.750% 10/31/03(a)..................................... 200 3,700 4.250% 11/15/03(a)..................................... 3,750 22,500 3.250% 12/31/03##...................................... 22,391 33,500 5.875% 02/15/04(a)..................................... 34,871 153 5.250% 05/15/04(a)..................................... 158 4,625 5.875% 11/15/04(a)..................................... 4,827 11,300 6.750% 05/15/05(a)..................................... 12,077 -------- 153,934 -------- U.S. TREASURY STRIPS -- 6.0% 9,700 Interest only, 5.823%*** 05/15/11..................................... 5,753 17,500 Principal only, 4.179%*** 11/15/04##................................... 15,667 -------- 21,420 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost: $176,734)....................................... 175,354 -------- SHARES VALUE (000) (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 25.8% (Cost: $91,686) 91,686 Nations Cash Reserves, Capital Class Shares#.................................. $ 91,686 -------- TOTAL INVESTMENTS (Cost $427,341*)................................ 119.3% 424,569 -------- OTHER ASSETS AND LIABILITIES (NET)................ (19.3)% Cash..................................................... $ 25 Receivable for investment securities sold................ 585 Interest receivable...................................... 3,644 Variation margin/due to broker........................... (175) Collateral on securities loaned.......................... (71,396) Investment advisory fee payable.......................... (120) Administration fee payable............................... (15) Payable for investment securities purchased.............. (1,226) Accrued Trustees' fees and expenses...................... (29) Accrued expenses and other liabilities................... (28) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (68,735) -------- NET ASSETS........................................ 100.0% $355,834 ========
- --------------- * Federal Income Tax Information: Net unrealized depreciation of $2,898 on investment securities was comprised of gross appreciation of $1,250 and gross depreciation of $4,148 for federal income tax purposes. At March 31, 2002, the aggregate cost for federal income tax purposes was $427,467. **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. ***Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. @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. # 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 (Note 7). The portion that represents cash collateral is $71,396. ##All or a portion of security segregated as collateral for futures contracts. (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 $69,783 and $69,300, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 117 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2002
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS -- 2.4% BROADCASTING AND CABLE -- 0.0%+ 12,210 Charter Communications, Inc., Class A!!(a)............... $ 138 -------- FOOD PRODUCTS -- 0.1% 25,296 Chiquita Brands International, Inc.!!(a)................. 417 -------- HEALTH SERVICES -- 1.0% 80,010 Apria Healthcare Group Inc.!!##.......................... 1,961 43,600 Manor Care, Inc.!!(a).................................... 1,016 -------- 2,977 -------- LODGING AND RECREATION -- 0.1% 26,545 Pinnacle Entertainment, Inc.!!........................... 214 17,233 United Artists Theatre Company(i)(h)..................... 60 -------- 274 -------- METALS AND MINING -- 0.2% 3,105 Joy Global Inc.!!(a)..................................... 51 16,000 Newmont Mining Corporation............................... 443 -------- 494 -------- PACKAGING AND CONTAINERS -- 0.2% 35,700 Owens-Illinois, Inc.!!................................... 607 -------- PAPER AND FOREST PRODUCTS -- 0.3% 115,300 Abitibi-Consolidated Inc. ............................... 1,026 -------- PHARMACEUTICALS -- 0.0%+ 1,158 Genesis Health Ventures, Inc.!!(i)....................... 21 -------- STEEL -- 0.0%+ 189,321 Algoma Steel Inc.!!(h)................................... 119 -------- TELECOMMUNICATIONS SERVICES -- 0.4% 127,971 @Track Communications, Inc.!!(i)......................... 284 9,600 BellSouth Corporation.................................... 354 6,617 ICO Global Communications Holdings LTD.!!(a)............. 19 9,400 SBC Communications Inc. ................................. 352 7,200 Verizon Communications Inc. ............................. 329 -------- 1,338 -------- UTILITIES -- MISCELLANEOUS -- 0.1% 40,300 NRG Energy, Inc.!!(a).................................... 486 -------- TOTAL COMMON STOCKS (Cost: $7,208)......................................... 7,897 -------- PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- CONVERTIBLE BONDS AND NOTES -- 5.5% BROADCASTING AND CABLE -- 0.5% $ 2,430 Adelphia Communications Corporation, Class A, 6.000% 02/15/06............................................... $ 1,771 -------- COMPUTER SERVICES -- 0.3% 1,565 Cnet, Inc., 5.000% 03/01/06.............................. 984 -------- COMPUTERS AND OFFICE EQUIPMENT -- 0.3% 1,135 Quantum Corporation -- DLT & Storage Systems, 7.000% 08/01/04............................................... 1,056 -------- CONGLOMERATES -- 0.1% 575 Internet Capital Group, Inc., 5.500% 12/21/04............ 212 -------- CONSTRUCTION -- 0.2% 1,175 Shaw Group Inc., 3.120%*** 05/01/21...................... 645 -------- HEALTH SERVICES -- 0.8% 740 CuraGen Corporation, 6.000% 02/02/07..................... 545 795 Incyte Genomics, Inc., 5.500% 02/01/07(a)................ 594 1,910 QuadraMed Corporation, 5.250% 05/01/05(a)................ 1,569 -------- 2,708 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.7% 1,970 CIENA Corporation, 3.750% 02/01/08....................... 1,263 2,265 Comverse Technology, Inc., 1.500% 12/01/05(a)............ 1,727 2,080 Juniper Networks, Inc., 4.750% 03/15/07.................. 1,477 1,140 ONI Systems Corporation, 5.000% 10/15/05................. 876 -------- 5,343 -------- SEMICONDUCTORS -- 0.9% 2,835 LSI Logic Corporation, 4.000% 02/15/05(a)................ 2,435 740 Vitesse Semiconductor Corporation, 4.000% 03/15/05@(a)... 578 -------- 3,013 --------
SEE NOTES TO FINANCIAL STATEMENTS. 118 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- 0.7% $ 4,405 At Home Corporation, 4.750% 12/15/06(a)(b)(c)............ $ 1,035 3,045 Cox Communications, Inc., Class A, 0.426% 04/19/20....... 1,271 -------- 2,306 -------- TOTAL CONVERTIBLE BONDS AND NOTES (Cost: $19,093)........................................ 18,038 -------- SHARES - --------- CONVERTIBLE PREFERRED STOCKS -- 0.2% (Cost: $798) AEROSPACE AND DEFENSE -- 0.2% 21,120 Titan Capital Trust...................................... 821 -------- PRINCIPAL AMOUNT (000) - --------- CORPORATE BONDS AND NOTES -- 78.9% AEROSPACE AND DEFENSE -- 0.4% $ 690 Sequa Corporation, 9.000% 08/01/09....................... 690 515 Sequa Corporation, Class A, 8.875% 04/01/08(a)..................................... 515 -------- 1,205 -------- AIRLINES -- 2.4% 1,652 American Airlines, Inc., 7.377% 05/23/19................. 1,586 715 Delta Air Lines, Inc., 9.250% 03/15/22................... 667 435 Delta Air Lines, Inc., 10.375% 12/15/22.................. 416 3,065 Delta Air Lines, Inc., 8.300% 12/15/29................... 2,602 1,520 Northwest Airlines Inc., 9.875% 03/15/07................. 1,505 326 Northwest Airlines Inc., 8.970% 01/02/15................. 315 705 Northwest Airlines Inc., Series 2001, Class C, 7.626% 04/01/10(i)............................................ 630 -------- 7,721 -------- AUTOMOTIVE -- 0.4% 1,720 Mark IV Industries, Inc., 7.500% 09/01/07................ 1,342 -------- BROADCASTING AND CABLE -- 10.8% 1,141 Ackerly Group Bank Debt Term Loan, 6.900%** 11/10/02(i)(j)......................................... 1,147 820 Adelphia Communications Corporation, Class A, 10.250% 11/01/06............................................... 763
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- BROADCASTING AND CABLE -- (CONTINUED) $ 1,155 Adelphia Communications Corporation, Class A, 10.250% 06/15/11............................................... $ 1,045 2,680 Belo Corporation, Class A, 8.000% 11/01/08............... 2,726 785 British Sky Broadcasting Group plc, 7.300% 10/15/06...... 782 610 British Sky Broadcasting Group plc, 6.875% 02/23/09...... 574 1,000 Cablevision SA, 12.500% 03/02/03@(b)..................... 170 2,185 Cablevision SA, 13.750% 04/30/07(b)...................... 371 755 Cablevision SA, 13.750% 05/01/09(b)...................... 128 995 CanWest Media Inc., 10.625% 05/15/11..................... 1,095 1,045 Charter Communications Holdings LLC, 8.625% 04/01/09..... 946 1,360 Charter Communications Holdings LLC, 10.250% 01/15/10.... 1,326 995 Charter Communications Holdings LLC, 10.000% 05/15/11.... 950 3,225 Charter Communications Holdings LLC, (0.000)% due 01/15/10 11.750% beginning 01/15/05.................... 2,161 395 Charter Communications Holdings LLC, (0.000)% due 05/15/11 11.750% beginning 05/15/06(a).......................... 229 2,810 Comcast UK Cable Partners Ltd., Class A, 11.200% 11/15/07............................................... 2,290 1,295 Frontiervision Operating Partners LP, 11.000% 10/15/06##............................................. 1,269 310 Frontiervision Operating Partners LP, 11.875% 09/15/07... 307 490 Frontiervision Operating Partners LP, Series B, 11.875% 09/15/07............................................... 485 1,485 Liberty Media Corporation, 8.500% 07/15/29............... 1,429 580 LIN Television Corporation, 8.000% 01/15/08.............. 592 310 News America Inc., 7.250% 05/18/18....................... 287 480 NTL Communications Corporation, Series B, 11.500% 10/01/08(a)............................................ 168 685 NTL Communications Corporation, Series B, 11.875% 10/01/10(a)............................................ 240 175 Ono Finance plc, 13.000% 05/01/09........................ 79 800 Ono Finance plc, 14.000% 02/15/11........................ 376 135 Paxson Communications Corporation, 10.750% 07/15/08...... 147
SEE NOTES TO FINANCIAL STATEMENTS. 119 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- BROADCASTING AND CABLE -- (CONTINUED) $ 4,945 Paxson Communications Corporation, (0.000)% due 01/15/09 12.250% beginning 01/15/06@............................ $ 3,559 2,275 Radio Unica Corporation, (0.000)% due 08/01/06 11.750% beginning 08/01/02..................................... 964 2,595 Rogers Cable Inc., 11.000% 12/01/15...................... 2,854 140 Rogers Cable Systems, 10.125% 09/01/12................... 146 780 Sinclair Broadcast Group, Inc., Class A, 8.750% 12/15/07............................................... 796 2,955 Telewest Communications plc, 11.000% 10/01/07............ 1,492 845 TV Azteca, SA de CV, Series B, 10.500% 02/15/07(a).................................... 858 1,410 UIH Australia/Pacific Inc., Series B, 0.000% 05/15/06(b)..................................... 63 505 United Pan-Europe Communications N.V., Class A, 10.875% 08/01/09............................................... 66 205 United Pan-Europe Communications N.V., Class A, (0.000)% due 02/01/10 13.750% beginning 02/01/05................ 21 5,390 United Pan-Europe Communications N.V., Series B, 11.250% 02/01/10(a)##........................ 701 515 United Pan-Europe Communications N.V., Series B, 11.500% 02/01/10............................. 67 3,195 United Pan-Europe Communications N.V., Series B, (0.000)% due 08/01/09 12.500% beginning 08/01/04............................................... 351 1,025 United Pan-Europe Communications N.V., Series B, (0.000)% due 11/01/09 13.375% beginning 11/01/04(a)............................................ 113 1,035 Young Broadcasting Inc., 8.500% 12/15/08@....................................... 1,076 -------- 35,209 -------- CHEMICALS -- BASIC -- 1.2% 1,645 Olin Corporation, 9.125% 12/15/11........................................ 1,723 2,210 Terra Capital Inc., 12.875% 10/15/08....................................... 2,277 -------- 4,000 CHEMICALS -- SPECIALTY -- 1.1% 820 Acetex Corporation, 10.875% 08/01/09....................................... 853 340 General Chemical Industrial Products, 10.625% 05/01/09....................................... 282 65 Marsulex Inc., 9.625% 07/01/08........................................ 65
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- CHEMICALS -- SPECIALTY -- (CONTINUED) $ 1,615 Millennium America Inc., 7.625% 11/15/26........................................ $ 1,356 950 Sovereign Specialty Chemicals, Inc., 11.875% 03/15/10....................................... 950 -------- 3,506 -------- COMMERCIAL BANKING -- 0.3% 885 Golden State Holdings, Escrow Corporation, 7.125% 08/01/05........................................ 876 -------- COMMERCIAL SERVICES -- 0.8% 1,170 Intertek Finance plc, Series B, 10.250% 11/01/06....................................... 1,188 1,860 Protection One, Inc., 7.375% 08/15/05........................................ 1,562 -------- 2,750 -------- COMPUTERS AND OFFICE EQUIPMENT -- 1.1% 530 Unisys Corporation, 7.250% 01/15/05........................................ 527 1,085 Unisys Corporation, 8.125% 06/01/06........................................ 1,107 2,100 Xerox Bank Debt Funded Revolver, 4.970%** 10/22/02(i)(j)................................ 1,995 -------- 3,629 -------- CONSUMER SERVICES -- 0.5% 320 Alderwoods Group, Inc., 11.000% 01/02/07....................................... 322 1,165 Alderwoods Group, Inc., 12.250% 01/02/09(a).................................... 1,229 145 Jafra Cosmetics International, Inc., 11.750% 05/01/08....................................... 151 -------- 1,702 -------- DIVERSIFIED ELECTRONICS -- 0.4% 1,245 Knowles Electronics Inc., 13.125% 10/15/09(a).................................... 1,245 -------- DIVERSIFIED MANUFACTURING -- 1.3% 1,605 Collins & Aikman Floor Cover, 9.750% 02/15/10@....................................... 1,680 1,575 Foamex LP, 10.750% 04/01/09@...................................... 1,614 1,205 Neenah Corporation, Series D, 11.125% 05/01/07....................................... 494
SEE NOTES TO FINANCIAL STATEMENTS. 120 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING -- (CONTINUED) $ 575 Neenah Foundry Company, 11.125% 05/01/07....................................... $ 236 285 Remington Product Company LLC, Series D, 11.000% 05/15/06....................................... 239 -------- 4,263 -------- ELECTRIC POWER -- NON NUCLEAR -- 8.9% 235 AES Corporation, 8.750% 06/15/08........................................ 181 345 AES Corporation, 9.500% 06/01/09(a)..................................... 269 705 AES Corporation, 9.375% 09/15/10(a)..................................... 550 440 AES Drax Holdings Ltd., Series B, 10.410% 12/31/20....................................... 330 1,705 AES Eastern Energy, Series 1999-A, 9.000% 01/02/17##...................................... 1,571 1,175 AES Eastern Energy, Series 1999-B, 9.670% 01/02/29........................................ 1,055 2,010 Caithness Coso Funding Corporation, Series B, 9.050% 12/15/09........................................ 2,075 4,185 Calpine Canada Energy Finance, 8.500% 05/01/08........................................ 3,337 4,880 Cedar Brakes II LLC, 9.875% 09/01/13@##..................................... 5,029 440 CMS Energy Corporation, 8.125% 05/15/02........................................ 441 900 CMS Energy Corporation, 9.875% 10/15/07........................................ 977 470 ESI Tractebel Acquisition Corporation, Series B, 7.990% 12/30/11........................................ 450 1,285 Mirant Corporation, 7.400% 07/15/04@....................................... 1,157 2,795 Pacific Gas and Electric Company Bank Debt Term A, 8.000%** 12/30/06(i)(j)................................ 2,879 3,425 PG&E National Energy Group, 10.375% 05/16/11....................................... 3,544 500 PSEG Energy Holdings, Inc., 9.125% 02/10/04........................................ 502 705 PSEG Energy Holdings, Inc., 8.625% 02/15/08........................................ 687 505 PSEG Energy Holdings, Inc., 10.000% 10/01/09....................................... 518 343 Salton Sea Funding, Series B, 7.370% 05/30/05........................................ 346 1,410 Tiverton/Rumford Power Association, 9.000% 07/15/18@....................................... 1,184 375 Western Resources, Inc., 6.250%** 08/15/03...................................... 364 945 Western Resources, Inc., 6.875% 08/01/04........................................ 901
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ELECTRIC POWER -- NON NUCLEAR -- (CONTINUED) $ 375 Western Resources, Inc., 7.125% 08/01/09........................................ $ 345 440 Western Resources, Inc., 7.650% 04/15/23........................................ 351 -------- 29,043 -------- ELECTRICAL EQUIPMENT -- 0.6% 1,450 Thomas & Betts Corporation, 8.250% 01/15/04........................................ 1,427 465 Thomas & Betts Corporation, 6.625% 05/07/08........................................ 396 -------- 1,823 -------- ENERGY -- MISCELLANEOUS -- 1.0% 900 AmeriGas Partners, LP, 8.875% 05/20/11........................................ 927 1,115 Dynegy Holdings Inc., 7.500% 06/15/09........................................ 1,127 1,340 Dynegy Holdings Inc., 6.875% 04/01/11........................................ 1,252 -------- 3,306 -------- EXPLORATION AND PRODUCTION -- 3.3% 915 Baytex Energy Ltd., 10.500% 02/15/11....................................... 940 1,085 Bluewater Finance Ltd., 10.250% 02/15/12@(a)................................... 1,128 1,080 Comstock Resources, Inc., 11.250% 05/01/07....................................... 1,123 720 Comstock Resources, Inc., 11.250% 05/01/07@...................................... 749 2,000 Energy Corporation of America, Series A, 9.500% 05/15/07........................................ 1,361 925 Mission Resources Corporation, Series C, 10.875% 04/01/07(a).................................... 860 315 Ocean Energy, Inc., Series B, 8.250% 07/01/18........................................ 326 1,030 Stone Energy Corporation, 8.250% 12/15/11........................................ 1,053 1,220 Triton Energy Ltd., 8.875% 10/01/07........................................ 1,342 1,120 Vintage Petroleum, Inc., 7.875% 05/15/11........................................ 1,047 825 Westport Resources Corporation, 8.875% 09/15/07........................................ 862 -------- 10,791 -------- FINANCE -- MISCELLANEOUS -- 0.7% 650 DR Structured Finance Corporation, Series 94K2, 9.350% 08/15/19........................................ 358 159 DR Structured Finance Corporation, Series A-1, 7.600% 08/15/07........................................ 109 655 DR Structured Finance Corporation, Series A-2, 8.375% 08/15/15........................................ 393
SEE NOTES TO FINANCIAL STATEMENTS. 121 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- (CONTINUED) $ 1,180 DR Structured Finance Corporation, Series A-2, 7.430% 08/15/18........................................ $ 625 245 DR Structured Finance Corporation, Series A-3, 8.550% 08/15/19........................................ 118 1,785 The FINOVA Group Inc., 7.500% 11/15/09........................................ 620 -------- 2,223 -------- FOOD AND DRUG STORES -- 0.2% 640 Fleming Companies, Inc., 10.125% 04/01/08(a).................................... 669 -------- FOOD PRODUCTS -- 0.1% 178 Chiquita Brands International, Inc., 10.560% 03/15/09(a).................................... 186 -------- HEALTH SERVICES -- 3.8% 2,130 Express Scripts, Inc., 9.625% 06/15/09........................................ 2,354 285 Fountain View Inc., Series B, 11.250% 04/15/08(b)(c)................................. 147 210 Harborside Healthcare Corporation, (0.000)% due 08/01/07 12.000% beginning 08/01/04(i).......................... 93 280 HCA Inc., 7.875% 02/01/11........................................ 291 2,485 HCA Inc., 7.500% 11/15/95........................................ 2,203 980 Manor Care, Inc., 7.500% 06/15/06........................................ 994 1,525 Manor Care, Inc., 8.000% 03/01/08@....................................... 1,575 580 Mckesson Corporation, 7.750% 02/01/12........................................ 585 775 Rotech Healthcare Inc., 9.500% 04/01/12@....................................... 800 1,075 Team Health Inc., Series B, 12.000% 03/15/09....................................... 1,204 1,953 Unilab Fiance Corporation, 12.750% 10/01/09....................................... 2,248 -------- 12,494 -------- HEAVY MACHINERY -- 1.4% 1,535 Dresser, Inc., 9.375% 04/15/11@....................................... 1,580 1,025 Joy Global Inc., 10.750% 04/30/06(a).................................... 1,074 240 Thermadyne Bank Debt Funded Revolver, 4.600%** 05/22/04(i)(j)................................ 207 238 Thermadyne Bank Debt Term A, 4.600%** 05/22/04(i)(j)................................ 205 843 Thermadyne Bank Debt Term B, 4.910%** 05/22/05(i)(j)................................ 726
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- HEAVY MACHINERY -- (CONTINUED) $ 843 Thermadyne Bank Debt Term C, 4.660%** 05/22/06(i)(j)................................ $ 726 65 Thermadyne Manufacturing LLC, 9.875% 06/01/08(b)(c).................................. 24 -------- 4,542 -------- HOUSEHOLD PRODUCTS -- 0.1% 360 Hasbro, Inc., 5.600% 11/01/05(a)..................................... 333 -------- INTEGRATED OIL -- 0.2% 850 Northern Natural Gas, 6.750% 09/15/08@....................................... 812 -------- LODGING AND RECREATION -- 6.9% 700 Bally Total Fitness Holding Corporation, Series D, 9.875% 10/15/07(a)..................................... 702 1,060 Hilton Hotels Corporation, 7.625% 05/15/08##...................................... 1,057 395 Hilton Hotels Corporation, 8.250% 02/15/11(a)..................................... 403 210 Hilton Hotels Corporation, 7.500% 12/15/17........................................ 190 1,685 Hollywood Casino Corporation, 13.000% 08/01/06....................................... 1,807 3,230 ITT Corporation, 7.375% 11/15/15........................................ 3,028 1,015 ITT Corporation, 7.750% 11/15/25........................................ 877 1,085 Jacobs Entertainment, 11.875% 02/01/09@...................................... 1,071 720 Mandalay Resort Group, 9.500% 08/01/08........................................ 778 315 Park Place Entertainment Corporation, 8.875% 09/15/08(a)..................................... 330 1,600 Park Place Entertainment Corporation, 8.125% 05/15/11(a)..................................... 1,608 1,210 Penn National Gaming, Inc., Series B, 11.125% 03/01/08....................................... 1,301 1,330 Pinnacle Entertainment, Inc., Series B, 9.250% 02/15/07........................................ 1,270 1,695 Pinnacle Entertainment, Inc., Series B, 9.500% 08/01/07........................................ 1,627 1,845 Sun International Hotels Ltd., 9.000% 03/15/07(a)..................................... 1,882 697 United Artists Theatre Circuit Inc., 9.300% 07/01/15........................................ 523 2,030 Vail Resorts, Inc., 8.750% 05/15/09@....................................... 2,066
SEE NOTES TO FINANCIAL STATEMENTS. 122 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- LODGING AND RECREATION -- (CONTINUED) $ 1,020 Venetian Casino Resort LLC, 12.250% 11/15/04(a).................................... $ 1,074 920 Wheeling Island Gaming Inc., 10.125% 12/15/09@...................................... 952 -------- 22,546 -------- MEDICAL DEVICES AND SUPPLIES -- 2.8% 2,950 Alaris Medical Systems, Inc., 9.750% 12/01/06(a)..................................... 2,862 1,387 Alaris Medical Systems, Inc., (0.000)% due 08/01/08 11.125% beginning 08/01/03............................. 971 2,939 DJ Orthopedics LLC, 12.625% 06/15/09....................................... 3,217 2,135 Per-Se Technologies, Inc., Series B, 7.000% 02/15/05........................................ 2,082 -------- 9,132 -------- METALS AND MINING -- 2.2% 810 Commonwealth Industries, Inc., 10.750% 10/01/06....................................... 810 2,100 Great Central Mines Ltd., 8.875% 04/01/08........................................ 2,153 1,306 Newmont Mining Corporation, 8.625% 05/15/11(a)..................................... 1,325 245 Ormet Corporation, 11.000% 08/15/08@...................................... 147 1,185 UCAR Finance Inc., 10.250% 02/15/12@...................................... 1,244 1,440 United States Steel LLC, 10.750% 08/01/08@(a)................................... 1,440 -------- 7,119 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 2.5% 1,940 Avaya Inc., 11.125% 04/01/09....................................... 1,901 1,410 IPC Acquisition Corporation, 11.500% 12/15/09@...................................... 1,385 1,095 Lucent Technologies Inc., 7.250% 07/15/06(a)..................................... 898 535 Lucent Technologies Inc., 6.500% 01/15/28........................................ 345 3,380 Lucent Technologies Inc., 6.450% 03/15/29........................................ 2,181 3,070 Marconi Corporation plc, 8.375% 09/15/30........................................ 921 890 Nortel Networks Ltd., 6.125% 02/15/06(a)..................................... 659 -------- 8,290 -------- OILFIELD SERVICES -- 2.0% 1,640 Grant Prideco, Inc., Series B, 9.625% 12/01/07........................................ 1,706 2,575 Halliburton Company, 6.000% 08/01/06(a)..................................... 2,354 700 Hallliburton Company, 8.750% 02/15/21........................................ 636
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- OILFIELD SERVICES -- (CONTINUED) $ 760 HORNBECK-LEEVAC Marine Services, Inc., 10.625% 08/01/08....................................... $ 785 1,005 Parker Drilling Company, Series D, 9.750% 11/15/06........................................ 1,035 -------- 6,516 -------- PACKAGING AND CONTAINERS -- 2.3% 2,835 Crown Cork & Seal Company, Inc., 7.125% 09/01/02(a)..................................... 2,621 720 Crown Cork & Seal Company, Inc., 6.750% 04/15/03(a)..................................... 612 150 Crown Cork & Seal Company, Inc., 8.000% 04/15/23........................................ 113 1,783 Owens Corning Bank Debt Funded Revolver, 6.750%** 06/26/02(i)(j)................................ 1,246 1,485 Owens-Brockway, 8.875% 02/15/09@....................................... 1,515 745 Owens-Illinois, Inc., 7.150% 05/15/05........................................ 711 710 Owens-Illinois, Inc., 7.800% 05/15/18........................................ 616 -------- 7,434 -------- PAPER AND FOREST PRODUCTS -- 2.2% 1,630 Doman Industries Ltd., Class A, 12.000% 07/01/04(a).................................... 1,492 695 Georgia-Pacific Corporation, 9.875% 11/01/21........................................ 656 870 Georgia-Pacific Corporation, 9.625% 03/15/22........................................ 817 1,200 Georgia-Pacific Corporation, 9.500% 05/15/22........................................ 1,126 1,040 Georgia-Pacific Corporation, 8.875% 05/15/31........................................ 980 900 Norske Skog Canada Ltd., 8.625% 06/15/11@....................................... 911 1,395 Pope and Talbot, Inc., 8.375% 06/01/13........................................ 1,280 -------- 7,262 -------- PHARMACEUTICALS -- 2.1% 1,095 AmerisourceBergen Corporation, 8.125% 09/01/08........................................ 1,144 2,260 Biovail Corporation, 7.875% 04/01/10........................................ 2,246 2,725 Caremark Rx, Inc., 7.375% 10/01/06........................................ 2,759 520 McKesson Corporation, 7.650% 03/01/27........................................ 474 190 Mckesson Finance of Canada, 6.550% 11/01/02@....................................... 192 -------- 6,815 --------
SEE NOTES TO FINANCIAL STATEMENTS. 123 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- PUBLISHING AND ADVERTISING -- 3.0% $ 1,305 American Color Graphics, 12.750% 08/01/05....................................... $ 1,294 1,785 Garden State Newspapers, Inc., Series B, 8.750% 10/01/09........................................ 1,766 537 Hollinger Participation Trust, 12.125% 11/15/10@(d)................................... 516 1,610 Key3Media Group, Inc., 11.250% 06/15/11(a).................................... 1,453 1,335 Phoenix Color Corporation, 10.375% 02/01/09....................................... 995 510 Quebecor Media Inc., 11.125% 07/15/11....................................... 553 1,640 Quebecor Media Inc., (0.000)% due 07/15/11 13.750% beginning 07/01/06............................. 1,132 695(f) Regional Independent Media Holdings Ltd., (0.000)% due 07/01/08 12.875% beginning 07/01/03............................. 960 360 TDL Infomedia Holdings Ltd., 12.900%*** 10/15/10.................................... 290 115 TS/F Communications Corporation, Series B, 10.375% 11/01/07....................................... 113 2,740 Ziff Davis Media Inc., Series B, 12.000% 07/15/10(a).................................... 658 -------- 9,730 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.2% 326 Ermis Maritime Holdings Ltd., 12.500% 12/31/04(d)(h)(i).............................. 278 4 Pegasus Promissory Note, 0.000% 01/01/99(b)(h)(i)............................... 0++ 230 Sea Containers Ltd., Series B, 10.750% 10/15/06(a).................................... 193 230 Sea Containers Ltd., Series B, 7.875% 02/15/08........................................ 152 -------- 623 -------- REAL ESTATE -- 0.9% 1,155 CB Richard Ellis Services Inc., 11.250% 06/15/11....................................... 1,086 610 LNR Property Corporation, 10.500% 01/15/09....................................... 634 1,045 LNR Property Corporation, Series B, 9.375% 03/15/08........................................ 1,054 -------- 2,774 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 3.1% 1,140 BF Saul, Series B, 9.750% 04/01/08........................................ 1,143 190 Capstar Hotel, 8.750% 08/15/07........................................ 186
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- (CONTINUED) $ 2,505 Crescent Real Estate Equities LP, 7.000% 09/15/02........................................ $ 2,506 1,040 Crescent Real Estate Equities LP, 7.500% 09/15/07........................................ 984 930 Healthcare Realty Trust, Inc., 8.125% 05/01/11........................................ 941 1,685 MeriStar Hospitality Corporation, 9.000% 01/15/08........................................ 1,710 1,535 OMEGA Healthcare Investors, Inc., 6.950% 08/01/07........................................ 1,331 1,310 Senior Housing Properties Trust, 8.625% 01/15/12........................................ 1,359 -------- 10,160 -------- SOFTWARE -- 0.4% 1,515 Computer Associates International, Inc., Series B, 6.250% 04/15/03........................................ 1,439 -------- SPECIALTY STORES -- 0.9% 2,630 The Gap, Inc., 5.625% 05/01/03(a)..................................... 2,622 265 The Gap, Inc., 6.900% 09/15/07........................................ 232 -------- 2,854 -------- STEEL -- 0.4% 1,577 Algoma Steel Inc., 11.000% 12/31/09(a).................................... 1,119 788 Algoma Steel Inc., 1.000% 12/31/30........................................ 225 -------- 1,344 -------- TELECOMMUNICATIONS SERVICES -- 5.8% 250 360Networks Inc., 13.000% 05/01/08(b)(c)................................. 0++ 760 Alamosa Delaware Inc., 12.500% 02/01/11(a).................................... 623 2,820 Alamosa Holdings, Inc., (0.000)% due 02/15/10 12.875% beginning 02/15/05............................. 1,382 2,285 Call-Net Enterprises, Inc., 9.375% 05/15/09(a)..................................... 663 2,275 Call-Net Enterprises, Inc., (0.000)% due 05/15/09 10.800% beginning 05/15/04............................. 506 170 Call-Net Enterprises, Inc., (0.000)% due 08/15/08 8.940% beginning 08/15/03.............................. 41 1,145 COLO.COM, 13.875% 03/15/10@(b)(c)................................ 46 3,880 Globix Corporation, 12.500% 02/01/10(b)(c)................................. 563 583 GT Telecom Racers Notes Trust, Series A, 6.563%** 06/30/08(i)................................... 233
SEE NOTES TO FINANCIAL STATEMENTS. 124 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) $ 417 GT Telecom Racers Notes Trust, Series B, 6.563%** 02/03/03(i)................................... $ 167 180 IMPSAT Fiber Networks, Inc., 13.750% 02/15/05(b).................................... 7 789 Loral Cyberstar Inc., 10.000% 07/15/06....................................... 592 3,650 Millicom International Cellular SA, 13.500% 06/01/06....................................... 1,970 5,140 Neon Communications Inc., 12.750% 08/15/08(b).................................... 720 1,075 Nextel International Inc., 12.750% 08/01/10(a)(b)................................. 65 1,920 Nextel International Inc., (0.000)% due 04/15/08 12.125% beginning 04/15/03............................. 96 165 Pagemart Nationwide, 15.000% 02/01/05(b)(c)................................. 1 945 Price Communications Wireless, Inc., 11.750% 07/15/07##..................................... 1,009 205 Price Communications Wireless, Inc., Series B, 9.125% 12/15/06........................................ 213 350 PSINet, Inc., 11.500% 11/01/08(b)(c)................................. 35 1,210 PSINet, Inc., 11.000% 08/01/09(b)(c)................................. 121 2,155 Qwest Capital Funding Inc., 7.750% 08/15/06(a)..................................... 1,833 310 Qwest Capital Funding, Inc., 5.875% 08/03/04(a)..................................... 266 1,980 Qwest Capital Funding, Inc., 7.900% 08/15/10........................................ 1,673 850 Qwest Corporation, 7.200% 11/01/04........................................ 793 1,410 Qwest Corporation, 8.875% 03/15/12@....................................... 1,388 160 Rogers Communications, Inc., 8.875% 07/15/07........................................ 161 688 Telesystem International Wireless Inc., 14.000% 12/30/03@(a)........................................... 599 2,145 TSI Telecommunication Services Inc., 12.750% 02/01/09@... 2,058 1,455 U.S. Unwired Inc., Series B, (0.000)% due 11/01/09 13.375% beginning 11/01/04............................. 960 -------- 18,784 -------- TOBACCO -- 0.2% 855 North Atlantic Trading Company, 11.000% 06/15/04......... 790 -------- TOTAL CORPORATE BONDS AND NOTES (Cost: $265,353)....................................... 257,282 --------
PRINCIPAL AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- 0.2% $ 133(e) Kpn Qwest NV, 10.000% 03/15/12(d)........................ $ 35 585(e) Ono Finance plc, 13.000% 05/01/09........................ 225 595(e) SBS Broadcasting SA, 12.000% 06/15/08.................... 451 -------- TOTAL FOREIGN BONDS AND NOTES (Cost: $935)........................................... 711 -------- FOREIGN CONVERTIBLE BONDS AND NOTES -- 0.5% 580(e) Colt Telecom Group plc, 2.000% 03/29/06@................. 240 740(e) Colt Telecom Group plc, 2.000% 12/16/06@................. 303 2,410(e) Colt Telecom Group plc, 2.000% 04/03/07@................. 989 -------- TOTAL FOREIGN CONVERTIBLE BONDS AND NOTES (Cost: $2,104)......................................... 1,532 -------- SHARES - --------- PREFERRED STOCKS -- 1.2% BROADCASTING AND CABLE -- 0.2% 7,000 Paxon Communications Corporation......................... 644 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.0%+ 6,170 Ermis Maritime Holding Ltd.!!(h)(i)...................... 0++ -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.8% 23,400 Sovereign REIT@##........................................ 2,574 -------- TELECOMMUNICATIONS SERVICES -- 0.2% 12,390 Rural Cellular Corporation, Series B,.................... 558 -------- TOTAL PREFERRED STOCKS (Cost: $3,856)......................................... 3,776 -------- PRINCIPAL AMOUNT (000) - --------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 1.1% (Cost: $3,700) U.S. TREASURY NOTES -- 1.1% $ 3,890 5.375% 02/15/31(a)....................................... 3,651 -------- SHARES - --------- WARRANTS -- 0.0%+ 1,145 COLO.COM Expire 03/15/10!!@(h).................................. 0++ 1,944 Genesis Health Ventures Expire 10/01/02!!(i)................................... 4
SEE NOTES TO FINANCIAL STATEMENTS. 125 NATIONS MASTER INVESTMENT TRUST Nations High Yield Bond Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2002
VALUE SHARES (000) - -------------------------------------------------------------------------------- WARRANTS -- (CONTINUED) 5,803 Harborside Healthcare Corporation Expire 08/01/09!!(i)................................... $ 6 1,663 ICO Global Communications Expire 5/16/06!!(i).................................... 0++ 7,783 Loral Space & Communications Expire 1/15/07!! 8 1,365 Ono Finance plc Expire 03/16/11!!@(i).................................. 1 180 UbiquiTel Inc. Expire 04/15/10!!@(i).................................. 6 -------- TOTAL WARRANTS (Cost: $236)........................................... 25 -------- SHARES (000) - --------- INVESTMENT COMPANIES -- 21.0% (Cost: $68,490) 68,490 Nations Cash Reserves, Capital Class Shares#............. 68,490 -------- TOTAL INVESTMENTS (Cost $371,773)................................. 111.0% 362,223 -------- OTHER ASSETS AND LIABILITIES (NET)................ (11.0)% Unrealized appreciation on forward foreign exchange contracts.............................................. $ 19 Receivable for investment securities sold................ 1,618 Dividends receivable..................................... 6 Interest receivable...................................... 6,641 Unrealized depreciation on forward foreign exchange contracts.............................................. (3) Collateral on securities loaned.......................... (38,058) Investment advisory fee payable.......................... (146) Administration fee payable............................... (13) Due to custodian......................................... (196) Payable for investment securities purchased.............. (5,816) Accrued Trustees' fees and expenses...................... (32) Accrued expenses and other liabilities................... (35) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)................. (36,015) -------- NET ASSETS........................................ 100.0% $326,208 ========
- --------------- * Federal Income Tax Information: Net unrealized depreciation of $9,625 on investment securities was comprised of gross appreciation of $12,256 and gross depreciation of $21,881 for federal income tax purposes. At March 31, 2002, the aggregate cost of securities for federal income tax purposes was $371,848. **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. ***Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2002. !!Non-income producing security. @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. + Amount represents less than 0.1%. ++Amount represents less than $500. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $38,058. (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 $36,976 and $36,096, respectively. (b)Issue in default. (c)Issuer in bankruptcy. (d)PIK ("Payment in kind"). Interest or dividend payment is made with additional securities. (e)Principal amount denominated in Euro. (f)Principal amount denominated in British Pounds. (h)Fair valued security. (i)Restricted security. (j)Loan participation agreement. SEE NOTES TO FINANCIAL STATEMENTS. 126 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF OPERATIONS For the year ended March 31, 2002
INTERMEDIATE HIGH YIELD BOND MASTER BOND MASTER PORTFOLIO PORTFOLIO --------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Interest.................................................... $ 9,665 $ 19,118 Dividends (Net of foreign withholding taxes of $1 and $2.)...................................................... 249 578 Dividend income from affiliated funds....................... 314 578 Securities lending.......................................... 79 56 -------------- -------------- Total investment income................................. 10,307 20,330 -------------- -------------- EXPENSES: Investment advisory fee..................................... 719 1,057 Administration fee.......................................... 90 96 Custodian fees.............................................. 19 15 Legal and audit fees........................................ 23 18 Trustees' fees and expenses................................. 28 29 Interest expense............................................ 1 1 Other....................................................... 4 32 -------------- -------------- Total expenses.......................................... 884 1,248 Fees reduced by credits allowed by the custodian............ (2) (2) -------------- -------------- Net expenses............................................ 882 1,246 -------------- -------------- NET INVESTMENT INCOME....................................... 9,425 19,084 -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... 110 1,315 Futures................................................... (183) -- Forward foreign exchange contracts, foreign currencies and other net assets........................................ -- (43) -------------- -------------- Net realized gain/(loss) on investments..................... (73) 1,272 -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities................................................ (4,570) (6,976) Futures................................................... (1,005) -- Forward foreign exchange contracts, foreign currencies and other net assets........................................ -- (45) -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (5,575) (7,021) -------------- -------------- Net realized and unrealized gain/(loss) on investments...... (5,648) (5,749) -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ 3,777 $ 13,335 ============== ==============
127 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF CHANGES IN NET ASSETS
INTERMEDIATE BOND HIGH YIELD BOND 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................................ $ 9,425 $ 7,924 $ 19,084 $ 4,203 Net realized gain/(loss) on investments.............. (73) (1,399) 1,272 (116) Net change in unrealized appreciation/(depreciation) of investments..................................... (5,575) 6,544 (7,021) (2,336) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations......................................... 3,777 13,069 13,335 1,751 Contributions........................................ 314,639 12,629 356,998 105,168 Withdrawals.......................................... (100,895) (6,886) (139,663) (24,881) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets................ 217,521 18,812 230,670 82,038 NET ASSETS: Beginning of year.................................... 138,313 119,501 95,538 13,500 -------------- -------------- -------------- -------------- End of year.......................................... $ 355,834 $ 138,313 $ 326,208 $ 95,538 ============== ============== ============== ==============
FINANCIAL HIGHLIGHTS
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF OPERATING INVESTMENT OPERATING EXPENSES INCOME/(LOSS) PORTFOLIO EXPENSES TO TOTAL TO AVERAGE TO AVERAGE TURNOVER AVERAGE RETURN@ NET ASSETS NET ASSETS RATE NET ASSETS ------------------------------------------------------------------------- INTERMEDIATE BOND MASTER PORTFOLIO: Year ended 3/31/2002........................... 4.33% 0.49%(c)(d) 5.24% 228% 0.49%(c) Year ended 3/31/2001........................... -- 0.45(c) 6.61 118 0.46(c) Period ended 3/31/2000......................... -- 0.54+ 6.10+ 90 0.55+ Period ended 5/14/1999(a)...................... -- 0.38+ 5.61+ 19 0.42+ Year ended 2/28/1999(a)........................ -- 0.35 5.69 137 0.45 Year ended 2/28/1998(a)........................ -- 0.35 5.99 127 0.55 HIGH YIELD BOND MASTER PORTFOLIO: Year ended 3/31/2002........................... 6.33% 0.65%(c)(d) 9.93% 64% 0.65%(c) Year ended 3/31/2001........................... -- 0.71 11.14 63 0.72 Period ended 3/31/2000(b)...................... -- 2.82+ 5.16+ 26 2.86+
- --------------- + Annualized. (a)Represents financial information for the Pacific Horizon Intermediate Bond Portfolio, which was reorganized into Intermediate Bond Master Portfolio on May 21, 1999. (b)High Yield Bond Master Portfolio commenced operations on February 14, 2000. (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. 128 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 Intermediate Bond Master Portfolio and High Yield Bond 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: Intermediate Bond Master Portfolio: Nations Intermediate Bond Fund................ 92.1% Nations Intermediate Bond Fund (Offshore)..... 7.9% High Yield Bond Master Portfolio: Nations High Yield Bond Fund.................. 92.3% Nations High Yield Bond Fund (Offshore)....... 7.7%
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 are generally valued using prices provided by a pricing service or based upon broker-dealer quotations. Certain prices provided by broker-dealers or the pricing service may be based on a matrix pricing system, which considers such factors as security prices, yields and maturities. Certain securities may be valued based upon quotes provided by one or more principal market makers. Securities, including options and 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 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. 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 close of the New York Stock Exchange on the valuation date. Futures contracts: The Intermediate Bond Master Portfolio and High Yield Bond 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 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 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. Options: The Intermediate Bond Master Portfolio may purchase and write call and put options on non-U.S. stock index and interest rate futures contracts. A Master Portfolio may use such options on futures contracts in connection with its hedging strategies and for the purpose of yield enhancement in lieu of purchasing and writing options directly on the underlying securities or stock indices or purchasing and selling the underlying futures. The Master Portfolio may write covered call options and put options on securities in which it is permitted to invest from time to time in seeking to attain the Master Portfolio's objective. Call options written by a Master 129 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Portfolio give the holder the right to buy the underlying securities from the Master Portfolio at a stated exercise price; put options give the holder the right to sell the underlying security to the Master Portfolio at a stated price. In the case of put options, a Master Portfolio is required to maintain in a separate account liquid assets with a value equal to or greater than the exercise price of the underlying securities. The Master Portfolio may also write combinations of covered puts and calls on the same underlying security. When the Portfolio purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Portfolio writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. The Master Portfolio typically receives a premium from writing a put or call option, which would increase the Master Portfolio's return in the event the option expires unexercised or is closed out at a profit. The amount of the premium would reflect, among other things, the relationship of the market price of the underlying security to the exercise price of the option, the term of the option and the volatility of the market price of the underlying security. By writing a call option, a Master Portfolio limits its opportunity to profit from any increase in the market value of the underlying security for an exercise price higher than its then current market value, resulting in potential capital loss if the purchase price exceeds the market value plus the amount of the premium received. The Master Portfolio may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Master Portfolio will realize a profit or loss from such transaction in which it purchases an option having the same terms as the option written. The Master Portfolio will realize a profit or loss from such transaction if the cost of such transaction is less or more than the premium received from the writing of the option. In the case of a put option, any loss so incurred may be partially or entirely offset by the premium received from a simultaneous or subsequent sale of a different put option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by a Master Portfolio. 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 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, a 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 Portfolios 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 130 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 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. Swaps: The Portfolios may engage in swap transactions such as interest rate, total return, index or currency swaps, consistent with its investment objective and policies. Swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest, effective return, or total return throughout the lives of the agreements. The interest to be paid or received on interest rate swaps is included in interest income. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statement of net assets. A realized gain or loss is recorded upon termination of swap agreements and is equal to the difference between the Master Portfolio's basis in the swap and the proceeds from (or cost of) the closing transaction. Swap agreements are stated at fair value. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. If there is a default by the counterparty to a swap contract, a Portfolio will be limited to contractual remedies pursuant to the agreements related to the transaction. There is no assurance that the swap contract counterparties will be able to meet their obligations pursuant to the swap contracts or that, in the event of default, a Portfolio will succeed in pursuing contractual remedies. A Portfolio thus assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to the swap contracts. The creditworthiness of the swap contract counterparties is closely monitored in order to minimize this risk. 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. When-issued/delayed delivery securities: Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after trade date; interest income is not accrued until settlement date. At the time a Master Portfolio enters into such transactions, it instructs the custodian to segregate assets with a current value at least equal to the amount of its when-issued or delayed-delivery purchase commitments. Loan Participations: The High Yield Master Portfolio may invest in Loan Participations. When the Master Portfolio purchases a Loan Participation, the Master Portfolio typically enters into a contractual relationship with the lender or third party selling such Participations ("Selling Participant"), but not the Borrower. As a result, the Master Portfolio assumes the credit risk of the Borrower, the Selling Participant and any other persons interpositioned between the Master Portfolio and the Borrower ("Intermediate Participants"). The Master Portfolio may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the Loan Participation. 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. Effective April 1, 2001, the Master Portfolios have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies which requires the Master Portfolios to classify gains and loses realized on principal paydowns received on mortgage-backed securities, previously included in realized gain/loss, as part of interest income. The adoption of this accounting principle has no effect on the Master Portfolios' net asset value but changed the classification between interest income and realized gain/loss on the Statement of operations. The Statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change. The impact of the adoption of this principle is not material to the financial statements. Federal income taxes: The Master Portfolios are treated as partnerships for federal income tax purposes and therefore are not subject to federal income tax. Each investor in the Master Portfolios will be subject to taxation on its allocated share of the Master Portfolio's ordinary income and capital gains. Expenses: General expenses of the Master Trust are allocated to the Master Portfolios based upon their 131 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 Master 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 following annual rates multiplied by the average daily net assets of each Master Portfolio:
ANNUAL RATE - ---------------------------------------------------------- Intermediate Bond Master Portfolio........... 0.40% High Yield Bond Master Portfolio............. 0.55%
The Master Trust has, on behalf of the Intermediate Bond Master Portfolio, entered into a sub-advisory agreement with BA Advisors and Banc of America Capital Management, LLC ("BACAP"), a wholly-owned subsidiary of Bank of America, pursuant to which BACAP is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.15% of the Master Portfolio's average daily net assets. The Master Trust has, on behalf of the High Yield Bond Master Portfolio, entered into a sub-advisory agreement with BA Advisors and MacKay Shields LLC ("MacKay Shields") pursuant to which MacKay Shields is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.40% of the Master Portfolio's average daily net assets up to and including $100 million; 0.375% of the Master Portfolio's average daily net assets over $100 million and up to and including $200 million and 0.35% of the Master Portfolio's average daily net assets over $200 million. 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% of each Master Portfolio's average daily net assets 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 $3,863 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, BA Advisors or BACAP, 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". 132 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government securities and short-term investments, for the year ended March 31, 2002 were as follows:
PURCHASES SALES (000) (000) --------------------- Intermediate Bond Master Portfolio..................... $122,694 $ 72,062 High Yield Bond Master Portfolio..................... 315,034 107,296
The aggregate cost of purchases and proceeds from sales of long-term U.S. government securities for the year ended March 31, 2002 were as follows:
PURCHASES SALES (000) (000) --------------------- Intermediate Bond Master Portfolio..................... $465,528 $316,952 High Yield Master Portfolio..... 5,545 1,873
4. FUTURES CONTRACTS At March 31, 2002, the Intermediate Bond Master Portfolio had the following futures contracts open:
UNREALIZED VALUE OF CONTRACT MARKET VALUE OF APPRECIATION/ NUMBER OF WHEN OPENED CONTRACTS (DEPRECIATION) DESCRIPTION CONTRACTS (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ U.S. 5 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 530 $55,964 $54,979 $ (985) U.S. 10 year Treasury Note Futures (long position) expiring June 2002(a)................................................ 120 12,341 12,294 (47) ------- Total net unrealized depreciation........................... $(1,032) =======
- --------------- (a)Securities have been segregated as collateral for open futures contracts. 5. FORWARD FOREIGN CURRENCY CONTRACTS At March 31, 2002, the High Yield Bond Master Portfolio had the following forward foreign currency contracts outstanding:
VALUE OF UNREALIZED CONTRACT VALUE OF CONTRACT MARKET VALUE OF APPRECIATION/ WHEN OPENED WHEN OPENED CONTRACTS (DEPRECIATION) LOCAL (LOCAL CURRENCY) (US DOLLARS) (US DOLLARS) (US DOLLARS) DESCRIPTION CURRENCY (000) (000) (000) (000) - --------------------------------------------------------------------------------------------------------------------------------- CONTRACTS TO SELL: Expiring June 10, 2002................... Euro (377) $ (329) $ (328) $ 1 Expiring June 20, 2002................... Euro (1,633) (1,438) (1,420) 18 Expiring April 15, 2002.................. British Pound (367) (519) (522) (3) Sterling ----- Total net unrealized appreciation........ $ 16 =====
6. 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 amounts borrowed pursuant to the Agreement) to the aggregate amount of indebtedness pursuant to the Agreement of no less than 4 to 1. 133 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the year ended March 31, 2002, borrowings by the Funds under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST FUND (000) RATE - ----------------------------------------------------------- Intermediate Bond Master Portfolio....................... $14 5.17% High Yield Master Portfolio....... 36 3.25
7. 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 LOANED SECURITIES OF COLLATERAL FUND (000) (000) - ---------------------------------------------------------------- Intermediate Bond Master Portfolio................. $69,300 $71,396 High Yield Bond Master Portfolio................. 36,096 38,058
8. RESTRICTED SECURITIES Certain securities may be subject to legal restrictions and may be difficult to sell. No Fund will invest more than 10% of the value of its net assets in securities that are considered illiquid. The following securities are considered both illiquid and restricted as to resale at March 31, 2002 for the High Yield Bond Master Portfolio.
PRINCIPAL MARKET VALUE ACQUISITION AMOUNT/SHARES COST 3/31/02 PERCENTAGE SECURITY DATE (000) (000) (000) OF NET ASSETS - ----------------------------------------------------------------------------------------------------------- Ackerly Group Bank Debt Term Loan, 6.900% due 11/10/02(e)(f)............ 08/22/01 1,141 $ 1,104 $ 1,147 0.3% @Track Communications, Inc. ......... 12/26/01 128 311 284 0.1 Ermis Maritime Holdings Ltd., 12.500% due 12/31/04(b)(c)................... 02/22/01 326 288 278 0.1 Ermis Maritime Holding Ltd. Preferred Stock(b)............................. 03/09/01 6 0** 0** 0.0* Genesis Health Ventures, Inc......... 10/18/01 1 32 21 0.0* Genesis Health Ventures Warrants..... 10/18/01 2 12 4 0.0* GT Telecom Racers Notes Trust, Series 01/12/01- B, 6.563% due 02/03/03(e)............ 01/31/02 417 373 167 0.1 GT Telecom Racers Notes Trust, Series 01/12/01- A, 6.563% due 06/30/08(e)............ 01/31/02 583 462 233 0.1 Harborside Healthcare Corporation, 0.000% due 08/01/07 12.000% beginning 08/01/04........... 10/25/01 210 90 93 0.0* Harborside Healthcare Corporation Warrants............................. 05/09/01 6 9 6 0.0* ICO Global Communications Warrants............................. 11/07/00 2 0** 0** 0.0*
134 NATIONS MASTER INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRINCIPAL MARKET VALUE ACQUISITION AMOUNT/SHARES COST 3/31/02 PERCENTAGE SECURITY DATE (000) (000) (000) OF NET ASSETS - ----------------------------------------------------------------------------------------------------------- 1/3;yNorthwest Airlines Inc., Series 2001, Class C, 7.626% due 04/01/10... 10/16/01 705 $ 627 $ 630 0.2% Ono Finance plc Warrants(d).......... 07/17/01 1 181 1 0.0* Owens Corning Bank Debt Funded Revolver, 6.750% due 06/26/02(e)(f)....................... 08/15/01 1,783 1,198 1,246 0.4 Pacific Gas and Electric Company Bank 01/29/02- Debt A, 8.000% due 12/30/06(e)(f).... 02/08/02 2,795 2,826 2,879 0.9 Pegasus Promissory Note(a)(b)........ 08/24/01 4 0** 0** 0.0* Thermadyne Holding Corporation: Bank Debt Funded Revolver, 4.600% due 05/22/04(e)(f)................. 07/10/01 240 208 207 0.1 Bank Debt Term A, 4.600% due 05/22/04(e)(f).......... 07/10/01 238 205 205 0.0* Bank Debt Term B, 4.910% due 05/22/05(e)(f).......... 01/28/02 843 727 726 0.2 Bank Debt Term C, 4.660% due 05/22/06(e)(f).......... 01/28/02 843 727 726 0.2 07/03/00- UbiquiTel Inc. Warrants(d)........... 07/10/00 180 10 6 0.0* United Artists Theatre Company(b).... 02/01/01 17 16 60 0.0* Xerox Bank Debt Funded Revolver, 4.970% due 10/22/02(e)(f)............ 10/22/02 2,100 1,963 1,995 0.6 ------- ------- ---- TOTAL $11,369 $10,914 3.3% ======= ======= ====
- --------------- * Amount represents less than 0.1%. ** Amount represents less than $500. (a) Issue in default. (b) Fair valued security. (c) PIK ("Payment in kind"). Interest or dividend payment is made with additional securities. (d) 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. (e) Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2002. (f) Loan participation agreement. 9. COMMITMENTS AND CONTINGENCIES As of March 31, 2002, the High Yield Bond Master Portfolio had unfunded loan commitments pursuant to the following loan agreements:
UNFUNDED COMMITMENT BORROWER: (000) - --------------------------------------------------------- Crown Cork & Seal Company, Inc. .... $1,000 Lucent Technologies, Inc............ 300 Owens Corning, Inc.................. 117 Thermadyne Manufacturing, LLC....... 1,325
135 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 Intermediate Bond Master Portfolio and Nations High Yield 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 136 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 Nations Master companies) from 1998 through Investment Trust only) April 2001. 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 MEMBERS William P. Carmichael Director -- Cobra Electronics Age: 58 Corporation (electronic equipment Board Member (Nations manufacturer), Opta Food Funds Trust and Nations Master Ingredients, Inc. (food Investment Trust only) ingredients manufacturer) and 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)
137 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 the inception 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 Treasurer since November 1998 -- Nations 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 the registered investment companies) Boards and Board Member Chairman and Board 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. 138 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. FIXEDAR 220635 (04/02) -----END PRIVACY-ENHANCED MESSAGE-----