-----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, DJwPzXolKdezi7Gb2xgQstHyWpArNX7PrJh5v/WwiDbF8OdNwJGRkbU//fHikhOt 3lg3ZAOdPEUKzfYkliwSmw== 0000950144-03-007527.txt : 20030605 0000950144-03-007527.hdr.sgml : 20030605 20030605135147 ACCESSION NUMBER: 0000950144-03-007527 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030605 EFFECTIVENESS DATE: 20030605 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: 03733824 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 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: 03733825 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 g81861nv30d.txt NATIONS FUNDS TRUST - STOCK FUNDS ANNUAL REPORT Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Classic Value Fund Nations LargeCap Value Fund Nations Value Fund Nations MidCap Value Fund Nations SmallCap Value Fund Nations Marsico Growth Fund Nations Strategic Growth Fund Nations Capital Growth Fund STOCK FUNDS Nations Marsico -------------------------------- Focused Equities Fund Annual report for the year ended March 31, 2003 Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations Small Company Fund [NATIONS FUNDS LOGO] SUPPLEMENT TO PROSPECTUS ENCLOSED 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. BACAP Distributors, LLC and Banc of America Capital Management, LLC are the distributor and investment adviser to Nations Funds, respectively. They and other affiliates of Bank of America provide services to Nations Funds and receive fees for such services. BACAP Distributors, LLC, member NASD, SIPC NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE NATIONS FUNDS TRUST NATIONS MIDCAP GROWTH FUND SUPPLEMENT DATED APRIL 11, 2003 TO PROSPECTUSES DATED AUGUST 1, 2002, AS SUPPLEMENTED The prospectuses for Nations MidCap Growth Fund are hereby supplemented to indicate that on or about February 24, 2003, BACAP's Small&MidCap Growth Strategies Team replaced BACAP's Growth Strategies Team as the portfolio management team that is responsible for making the day-to-day investment decisions for the Fund. MSSUPP-0403 CHAIRMAN'S AND PRESIDENT'S MESSAGE Dear Shareholder: The 12-month period ended March 31, 2003 has been described as the most difficult environment for the financial services industry since 1970. The U.S. economy struggled with a number of obstacles, including the aftermath of the 1990s stock market bubble, corporate malfeasance, the bankruptcy of WorldCom and Enron, ongoing fears of terrorist attacks and the threat and ultimate reality of war with Iraq. All of these factors weighed heavily on consumer, business and investor sentiments. As a result, the stock market was extremely volatile over the period. Market gains were followed by significant declines and rallies proved unsustainable. For the period, the stock market, as broadly represented by the three major equity indices -- the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), Dow Jones Industrial Average and Nasdaq Composite Index(1) -- declined by 24.75%, 21.45% and 26.97%, respectively. The bond market, however, served as a counterweight to stocks, generally registering higher prices as equity prices moved lower. Bond performance overall, as represented by the Lehman Aggregate Bond Index,(1) produced strong gains rising by 11.69% for the period. A WORD REGARDING CORPORATE GOVERNANCE The exposure of management and accounting irregularities over the past 18 months, combined with a protracted decline in stock values, has resulted in a crisis of confidence in U.S. companies. These conditions make stock selection more critical than ever. While corporate governance is more difficult to quantify than other factors such as volatility and leverage, our research process has and will continue to thoroughly evaluate management expertise and corporate accountability as key factors in making investment decisions. We evaluate management's years of industry experience, existence of an independent board of directors, levels of insider ownership, strength of the business plan, management's ability to execute the plan, the balance between vision and execution, and management's willingness to communicate openly with us, among other factors. LESSONS LEARNED FROM VOLATILE MARKETS The volatility we have experienced in the financial markets during the past twelve months highlights the importance of certain key lessons investors should take into account when planning for the future. First and foremost is the importance of having a relationship with an investment professional who knows you and your investment objectives. Your investment professional can provide valuable insight, helping you to avoid making impulsive decisions during short-term market fluctuations and to continue to take a long-term view of your portfolio. While it may be difficult to stay the course in the face of erratic market movements, history has shown us two important tenets -- that volatility is reduced over longer term holding periods, and that it is virtually impossible to consistently time the market. For example, an investor who stayed fully invested in the S&P 500 Index since March 31, 1993, would have earned an annualized total return of 6.50% on (1)The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. The indexes are not available for investment and do not reflect fees, brokerage commissions or other expenses of investing. 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. It is unmanaged and unavailable for investment. The Nasdaq Composite Index is a market-capitalization price-only index that tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System-traded foreign common stocks and American Depository Receipts. The Lehman Aggregate Bond Index is an unmanaged index composed of the Government Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed issues. It includes reinvestment of dividends and is unavailable for investment. CHAIRMAN'S AND PRESIDENT'S MESSAGE CONTINUED... March 31, 2003. However, by missing just 15 of the best trading days in an effort to time the market during that 10-year period, the return would have been -0.34%.(2) You can further manage your investing risk through building and maintaining a diversified portfolio. Historical evidence shows that not all asset classes move up and down at the same time. By diversifying among different asset classes such as stocks, bonds and cash equivalents, you can help manage risk and cushion some of the market's ups and downs to increase predictability of returns. Finally, you can actually put volatility to work for you -- by continuing to invest -- and doing so on a regular basis. This practice is known as dollar cost averaging. You'll buy more shares when the prices are low and fewer shares when prices are high. Dollar cost averaging can help avoid getting caught in the excitement of a rapidly rising market and buying all your shares at market highs.(3) It could also help to lower the average cost of your securities. OUR NEAR-TERM OUTLOOK At this writing, various geopolitical risks continue to hamper progress of the U.S. economy. An easing of some of these risks, combined with the positive effects of earlier monetary easing, the enactment of new tax cuts, a strong housing market and ongoing productivity gains should yield much better performance in the second half of 2003. In addition, we believe oil prices will remain at moderate levels and that badly damaged business and consumer confidence will gradually improve. Rising corporate profits are likely to boost stock prices, while signs of improved economic activity should ultimately exert downward pressure on bond prices. Given this anticipated backdrop, investors would be wise to maintain a long-term perspective and focus on a well-diversified portfolio. QUESTIONS OR COMMENTS In the letters that follow, your portfolio managers discuss factors that affected your funds' performance over the past twelve months and offer insights into their outlook for the future. If you have any questions or comments regarding this annual report or your Nations Funds investments, 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, please let us know. You can visit our Web site at www.NationsFunds.com for the most current performance information about our (your) funds and other investment products available to you. We appreciate your continued trust and confidence and thank you for being a part of the Nations Fund family. Sincerely, /S/ A. MAX WALKER A. MAX WALKER CHAIRMAN OF THE BOARD NATIONS FUNDS /S/ ROBERT H. GORDON ROBERT H. GORDON PRESIDENT BANC OF AMERICA CAPITAL MANAGEMENT, LLC AND NATIONS FUNDS March 31, 2003 (2)Annualized total return of the S&P 500 Index over the 20-year period 3/31/83 to 3/31/03. The S&P 500 Index is unmanaged and unavailable for investment. Past performance is no guarantee of future results. (3)A regular investment program neither provides assurance of making a profit nor guarantees against loss in a declining market. You should consider your ability to make regular investments through periods of fluctuating price levels before choosing any regular investment plan. TABLE OF CONTENTS ECONOMIC OVERVIEWS 3 PORTFOLIO COMMENTARY Nations Convertible Securities Fund 9 Nations Asset Allocation Fund 13 Nations Classic Value Fund 19 Nations LargeCap Value Fund 24 Nations Value Fund 30 Nations MidCap Value Fund 36 Nations SmallCap Value Fund 42 Nations Marsico Growth Fund 48 Nations Strategic Growth Fund 54 Nations Capital Growth Fund 60 Nations Marsico Focused Equities Fund 65 Nations MidCap Growth Fund 71 Nations Marsico 21st Century Fund 76 Nations Small Company Fund 82 FINANCIAL STATEMENTS Statements of net assets 87 Statements of operations 128 Statements of changes in net assets 132 Schedules of capital stock activity 138 Financial highlights 152 Notes to financial statements 180 Tax information 196 Statement of net assets -- Nations Master Investment Trust 198 Nations Marsico Growth Master Portfolio 198 Nations Strategic Growth Master Portfolio 200 Nations Marsico Focused Equities Master Portfolio 202 Statement of operations 204 Statement of changes in net assets 205 Financial highlights 206 Notes to financial statements 207 Fund governance 213
NATIONS FUNDS [DALBAR LOGO] RECOGNIZED FOR OUTSTANDING DALBAR, Inc. is a well-respected SHAREHOLDER SERVICE research firm that measures customer service levels and IN RECOGNITION OF ITS COMMITMENT establishes benchmarks in the TO PROVIDE SHAREHOLDERS WITH THE financial services industry. HIGHEST LEVEL OF SERVICE IN THE MUTUAL FUND INDUSTRY, NATIONS FUNDS RECEIVED THE DALBAR MUTUAL FUND SERVICE AWARD IN 2002.
[This page intentionally left blank] ECONOMIC OVERVIEW BANC OF AMERICA CAPITAL MANAGEMENT* THE YEAR IN REVIEW The past year saw the U.S. economy struggling to gain its footing, confronting a number of obstacles both internally and externally. The aftermath of the 1990s stock market bubble, various accounting scandals, ongoing fears of terrorist attacks and the war with Iraq depressed consumer, business and investor confidence. Each time the stock market and general economy appeared headed for stronger performance, some new shock took center stage. The economy remained resilient, with GDP (gross domestic product) growth averaging nearly 3.0% over the four quarters of 2002. Yet, that growth was not enough to generate the employment and profit gains commonly expected in a true recovery. For the 12-month period ended March 31, 2003, the Standard & Poor's 500 Composite Stock Price Index** was down nearly 25% with respect to total return. Equity losses were widespread, as indicated by the similarly weak showing of smaller companies. The small-company Russell 2000 Index*** shed approximately 27% in total return during the same period. The quarters ending in June and September of 2002 bore the brunt of the major market downturns. Few investment strategies avoided the general downdraft in equities. Growth and value stocks both fell substantially, as did many of the stocks of small-, medium-and large-size firms. Losses also encompassed a wide swath of industries, with all 10 of the major S&P 500 sector groups suffering double-digit declines. Interest rates rose and fell as patches of optimism encountered new waves of uncertainty or concern. Yields on 10-year U.S. Treasury notes climbed to a high of 5.44% on April 1, 2002 and fell to a low of 3.59% on March 10, 2003. The bond market served as a counterweight to stocks, generally registering higher prices as equity prices moved lower. As investors sought safer investments with the attack on Iraq, 10-year U.S. Treasury yields traded below 4.00% at the end of the fiscal year concluding March 31, 2003, compared with yields that exceeded 5.00% a year earlier. This decline in interest rates translated into a strong 14% return for the Lehman U.S. Treasury Index& for the period. Corporate bonds also did well during the period, with the Lehman Corporate Bond Index&& registering a 13% gain. As the war with Iraq began, investors caught glimpses of key turning points in the financial markets. On days when the Coalition Forces did well, prices of oil, bonds and gold declined, while stock prices and the value of the dollar rose. The intense *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 adviser to 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. Source of all statistical data -- Banc of America Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 3 ECONOMIC OVERVIEW CONTINUED... volatility of prices underscored the uncertainty with which investors viewed the geo-political environment and the future course of the U.S. economy. THE YEAR AHEAD As the second quarter of 2003 began, various U.S. and world economic indicators remained weak. Many businesses were deferring capital spending projects, focusing instead on cost cutting to protect profits. Consumers also appeared more cautious in their spending, although sales of cars and homes remained at relatively healthy levels. A boom in refinancing activity, supported by record low mortgage rates, has helped to sustain the consumer sector. Lower oil prices and an easing of geopolitical risks should help repair badly damaged business and consumer confidence and release the economy's underlying potential. In our opinion, the delayed effects of earlier monetary easing, the expected enactment of new tax cuts, rising home prices, and the ongoing benefits of rising productivity should combine to yield much better economic performance in the second half of 2003. As investors return to economic fundamentals, the capital markets could see major turning points. In our view, rising profits are likely to boost stock prices, while signs of better economic activity could push bond prices lower, but narrow credit spreads further. Investors would be wise to retain a long-term perspective, focus on a diversified portfolio, and resist efforts to time market changes. While global and domestic risks will persist, the U.S. economy remains inherently strong. LYNN REASER, PH.D. CHIEF ECONOMIST AND SENIOR MARKET STRATEGIST BANC OF AMERICA CAPITAL MANAGEMENT March 31, 2003 4 ECONOMIC OVERVIEW MARSICO CAPITAL MANAGEMENT, LLC THE YEAR IN REVIEW We face the perennial challenge of assimilating multiple sources of political, social, and macroeconomic data, assessing a wide variety of sectors and industries, analyzing several hundred individual companies, and formulating a well-grounded, prudent investment strategy. Even in the best market conditions, these "inputs" never point in the same direction. Some factors always send inconclusive and/or conflicting signals, or offer a wide range of possible interpretations. In developing a retrospective for equity market performance during the past twelve months, one major theme emerges: geopolitical risks. We think uncertainty related to war in Iraq, coupled with potentially combustible situations in the Middle East and North Korea, were the most influential factors affecting stock prices over the past year. In addition, there were abundant challenges facing investors at a company-specific level. At the forefront were profit- and accounting-related issues that buffeted many companies. Corporate bankruptcies, accounting problems, and executive-level scandals such as Enron Corporation and Worldcom Inc. dominated the news headlines one year ago. Recent revelations of more earnings manipulations at companies such as Ahold and HEALTHSOUTH Corporation raised questions whether these issues were only hangovers from a previous era, or a still-viable trend among a few executives who may be tempted to resort to questionable practices to massage earnings. We hope that new revelations will become rarer, as most companies appear to be making substantial efforts to avoid questionable accounting and strengthen their corporate governance in light of the well-publicized bankruptcies of Enron and WorldCom, and heightened scrutiny and regulations concerning accounting and corporate governance. There were, however, a number of positive underlying factors at work. These included low interest rates, the narrowing of credit spreads between below- investment grade debt and U.S. Treasuries, constrained overall rates of inflation (even with the significant spike in oil prices), and continued productivity gains. As of the end of March, oil prices had declined substantially from levels reached earlier in 2003. Mortgage refinancing remained at high levels, and there was some evidence that consumers were redeploying the cash from lower mortgage expenses to pay down other higher-cost obligations (e.g., credit card debt), thereby improving their individual balance sheets. A number of corporations, too, took steps that served to upgrade their financial condition. These included paying down debt; increasing cash dividends, repurchasing stock, contributing to pension funds and taking steps toward better financial reporting. To summarize our outlook on equity markets going forward, while the short-term outlook remains uncertain, there appears to be a generally favorable backdrop for longer-term equity returns, based on factors such as low interest rates, constrained inflation, accommodative monetary policy, and strong productivity gains. We think the chances of serious deflation are remote. At the same time, the U.S. and global economies are contending with serious geopolitical concerns, tepid economic growth, and relatively low levels of confidence on the part of consumers and corporations. The latter factors have had the upper hand in influencing equity performance in recent months. The crucial question is "what will bring us back?" PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 5 ECONOMIC OVERVIEW CONTINUED... We can't predict when, exactly, a sustainable revitalization in economic activity will occur. An abatement of geopolitical risks, in our view, is one essential pre-requisite for a better equity investment environment. After the war ends in Iraq, we believe the crucial next steps will be the creation of a viable, fully representative new government, and the rebuilding of the country. We think this process must involve a multi-lateral effort by the Iraqi people and the United Nations as well as the U.S., in contrast to the largely unilateral approach by the U.S. in initiating the war. We believe a unified strategy to aid post-war Iraq is vitally important in helping to mend relationships between countries that disagreed over the necessity for war, softening negative attitudes towards the U.S. among Arab countries and other economic partners, and setting a positive tone for UN resolution of other serious geopolitical issues including North Korea and the Middle East. A second pre-requisite for a lasting economic recovery, we think, will be the renewal of the confidence of both consumers and businesses. Many Americans feel stuck in an economic "soft spot." Three years of negative stock market returns have added to their uncertainty. A tremendous amount of monetary and fiscal stimulus has been applied, but has not yet provided all the expected benefits -- perhaps in part due to geopolitical concerns. One hopeful sign for future confidence is that oil prices, which rose sharply in anticipation of the war in Iraq, have retreated recently. If prices stabilize or decline further, that should act as a tangible, meaningful economic boost for both consumers and corporations. In addition, low mortgage rates have helped to prop up housing markets, and as discussed above, have had a positive ripple effect in providing liquidity to consumers and enabling them to improve their personal balance sheets. Lower income taxes and dividend taxes, if ultimately approved by the government, could provide additional meaningful stimulus for consumers. U.S. corporations may be showing some signs of increasing confidence in re-initiating capital spending and new product development. Our research suggests that a substantial number of companies have been prepared to launch a variety of compelling new products and services. Some companies may have postponed moving forward because of the geopolitical situation. Our research suggests that advertising rates may provide a useful leading indicator in assessing the general environment for new products and services. Higher advertising rates tend to reflect growing demand for advertising, which in turn may reflect a strengthening pipeline of new products and services to be publicized. We think that the higher upfront advertising rates we are seeing could be an encouraging guidepost toward more robust business activity. A third pre-requisite in our prescription for improved equity returns is more consensus on stock market valuations. We acknowledge that there is ample room for debate on this point, but our view remains that aggregate equity market valuations appear relatively reasonable. The basis for this opinion is our analysis of equity valuations in the current context of low interest rates, quiescent inflation, productivity gains, and projected returns for alternative classes of assets such as bonds. We think stock prices have the potential to move higher over a period of time, based solely on a current valuation framework. As support for this view, we think the earnings and valuation outlooks for strong, well-managed companies are increasingly favorable, because these leaner and more competitive companies may be early beneficiaries of any improved economic environment. In recent months, we have gradually "tilted" the Funds toward economically sensitive companies of this type; especially those whose stock prices we believe may have been disproportionately affected by geopolitical concerns and 6 ECONOMIC OVERVIEW CONTINUED... other temporary concerns. We continue to find favorable growth characteristics among other selected companies in industries such as financial services and medical products. We still question the valuations of some companies in sectors such as information technology and telecommunications services, where we have concerns regarding industry dynamics (such as the overall health of "end users" and overcapacity) and growth potential. Nevertheless, companies that possess "special" technology or other sustainable market share advantages in these sectors do appear attractive. We study a broad variety of information sources, meet with many companies and management teams, draw upon our extensive collective experience and try to make the best possible investment decisions to serve your interest in the Funds. That is our promise to you, and it is one that we try to re-affirm on a daily basis. Thank you for including the Nations Marsico Funds in your investment program. THOMAS F. MARSICO CHAIRMAN AND CHIEF EXECUTIVE OFFICER MARSICO CAPITAL MANAGEMENT, LLC March 31, 2003 7 [This page intentionally left blank] 8 NATIONS CONVERTIBLE SECURITIES FUND INCOME STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Income Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks to provide investors with a total investment return, comprised of current income and capital appreciation, consistent with prudent investment risk. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Convertible Securities Fund Investor A Shares provided shareholders with a total return of -11.18%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS CONVERTIBLE SECURITIES FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Our investment style seeks to exploit to the fullest extent the unique characteristics of convertible securities, while adhering to a disciplined investment process and adapting to the ever-evolving market environment. Within the convertible securities asset class universe, we focus on so-called balanced convertibles. Balanced convertibles are those exhibiting both fixed income and equity features. These securities generate the highest ratio of return over risk. We believe over the long run, this strategy will outperform strategies that focus on pure fixed income sensitive or equity sensitive strategies. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? Over the period of April 1, 2002 to March 31, 2003, deteriorating geopolitical conditions, continued revelation of corporate governance scandals and subdued economic recovery led to the third consecutive significant decline of all major equity indexes. The Dow Jones Industrial Average posted a loss of 21.14%; while the Standard & Poor's 500 Composite Stock Price Index declined 24.75%. As would be expected, convertible securities bested all major equity indexes. For the period, Nations Convertible Securities Fund (Investor A Shares) posted a return of -11.18%, declining less than half the major equity indexes. The Credit Suisse First Boston Convertible Securities Index returned -3.02% for the same period.*** WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? During the reporting period the performance of the convertible securities market was driven by several characteristics. First, investment grade convertible securities significantly underperformed non-investment grade issues. Second, the convertible securities universe was highly credit sensitive. Lastly, improvement in the credit market was a significant driver of convertible securities' valuations. Our *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The 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. All dividends are reinvested. The index is unmanaged, unavailable for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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 Credit Suisse First Boston (CSFB) Convertible Securities Index is a widely used unmanaged index that measures the performance of convertible securities. The index 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. 9 NATIONS CONVERTIBLE SECURITIES FUND INCOME STRATEGIES TEAM COMMENTARY continued underperformance relative to the benchmark is partly due to these characteristics, and partly impacted by our relative equity sensitivity to common stocks as compared to that of the benchmark. WHICH SECTORS AND COMPANIES PROVED FAVORABLE TO FUND PERFORMANCE?& Holdings in the health care and retailing sectors helped our performance. In addition, selected issues in the transportation and technology sectors also proved favorable to performance. In some instances, the convertible security posted significant positive returns while the underlying common stock finished with negative performance. In the health care sector, some of the best performing issues were Anthem, Inc., Invitrogen Corporation, and IVAX Corporation, all of which posted positive returns of greater than 10% during the period. In the retailing sector, Amazon.Com, Inc., Reebok International Ltd. and J.C. Penney Corporation generated similar positive numbers. Best performing technology and transportation issues include GTECH Holdings Corporation, Fair Isaac Corporation, Comverse Technology, Inc. and Union Pacific Corporation. WHAT PARTICULAR SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE? Our overweight positions in the capital goods sector, especially the defense industry, and equity exposure in the energy sector, especially oil service drilling companies, aggravated our losses. The worst performing securities include Cummins Capital Trust, L-3 Communications Holdings, Inc., Northrop Grumman Corporation, and Raytheon Company. Equity exposures in Diamond Offshore Drilling, Inc., Unocal Corporation and Transocean Inc. also contributed negatively to our overall performance. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? In the near term, we believe war against Iraq, corporate governance issues and lingering financial constraints will continue to impede the pace of U.S. economic expansion. Given the relative resilience of the market during recent months, however, a technical rebound is conceivable should the war end quickly. We believe that convertible securities will have a chance to outperform the overall equity market once again, helped by further narrowing of credit spreads (the difference between yield on a corporate issue and a U.S. Treasury security of the same maturity) and modest underlying stock performance. We look for improvement in the new issuance market compared with 2002 to also help performance. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? The improving high yield bond market continues to present opportunity in lower credit securities. In our opinion, depressed equity valuations on some securities also present "bargain" spots in terms of convertibles' current yield and potential capital appreciation. In addition, favorable views regarding convertible securities as an asset class could fuel growth in our asset base in the current volatile market environment. We have and will continue to add, in a very selective fashion, convertible securities that we believe have improving fundamentals, significant current yield and strong upside potential should credit spread tightening materialize further. We will also continue to actively manage common equity holdings to adjust the desired degree of equity sensitivity in the portfolio. &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 10 NATIONS CONVERTIBLE SECURITIES FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 3.4% Commercial banking 3.6% Railroads, trucking and shipping 3.9% Networking and telecommunications equipment 4.2% Insurance 4.3% Software 4.5% Oilfield services 4.9% Medical devices and supplies 6.1% Telecommunications services 7.9% Pharmaceuticals 10.6% Semiconductors 46.6% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Tyco International Group, 2.750% 01/15/18 1.3% ------------------------------------------------- 2 Amazon.com, Inc., 4.750% 02/01/09 1.3% ------------------------------------------------- 3 International Paper Capital Trust 1.3% ------------------------------------------------- 4 Liberty Media Corporation, 3.250% 03/15/31 1.2% ------------------------------------------------- 5 Agere Systems Inc., 6.500% 12/15/09 1.2% ------------------------------------------------- 6 GTECH Holdings Corporation, 1.750% 12/15/21 1.2% ------------------------------------------------- 7 American Tower Corporation, 2.250% 10/15/09 1.1% ------------------------------------------------- 8 International Rectifier Corporation, 4.250% 07/15/07 1.1% ------------------------------------------------- 9 United Parcel Service, Inc., Class B, 1.750% 09/27/07 1.1% ------------------------------------------------- 10 Adaptec, Inc., 3.000% 03/05/07 1.1% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
11 NATIONS CONVERTIBLE SECURITIES FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS CONVERTIBLE LIPPER CONVERTIBLE CSFB CONVERTIBLE SECURITIES SECURITIES FUND SECURITIES FUNDS AVERAGE INDEX ------------------- ------------------------ --------------------------- Mar. 31 1993 9425 10000 10000 1994 10550 10655 10727 1995 10727 10934 11142 1996 13414 13364 13783 1997 15459 14852 14902 1998 19642 18729 18757 1999 20287 18714 19189 2000 28275 26319 27985 2001 26047 22442 22718 2002 26954 22505 22641 Mar. 31 2003 23940 20997 21957
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS CONVERTIBLE LIPPER CONVERTIBLE CSFB CONVERTIBLE SECURITIES SECURITIES FUND SECURITIES FUNDS AVERAGE INDEX ------------------- ------------------------ --------------------------- Mar. 31 1993 10000 10000 10000 1994 11194 10655 10727 1995 11381 10934 11142 1996 14232 13364 13783 1997 16402 14852 14902 1998 20841 18729 18757 1999 21524 18714 19189 2000 30000 26319 27985 2001 27636 22442 22718 2002 28598 22505 22641 Mar. 31 2003 25401 20997 21957
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/93 through 3/31/03) 9.77% 9.13%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Convertible Securities Fund over the last 10 years. Figures for the CSFB Convertible Securities Index, a widely-used unmanaged index that measures the performance of convertible securities, include reinvestment of dividends. Funds in the Lipper Convertible Securities Funds Average invest their portfolios primarily in convertible bonds and convertible preferred shares. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A& INVESTOR A INVESTOR B&& INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 5/21/99 9/25/87 7/15/98 10/21/96 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -11.01% -11.18% -16.30% -11.83% -16.13% -11.89% -12.75% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS 3 YEARS -5.16% -5.39% -7.24% -6.08% -6.78% -6.11% -6.11% 5 YEARS 4.46% 4.04% 2.81% 3.36% 3.08% 3.37% 3.37% 10 YEARS 9.99% 9.77% 9.13% 9.41% 9.41% -- -- SINCE INCEPTION 11.95% 11.81% 11.38% 11.57% 11.57% 7.19% 7.19%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. &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 September 25, 1987. &&Investor B Shares commenced operations on July 15, 1998 and have no performance prior to that date. Performance prior to July 15, 1998 is that of Investor A Shares at NAV, which reflect 12b-1 fees of 0.25%. If Investor B Shares 12b-1 fees had been reflected, total returns would have been lower. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 12 NATIONS ASSET ALLOCATION FUND INVESTMENT STRATEGIES TEAM AND FIXED INCOME MANAGEMENT TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Investment Strategies Team and the Fixed Income Management Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks to obtain long-term growth from capital appreciation, and dividend and interest income. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Asset Allocation Fund Investor A Shares provided shareholders with a total return of - -16.05%.** IN THE FOLLOWING INTERVIEW, THE TEAMS SHARE THEIR VIEWS ON NATIONS ASSET ALLOCATION FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND THEIR OUTLOOK FOR THE FUTURE. EFFECTIVE DECEMBER 31, 2002, THE MANAGEMENT OF THE EQUITY PORTION OF THE FUND MOVED FROM THE GROWTH STRATEGIES TEAM TO THE INVESTMENT STRATEGIES TEAM OF BANC OF AMERICA CAPITAL MANAGEMENT, LLC, THE FUND'S INVESTMENT ADVISER. WHILE THE FUND'S INVESTMENT OBJECTIVE REMAINS THE SAME, THE INVESTMENT APPROACH AND BENCHMARK FOR THE EQUITY PORTION OF THE FUND HAVE CHANGED. THESE CHANGES ARE DISCUSSED BELOW. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The Fund invests in a mix of equity and fixed income securities seeking to provide exposure primarily to the domestic capital markets. The Fund's primary objective is total return performance, which is sought through a balance of long-term capital appreciation from equities and the stabilizing characteristics of fixed income investments. The equity portfolio invests in large- and mid-capitalization stocks of generally well-known companies that are recognized leaders in their industry. Combining rigorous fundamental research and quantitative analysis, securities are selected according to their competitive advantages, solid or improving financial health and attractive valuations. Risk controls are utilized to ensure adequate diversification across market capitalization, economic sectors and growth/value styles. Prior to January 1, 2003, the equity portfolio concentrated on large-capitalization, growth securities. With the move to the Investment Strategies Team, we have expanded the universe of securities, looking at both value and growth companies. We have also changed the benchmark for the equity portfolio from the Standard and Poor's 500 Composite Stock Price Index (S&P 500 Index) to the Russell 1000 Index to reflect the expanded investment universe.*** *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The 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 1000 Index is an unmanaged index comprised of the 1000 largest stocks in the Russell 3000 Index. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index which is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. 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. 13 NATIONS ASSET ALLOCATION FUND INVESTMENT STRATEGIES TEAM AND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued The fixed income portion of the Fund is generally composed of investment grade securities including U.S. Treasuries and other government and government agency bonds, mortgage-backed and asset-backed securities and corporate debt issues. The management of the fixed income portion is based on the belief that performance and consistency of returns are enhanced through a disciplined risk management process that seeks to control interest rate risk and emphasizes a quantitative approach to sector allocation, sector rotation and relative value security selection. The allocation between fixed income and equities is generally targeted at 60% stocks and 40% bonds. While the portfolio is systematically rebalanced to maintain target exposure, moderate deviation is permitted if, in the view of the portfolio management teams, stocks or bonds have become substantially mispriced relative to historical patterns. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? The economy continued to struggle higher the last 12 months following the 2001 recession. Normally the first year of a recovery is one of above average economic growth but 2002 was an exception. For the year, the economy struggled to maintain positive momentum with the 2002 Gross Domestic Product recording a 2.4% increase after inflation, when 6 to 7% real growth is more typical of recovery years. The capital markets reflected the uncertainty of economic recovery as well as persistent geopolitical concerns, including the war against terrorism in Afghanistan, the ongoing threat of terrorism, turmoil in the Israeli/Palestinian conflict, an escalating potential for war with Iraq, nuclear threats from North Korea and the actual U.S. led invasion of Iraq following problematic diplomacy efforts. Investors generally sought the safety of fixed income investments, particularly that of U.S. Treasury bonds. The bull market in bonds was reflected in the drop in yields. The benchmark 10-year U.S. Treasury yield was a low 3.8% at the end of March this year compared to 5.4% a year earlier. Stock investors suffered the opposite fate as many global indexes lost more than 20% in value as the bear market registered its third year of declines, one of the worst in history. Extremes in stock market volatility also buffeted investors as nearly half of the trading days in 2002 experienced market swings greater than 1% compared to historical volatility when such swings occur less than 20% of the time. The severe declines in the global equity markets overwhelmed the positive returns in bonds, pulling overall performance down in double-digit fashion for the year ending March 31, 2003. For the reporting period, Nations Asset Allocation Fund (Investor A Shares) declined 16.05% compared with a decline of 24.75% for the S&P 500 Index and an 11.69% return for the Lehman Aggregate Bond Index.& &The Lehman Aggregate Bond Index is an unmanaged index made up of the Lehman Government/ Corporate Bond 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. 14 NATIONS ASSET ALLOCATION FUND INVESTMENT STRATEGIES TEAM AND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued WHICH SECTORS AND COMPANIES PROVED FAVORABLE FOR FUND PERFORMANCE?&& Within the stock portfolio, the three sectors that helped Fund performance were basic industry, consumer staples and utilities. As investor risk aversion increased during the year, many investors gravitated toward "defensive" stocks with a history of reliable earnings. Securities such as 3M Company, Colgate-Palmolive Company, Procter & Gamble Co., Inc., and Southern Company all contributed positively to the Fund's performance. In addition, stocks in other sectors also benefited from this rotation into companies with reliable earnings. Such companies owned by the Fund include SLM Corporation, UnitedHealth Group Incorporated, and AFLAC Incorporated. Finally, a variety of economically sensitive stocks performed well during market rallies over the past 12 months. As a result, the Fund benefited from owning Electronic Arts, Inc., Amgen Inc. and Maxim Integrated Products, Inc. Within the bond portfolio, the best performing securities were U.S. Treasury bond holdings as investors sought safety from a volatile stock market. Generally the higher the quality and the longer the maturity the better the performance was as interest rates declined through most of the period. WHAT PARTICULAR SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE? One of the most damaging periods for the equity portfolio was during October and November of 2002, when the market rallied 20%. Lower quality companies with suspect earnings prospects largely led this rally, leaving the higher quality emphasis of the Fund holdings to lag behind. Sectors that proved detrimental to performance include finance, technology, and communications. The Wall Street research scandals had a very negative effect on capital markets firms such as Citigroup Inc. and Merrill Lynch & Co, Inc., while the continued weakness in the telecommunications industry drove down earnings for SBC Communications Inc. AOL Time Warner Inc. struggled with its online business, and ultimately had to write-off almost $100 billion related to its acquisition of Time Warner. Technology stocks continued to flounder, still deflating from the bubble era as Cisco Systems, Inc. and Intel Corporation both traded sharply lower. Finally, one of the single largest contributors to negative performance for the Fund was the decline of The Home Depot, Inc. as the company lost its reputation as "a rapid grower". For the bond portfolio, the only detriment to relative performance was the diversification in the corporate bond segment. High quality and even lower quality corporate bonds recorded solidly positive returns for the year but could not keep pace with the U.S. Treasury market. WHAT ECONOMIC FACTORS MOST INFLUENCED FUND PERFORMANCE? From a positive perspective, the decline in interest rates and the sluggishness of the economic recovery resulted in solidly positive returns for the fixed income segment of the overall portfolio. The same sluggishness in economic growth, however, constrained the enthusiasm for stocks. Stock prices may have been sustainable in an environment of subdued &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 15 NATIONS ASSET ALLOCATION FUND INVESTMENT STRATEGIES TEAM AND FIXED INCOME MANAGEMENT TEAM COMMENTARY continued recovery but the compounding concerns of terrorism, war, escalating oil prices, and accounting scandals crushed investor sentiment throughout the year. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? The successful and timely resolution of the Iraqi war is critical to achieving the higher growth expectations for both the economy and corporate earnings later in 2003. We are projecting a more conducive investing environment in the second half of this year for stocks and corporate bonds. We believe oil prices should settle in the mid-$20 per barrel range providing some stimulus for better inflation-adjusted economic growth of around 4% in the second half. As a result of the stock market's severe downdraft over the past three years, we believe the number of companies with attractive valuations are now more plentiful. We expect the more economically sensitive stocks in industries such as semiconductors, computer software and hardware, media/broadcasting, and retailing to respond to stronger economic growth. For bonds, the relative prospects for corporate issues may be enhanced in an improving credit environment. In our opinion, the consequence should be a decline in the difference, or spread, between the yields of corporate and U.S. Treasury bonds. Thus, we believe a greater focus on the corporate sector could add value in the year ahead. 16 NATIONS ASSET ALLOCATION FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 2.7% Medical devices and supplies 2.8% Federal Home Loan Mortgage Corporation (FHLMC) Certificates 2.8% Telecommunications services 3.0% Software 3.0% Health services 3.2% Integrated oil 4.8% Pharmaceuticals 5.2% Federal National Mortgage Association (FNMA) Certificates 7.6% U.S. Treasury notes 8.0% Commercial banking 56.9% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Federal National Mortgage Association (FNMA) Certificates, 6.000% 03/01/17 4.4% ------------------------------------------------- 2 Standard & Poor's Depositary Receipts 2.4% ------------------------------------------------- 3 High Yield Portfolio 2.4% ------------------------------------------------- 4 Exxon Mobil Corporation 2.0% ------------------------------------------------- 5 Citigroup Inc. 2.0% ------------------------------------------------- 6 International Business Machines Corporation 1.5% ------------------------------------------------- 7 Wal-Mart Stores, Inc. 1.5% ------------------------------------------------- 8 Pfizer Inc. 1.4% ------------------------------------------------- 9 Microsoft Corporation 1.4% ------------------------------------------------- 10 Amgen Inc. 1.3% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
17 NATIONS ASSET ALLOCATION FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS ASSET LIPPER BALANCED RUSSELL 1000 STANDARD & POOR'S LEHMAN AGGREGATE ALLOCATION FUND FUNDS AVERAGE INDEX 500 INDEX BOND INDEX --------------- --------------- ------------ ----------------- ---------------- Jan. 18 1994 9425.00 10000.00 10000.00 10000.00 10000.00 1994 9295.00 9621.00 9741.00 9955.00 9579.00 1995 11795.00 12080.00 13420.00 13691.00 11348.00 1996 13643.00 13759.00 16433.00 16833.00 11760.00 1997 16558.00 16425.00 21831.00 22447.00 12895.00 1998 20050.00 18634.00 27730.00 28867.00 14016.00 1999 22278.00 20236.00 33528.00 34938.00 13901.00 2000 22111.00 20542.00 30917.00 31758.00 15517.00 2001 20658.00 19640.00 27067.00 27985.00 16827.00 2002 17529.00 17340.00 21207.00 21803.00 18552.00 Mar. 31 2002 17204.00 17045.00 20584.00 21117.00 18810.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS ASSET LIPPER BALANCED RUSSELL 1000 STANDARD & POOR'S LEHMAN AGGREGATE ALLOCATION FUND FUNDS AVERAGE INDEX 500 INDEX BOND INDEX --------------- --------------- ------------ ----------------- ---------------- Jan. 18 1994 10000.00 10000.00 10000.00 10000.00 10000.00 1994 9862.00 9621.00 9741.00 9955.00 9579.00 1995 12515.00 12080.00 13420.00 13691.00 11348.00 1996 14475.00 13759.00 16433.00 16833.00 11760.00 1997 17568.00 16425.00 21831.00 22447.00 12895.00 1998 21273.00 18634.00 27730.00 28867.00 14016.00 1999 23637.00 20236.00 33528.00 34938.00 13901.00 2000 23460.00 20542.00 30917.00 31758.00 15517.00 2001 21918.00 19640.00 27067.00 27985.00 16827.00 2002 18598.00 17340.00 21207.00 21803.00 18552.00 Mar. 31 2003 18254.00 17045.00 20584.00 21117.00 18810.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (1/18/94 through 3/31/03) 6.76% 6.08%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Asset Allocation Fund from the inception of the share class. Figures for the Standard & Poor's 500 Composite Stock Price Index (Standard & Poor's 500 Index), an unmanaged index of 500 widely held common stocks, 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 and includes U.S. Treasury securities, U.S. government agency securities, corporate bonds and mortgage-backed securities, include reinvestment of dividends. Figures for the Russell 1000 Index, an unmanaged index comprised of the 1,000 largest stocks in the Russell 3000 Index and represents approximately 92% of the total market capitalization of the Russell 3000 Index, include reinvestment of dividends. Funds in the Lipper Balanced Funds Average have a primary objective of conserving principal by maintaining, at all times, a balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%. The Indices and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
INVESTOR A INVESTOR B&& INVESTOR C PRIMARY A& NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 5/21/99 1/18/94 7/15/98 11/11/96 - -------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -15.96% -16.05% -20.90% -16.80% -20.91% -16.80% -17.62% - -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -8.75% -8.95% -10.74% -9.67% -10.50% -9.68% -9.68% 5 YEARS -0.47% -0.87% -2.04% -1.58% -1.90% -1.59% -1.59% SINCE INCEPTION 7.00% 6.76% 6.08% 6.35% 6.35% 3.15% 3.15%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. &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 18, 1994. &&Investor B Shares commenced operations on July 15, 1998 and have no performance prior to that date. Performance prior to July 15, 1998 is that of Investor A Shares at NAV, which reflect 12b-1 fees of 0.25%. If Investor B Shares 12b-1 fees had been reflected, total returns would have been lower. Inception date for Investor A Shares is January 18, 1994. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. The annual reports for the fiscal year ended March 31, 2002 and prior years compared the Fund's performance to the Standard & Poor's 500 Composite Stock Price Index. The Fund changed the Index to which it compares its performance because the Russell 1000 Index is a more appropriate benchmark and the composition of the Index more closely resembles the composition of the Fund. 18 NATIONS CLASSIC VALUE FUND LARGE CAP INVESTMENT COMMITTEE COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Large Cap Investment Committee of Brandes Investment Partners, LLC, investment sub-adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks growth of capital by investing in companies believed to be undervalued. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Classic Value Fund Investor A Shares provided shareholders with a total return of -34.05%.** IN THE FOLLOWING INTERVIEW, THE INVESTMENT COMMITTEE SHARES ITS VIEWS ON NATIONS CLASSIC VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Classic Value Fund is managed using a Graham-and-Dodd value discipline to select equities in the United States, typically within the large- and mid-capitalization market segments. We search for U.S. stocks that we believe are trading (often for irrational reasons) at a discount to what we believe is their intrinsic value. Our focus is on the creation of long-term capital appreciation. Therefore, when we purchase such stocks, we plan to hold them for three to five years to allow them to achieve their intrinsic value. Our focus on individual security selection -- also known as "bottom-up" research and analysis -- drives our sector and industry weightings. We make no "top-down" predictions. We will not, for example, buy energy stocks because we think oil prices may rise. Instead of speculating on macroeconomic factors, we focus on the fundamental strengths of thousands of individual companies and select only those meeting our strict investment criteria. As value investors, we see opportunity in periods characterized by extremes and believe markets soaring to unprecedented highs or enduring sharp losses often reflect investors' overreaction to short-term events. We believe that over time the market will recognize the underlying value of the stocks we hold and their prices will rise. We believe that by purchasing stocks at discounts from their long-term value, a margin of safety against price declines is created -- thus reducing risk while providing the opportunity for capital appreciation. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT HAVE BEEN EXPERIENCED THE LAST 12 MONTHS? While the Russell 1000 Value Index*** fell 22.79%, Nations Classic Value Fund (Investor A Shares) fell 34.05%. A number of factors weighed on investor confidence during the year including: - mixed economic reports - accounting improprieties - corporate governance abuses and - high-profile corporate bankruptcy filings. In 2002, a number of firms filed for bankruptcy protection including Kmart Corporation, Adelphia Communications Corporation, Global Crossing Ltd., *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The Russell 1000 Value Index is an unmanaged index, which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Source for all statistical data -- Brandes Investment Partners, LLC PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 19 NATIONS CLASSIC VALUE FUND LARGE CAP INVESTMENT COMMITTEE COMMENTARY continued Worldcom, Inc., and UAL Corporation (the parent company of United Airlines). In addition, the chief financial officers at Worldcom and Enron Corp. were arrested and indicted. The war in Iraq may also have contributed to cautiousness. War jitters also continued to push the U.S. dollar lower against the euro. The dollar fell to a three-year low against the euro late in 2002. In this environment, the Dow Jones Industrial Average& fell to a five-year low in October 2002. Flows to U.S. mutual funds reflected investors' cautiousness. By mid-December, U.S. stock mutual funds had received $7 billion in net new money, down from $59 billion in 2001 and $180 billion in 2000. This was the lowest level of new money going into stock funds in more than a decade. Overall, macroeconomic developments have virtually no bearing on our company-specific research and analysis. While we are aware of short-term developments, our investment philosophy focuses on company-by-company analysis with a long-term perspective. In all market environments, we adhere to our strict, value-based investment approach. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE?&& Favorable gains were evident across a broad cross-section of holdings, including positions in the following industries: multi-line retail, oil and gas, information technology consulting and services and household products. Among the best-performing holdings in these areas were Dillard's, Inc., Marathon Oil Corporation, Electronic Data Systems Corporation and Kimberly-Clark Corporation. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE? The greatest negative influences on the Fund's return during the period were issue-specific declines for holdings in the communications equipment, food and drug retailing, and diversified telecommunications services industries. Examples of weak-performing holdings include Avaya Inc., Safeway, Inc. and SBC Communications Inc. Although returns for these stocks fell in the period, we continue to believe these holdings generally possess sound fundamentals or traits that may contribute to long-term gains. Reflecting our conviction, we took advantage of weaker prices in the period to add to some of the companies cited above. The Fund retains its largest industry exposure in the diversified telecom services area. WHAT IS YOUR OUTLOOK FOR THE FUND? As a "bottom-up" manager, we do not make any "top-down" projections for sectors, industries, the economy, or interest rates. We choose our equities one company at a time based on a comprehensive review of their fundamental strengths with an eye to understanding the nature of their businesses and an estimate of their long-term intrinsic values. Applied in the U.S. the same way we apply it around the world, our investment process continues to seek to uncover promising opportunities. In our opinion, the strengths of portfolio holdings increase our potential for long-term outperformance. We believe long-term investors will be rewarded for their &The Dow Jones Industrial Average is a price-weighted index of 30 of the largest, most widely held stock traded on the New York Stock Exchange. All dividends are reinvested. The index is unmanaged, unavailable for investment and does not reflect fees, brokerage commissions or other expenses of investing. &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 20 NATIONS CLASSIC VALUE FUND LARGE CAP INVESTMENT COMMITTEE COMMENTARY continued patience as the market evolves to more accurately reflect the underlying value of portfolio holdings. During the period, the continued application of our company-specific research and analysis dictated slight changes in the complexion of the Fund. We trimmed exposure on a company-by-company basis within the chemical and insurance industries and increased our weighting through stock-specific purchases in the diversified telecom services, food and drug retailing, and communications equipment industries. 21 NATIONS CLASSIC VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 4.4% Commercial banking 4.5% Automotive 4.7% Pharmaceuticals 4.9% Insurance 5.3% Networking and telecommunications equipment 5.5% Computers and office equipment 5.6% Computer services 5.9% Electric power - Nuclear 4.4% Automotive 6.7% Food and drug stores 12.6% Telecommunications services 39.9% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 BellSouth Corporation 3.4% ------------------------------------------------- 2 SBC Communications Inc. 3.2% ------------------------------------------------- 3 Verizon Communications Inc. 3.2% ------------------------------------------------- 4 Electronic Data Systems Corporation 2.9% ------------------------------------------------- 5 Sprint Corporation (FON Group) 2.9% ------------------------------------------------- 6 Duke Energy Corporation 2.9% ------------------------------------------------- 7 CIT Group Inc. 2.9% ------------------------------------------------- 8 Safeway Inc. 2.8% ------------------------------------------------- 9 Unisys Corporation 2.7% ------------------------------------------------- 10 El Paso Corporation 2.7% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
22 NATIONS CLASSIC VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
LIPPER MULTI-CAP VALUE NATIONS CLASSIC VALUE FUND RUSSELL 1000 VALUE INDEX FUNDS AVERAGE -------------------------- ------------------------ ---------------------- Apr. 16 2001 9425 10000 10000 10132 9998 10022 9708 8903 8778 10926 9559 9746 2002 11499 9950 10048 10247 9103 9044 7340 7394 7431 8471 8076 8016 Mar. 31 2003 7582 7683 7634
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
LIPPER MULTI-CAP VALUE NATIONS CLASSIC VALUE FUND RUSSELL 1000 VALUE INDEX FUNDS AVERAGE -------------------------- ------------------------ ---------------------- Apr. 16 2001 10000 10000 10000 10750 9998 10022 10300 8903 8778 11593 9559 9746 2002 12200 9950 10048 10872 9103 9044 7788 7394 7431 8988 8076 8016 Mar. 31 2003 8045 7683 7634
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (4/16/01 through 3/31/03) -10.52% -13.19%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Classic Value Fund from the inception of the share class. Figures for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole, include reinvestment of dividends. Funds in the Lipper Multi-Cap Value Funds Average invest in a variety of market capitalization ranges, without concentrating 75% of one market capitalization range. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 4/16/01 4/16/01 4/16/01 4/16/01 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -33.96% -34.05% -37.87% -34.59% -37.70% -34.54% -35.16% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS SINCE INCEPTION -10.38% -10.52% -13.19% -11.24% -12.96% -11.20% -11.20%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. 23 NATIONS LARGECAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Value Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. PERFORMANCE REVIEW For the 12 month period ending March 31, 2003, Nations LargeCap Value Fund Investor A Shares provided shareholders with a total return of - -27.41%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS LARGECAP VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The investment process focuses on stocks with attractive valuations based upon their price-to-earnings ratio, price-to-cash flow and other measures and seeks to achieve moderately lower volatility when compared with the broad market. It is our belief that undervalued and misunderstood stocks can deliver superior risk-adjusted performance over time. Further, we believe companies can go through periods when their fundamentals deteriorate, resulting in their stock being priced below what we perceive to be its fair value. We also believe that utilizing a disciplined investment process that combines a valuation screen, fundamental research and a comprehensive risk management strategy is the best way to locate these investment opportunities. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? In the twelve difficult months since our last report, U.S. investors sustained a series of significant political and economic blows. A sluggish consumer and business environment, concerns about terrorism and war, combined with an increasing lack of confidence in business leaders due to more allegations of fraud, deceit and accounting scandals helped weaken U.S. equity markets. Despite all these issues, we do not see any fundamental flaws with the U.S. economy or capital markets. Economic signals have been understandably mixed and over the last year, consumer confidence has dropped significantly because of this and the weaker employment market. Some of the more economically sensitive sectors like consumer cyclicals, retailing, communications and technology have suffered more than others have but the declines have been broad based. Out of the 12 economic sectors we track, only consumer staples, energy, finance and health care stocks outperformed our benchmark, the Russell 1000 Value Index,*** albeit not by much. This has clearly been a challenging environment for business, consumers and investors. While value stocks continued generally to outperform growth stocks over the reporting period (as measured by the Russell Indexes), the relative performance advantage eroded over the last six months as technology and health care, the two most prominent sectors within the growth benchmarks, along with communications, *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Russell 1000 Value Index is an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. 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. 24 NATIONS LARGECAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued have outperformed. Technology and communications both have strong cyclical components and what we have seen is more of a rebound in those stocks that have underperformed over the last several years, as opposed to a move driven by current or expected improvement in their fundamental outlook. We continue to favor companies with tangible earnings and attractive valuations. The Russell 1000 Value Index, the Fund's benchmark, returned -22.79% versus -24.75% for the Standard & Poor's 500 Composite Stock Price Index&. By comparison, Nations LargeCap Value Fund (Investor A Shares) returned -27.41%. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?&& Relative to the benchmark, the Fund benefited from overweightings in the consumer staples and energy sectors, underweightings in the communications and consumer cyclical sectors and favorable stock selection in the health care and energy sectors. Beginning in the first quarter of 2003, the market became more focused on the situation in Iraq and seemed to be more understanding of companies which might lower earnings guidance or miss consensus estimates by a penny or two. This "free pass" was not in play during most of 2002 and so our overweight in consumer staples stocks like Diageo plc, The Estee Lauder Companies Inc. and Kellogg Company, where earnings are more stable and predictable, proved to be a good strategy. Our overweight in energy helped performance. Oil prices have been volatile over the last year due to the current geopolitical situation and war in Iraq. Given long-term expectations for growing global demand, we believe the outlook for oil is still favorable and the same is true given the supply/demand picture for natural gas. We have specifically been overweight in oilfield services companies like Nabors Industries, which has added to relative returns and should do well as global risks recede and capital spending improves. Communications stocks have fairly strong cyclical tendencies and while a number of companies in the group have done a good job managing costs, given the excess capacity that exists today, we believed an underweight position versus the benchmark was appropriate. Also included in this group are publishing and advertising companies, which have had to deal with a fairly significant slowdown. Stock selection was helped by Comcast Corporation, which completed its acquisition of the ATT Broadband business and has already seen substantial benefits from the transaction, which is resulting in stronger than expected cash flow. We were similarly underweight in consumer cyclicals -- which includes automotive, lodging, restaurants and entertainment companies -- for much the same reasons, and this benefited the portfolio. Stock selection in health care was helped by a timely takeover offer for Pharmacia Corporation. We also did well in the medical devices group with Zimmer Holdings Inc., which we sold for valuation purposes. &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. &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 25 NATIONS LARGECAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Two sector decisions detracted from returns. The first was our underweight in finance. For the year, finance was on average almost 33% of the benchmark and a little more than 28% of our portfolio. While we see many good opportunities in the group and valuations on average are attractive, our disciplines and good sense suggest that under the circumstances, from a risk management standpoint, having more than one-third of the portfolio in one group would not be prudent. Within the sector, we started shifting our exposure in the banking group more towards banks that would benefit from an improving credit environment. This means we had less of an emphasis on those banks that mostly benefit from favorable spreads, which is the difference between the interest rates at which they borrow compared to the interest rates at which they lend. In the last several months this approach has benefited the portfolio although for most of the year it did not. Also in financials, we had exposure to companies like Merrill Lynch & Co., Inc. and Morgan Stanley, which we believe will benefit from an improving capital markets environment. These decisions caused stock selection in finance to be a negative contributor to Fund performance. The other sector decision that detracted from returns was our overweight in technology where we see a number of companies that could benefit from a turn in the macroeconomic environment. As a result, many of our holdings also disappointed because they are positions that have yet to see any significant signs of fundamental improvement. Agilent Technologies, Inc., Agere Systems Inc., Nokia Corporation, KLA-Tencor Corporation and PeopleSoft, Inc. fared poorly, but we believe the longer-term outlook is favorable and would want to own them at these valuation levels. In consumer staples, Altria Group, Inc., the new name for the old Philip Morris Cos., saw improvement in market share on key cigarette brands. The company did a commendable job in a challenging year but underperformed primarily due to a recent adverse judgment in an Illinois case that is requiring the company to post a multi-billion dollar bond. Honeywell Inc., in the capital goods group, lagged due to concerns about the commercial aircraft components business and the general downturn in the macroeconomic environment. In technology, Electronic Data Systems Corporation and Micron Technology both disappointed. Motorola, Inc. fared poorly due to a weaker than expected market for mobile handsets and semiconductors causing stock selection in technology to be negative. WHAT IS YOUR OUTLOOK FOR THE FUND? The economic environment has been mixed and weak. We are on a slow growth plane with low inflation, which might normally be considered favorable. However, a soft job market and declining consumer confidence, concerns about consumer debt levels and how all this might impact consumer spending, are key components of the economy and the equity markets concerns today. We believe the U.S. economy should regain its momentum in the months after the Iraq war as many of the uncertainties that are holding back the consumer and businesses from spending are lifted. While some market strategists talk about the 26 NATIONS LARGECAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued portfolio you want to own in war time, we believe investors should be thinking more in terms of what they want to own going into the recovery. President Bush has proposed a "jobs and growth" program that includes a number of tax cuts designed to improve spending and investment. We believe some portion of the president's program is likely to be passed by Congress in the coming months and a further reduction in interest rates by the Federal Reserve Board is not out of the question. From a fundamental standpoint, while we see little in the way of improvement in the business environment, we do see signs that the declines have leveled off in many areas. While this is surely an environment with more than enough risk for most investors, we believe the economy, business and the markets are poised for a rebound. We continue to maintain a balance between defensive and more cyclically oriented issues but on the margin have sought to take advantage of what we believe are attractive valuations in the pro-cyclical groups. In financials, we continue to believe that corporate credit will improve in 2003 while consumer credit quality either moderates or declines. Recent data points have been supporting this thesis and we have positioned the portfolio to benefit from such a trend. We like the outlook for energy and think that the slowdown in capital spending in the last few years suggests a pent up demand for business investment spending, which could bode well for a number of technology companies later this year. 27 NATIONS LARGECAP VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 15.3% Commercial banking 7.4% Integrated oil 5.6% Insurance 4.6% Broadcasting and cable 4.1% Telecommunications services 3.8% Investment services 3.8% Aerospace and defense 3.5% Paper and forest products 3.4% Oilfield services 3.4% Consumer credit and mortgages 45.1% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Citigroup Inc. 4.5% ------------------------------------------------- 2 Exxon Mobil Corporation 4.2% ------------------------------------------------- 3 Wachovia Corporation 3.0% ------------------------------------------------- 4 Comcast Corporation, Class A 2.5% ------------------------------------------------- 5 FleetBoston Financial Corporation 2.5% ------------------------------------------------- 6 Dominion Resources, Inc. 2.2% ------------------------------------------------- 7 Wells Fargo & Company 2.0% ------------------------------------------------- 8 Bowater Inc. 1.9% ------------------------------------------------- 9 International Business Machines Corporation 1.9% ------------------------------------------------- 10 ENSCO International Inc. 1.9% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
28 NATIONS LARGECAP VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS LARGECAP VALUE LIPPER LARGE-CAP VALUE FUND RUSSELL 1000 VALUE INDEX FUNDS AVERAGE ---------------------- ------------------------ ---------------------- Nov. 20 2001 9425 10000 10000 9669 10236 10175 9509 10157 9995 9537 10173 9935 2002 10088 10655 10367 9043 9747 9256 7155 7917 7519 7699 8647 8149 Mar. 31 2003 7323 8227 7731
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS LARGECAP VALUE LIPPER LARGECAP VALUE FUND RUSSELL 1000 VALUE INDEX FUNDS AVERAGE ---------------------- ------------------------ --------------------- Nov. 20 2001 10000 10000 10000 10259 10236 10175 10089 10157 9995 10119 10173 9935 I2002E 10703 10655 10367 9595 9747 9256 7591 7917 7519 8169 8647 8149 Mar. 31 2003 7770 8227 7731
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (11/20/01 through 3/31/03) -16.95% -20.49%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations LargeCap Value Fund from the inception of the share class. Figures for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole, include reinvestment of dividends. Funds in the Lipper Large-Cap Value Funds Average invest at least 75% of their equity assets in companies with market capitalizations greater than 300% of the dollar-weighted median market capitalization of the S&P 500 Index. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 11/20/01 11/20/01 11/20/01 11/20/01 - ------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -27.25% -27.41% -31.57% -27.98% -31.57% -27.99% -28.71% - ------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS SINCE INCEPTION -16.79% -16.95% -20.49% -17.60% -20.02% -17.61% -17.61%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 29 NATIONS VALUE FUND VALUE STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Value Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks growth of capital by investing in companies that are believed to be undervalued. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Value Fund Investor A Shares provided shareholders with a total return of -27.17%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY The investment process focuses on stocks with attractive valuations based upon their price-to-earnings ratio, price-to-cash flow and other measures and seeks to achieve moderately lower volatility when compared with the broad market. It is our belief that undervalued and misunderstood stocks can deliver superior risk-adjusted performance over time. Further, we believe companies can go through periods when their fundamentals deteriorate, resulting in their stock being priced below what we perceive to be their fair value. We also believe that utilizing a disciplined investment process that combines a valuation screen, fundamental research and a comprehensive risk management strategy is the best way to locate these investment opportunities. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? In the twelve difficult months since our last report, U.S. investors sustained a series of significant political and economic blows. A sluggish consumer and business environment, concerns about terrorism and war, combined with an increasing lack of confidence in business leaders due to more allegations of fraud, deceit and accounting scandals helped weaken U.S. equity markets. Despite all these issues, we do not see any fundamental flaws with the U.S. economy or capital markets. Economic signals have been understandably mixed and over the last year, consumer confidence has dropped significantly because of this and the weaker employment market. Some of the more economically sensitive sectors like consumer cyclicals, retailing, communications and technology have suffered more than others have but the declines have been broad based. Out of the 12 economic sectors we track, only consumer staples, energy, finance and health care stocks outperformed our benchmark, the Russell 1000 Value Index,*** albeit not by much. This has clearly been a challenging environment for business, consumers and investors. While value stocks generally continued to outperform growth stocks over the reporting period (as measured by the Russell Indexes), the relative performance advantage eroded over the last six months as technology and health care, the two most prominent sectors within the growth benchmarks, along with communications, have outperformed. Technology and communications both have strong cyclical *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The Russell 1000 Value Index is an unmanaged index, which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. 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. 30 NATIONS VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued components and what we have seen is more of a rebound in those stocks that have underperformed over the last several years as, opposed to a move driven by the current or expected improvement in their fundamental outlook. We continue to favor companies with tangible earnings and attractive valuations. The Russell 1000 Value Index, the Fund's benchmark, returned -22.79% versus -24.75% for the Standard & Poor's 500 Composite Stock Price Index.& By comparison, Nations Value Fund (Investor A Shares) returned -27.17%. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?&& Relative to the benchmark, the Fund benefited from overweightings in the consumer staples and energy sectors, underweightings in the communications and consumer cyclical sectors and favorable stock selection in the health care and energy sectors. Beginning in the first quarter of 2003, the market became more focused on the situation in Iraq and seemed to be more understanding of companies which might lower earnings guidance or miss consensus estimates by a penny or two. This "free pass" was not in play during most of 2002 and so our overweight in consumer staples stocks like Diageo plc, The Estee Lauder Companies Inc. and Kellogg Company, where earnings are more stable and predictable, proved to be a good strategy. Our overweight in energy helped performance. Oil prices have been volatile over the last year due to the current geopolitical situation and war in Iraq. Given long-term expectations for growing global demand, we believe the outlook for oil is still favorable and the same is true given the supply/demand picture for natural gas. We have specifically been overweight in oilfield services companies like Nabors Industries, which has added to relative returns and should do well as global risks recede and capital spending improves. Communications stocks have fairly strong cyclical tendencies and, while a number of companies in the group have done a good job managing costs given the excess capacity that exists today, we believed an underweight position versus the benchmark was appropriate. Also included in this group are publishing and advertising companies, which have had to deal with a fairly significant slowdown. Stock selection was helped by Comcast Corporation, which completed its acquisition of the ATT Broadband business and has already seen substantial benefits from the transaction, which is resulting in stronger-than-expected cash flow. We were similarly underweight in consumer cyclicals -- which includes automotive, lodging, restaurants and entertainment companies -- for much the same reasons and this benefited the portfolio. Stock selection in health care was helped by a timely takeover offer for Pharmacia Corporation. We also did well in the medical devices group with Zimmer Holdings, Inc. which we sold for valuation purposes. &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. &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 31 NATIONS VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Two sector decisions detracted from the returns. The first was our underweight in finance. For the year, finance was on average almost 33% of the benchmark and a little more than 28% of our portfolio. While we see many good opportunities in the group and valuations on average are attractive, our disciplines and good sense suggest that under the circumstances, from a risk management standpoint, having more than one-third of the portfolio in one group would not be prudent. Within the sector, we started shifting our exposure in the banking group more towards banks that would benefit from an improving credit environment. This means we had less of an emphasis on those banks that mostly benefit from a favorable spreads which is the difference between the interest rates at which they borrow compared to the interest rates at which they lend. In the last several months this approach has benefited the portfolio although for most of the year it did not. Also in financials, we had exposure to companies like Merrill Lynch & Co, Inc. and Morgan Stanley, which we believe, will benefit from an improving capital markets environment. These decisions caused stock selection in finance to be a negative contributor to performance. The other sector decision that really detracted from returns was our overweight in technology where we see a number of companies that could benefit from a turn in the macroeconomic environment. As a result, many of our holdings also disappointed because they are positions that have yet to see any significant signs of fundamental improvement. Agilent Technologies, Inc., Agere Systems, Inc., Nokia Corporation, KLA-Tencor Corporation and PeopleSoft, Inc. fared poorly, but we believe the longer-term outlook is favorable and would want to own them at these valuation levels. In consumer staples, Altria Group, Inc., the new name for the old Philip Morris Cos., saw improvement in market share on key cigarette brands. The company did a commendable job in a challenging year but underperformed primarily due to a recent adverse judgment in an Illinois case, which is requiring the company to post a multi-billion dollar bond. Honeywell Inc. in the capital goods group lagged due to concerns about the commercial aircraft components business and the general turn in the macroeconomic environment. In technology, Electronic Data Systems Corporation and Micron Technology, Inc. both disappointed. Motorola, Inc. fared poorly due to a weaker than expected market for mobile handsets and semiconductors, causing stock selection in technology to be negative. WHAT IS YOUR OUTLOOK FOR THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? The economic environment has been mixed and weak. We are on a slow growth plane with low inflation, which might normally be considered favorable. However, a soft job market and declining consumer confidence, concerns about consumer debt levels and how all this might impact consumer spending, are key components of the economy and equity markets concerns today. We believe the U.S. economy should regain its momentum in the months after the Iraq war as many of the uncertainties that are holding back the consumer and businesses from spending are lifted. While some market strategists talk about the 32 NATIONS VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued portfolio you want to own in war time, we believe investors should be thinking more in terms of what they want to own going into the recovery. President Bush has proposed a "jobs and growth" program, which includes a number of tax cuts designed to improve spending and investment. We believe some portion of the president's program is likely to be passed by Congress in the coming months and a further reduction in interest rates by the Federal Reserve Board is not out of the question. From a fundamental standpoint, while we see little in the way of an improvement in the business environment, we do see signs that the declines have leveled off in many areas. While this is surely an environment with more than enough risk for most investors, we believe the economy, business and the markets are poised for a rebound. We continue to maintain a balance between defensive and more cyclically oriented issues but on the margin have taken advantage of what we believe are attractive valuations in the pro-cyclical groups. In financials, we continue to believe that corporate credit will improve in 2003 while consumer credit quality either moderates or declines. Recent data points have been supporting this thesis and we have positioned the portfolio to benefit from such a trend. We like the outlook for energy and think that the slowdown in capital spending in the last few years suggests a pent up demand for business investment spending which could bode well for a number of technology companies later this year. 33 NATIONS VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 15.3% Commercial banking 7.5% Integrated oil 5.6% Insurance 4.6% Broadcasting and cable 4.1% Telecommunications services 3.8% Investment services 3.7% Aerospace and defense 3.5% Paper and forest products 3.5% Oilfield services 3.4% Consumer credit and mortgages 45.0% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Citigroup Inc. 4.5% ------------------------------------------------- 2 Exxon Mobil Corporation 4.2% ------------------------------------------------- 3 Wachovia Corporation 3.0% ------------------------------------------------- 4 Comcast Corporation, Class A 2.5% ------------------------------------------------- 5 FleetBoston Financial Corporation 2.5% ------------------------------------------------- 6 Dominion Resources, Inc. 2.2% ------------------------------------------------- 7 Bowater Inc. 2.0% ------------------------------------------------- 8 ENSCO International Inc. 1.9% ------------------------------------------------- 9 ConocoPhillips 1.9% ------------------------------------------------- 10 Verizon Communications Inc. 1.9% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
34 NATIONS VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
LIPPER LARGE-CAP VALUE NATIONS VALUE FUND FUNDS AVERAGE RUSSELL 1000 VALUE INDEX ------------------ ---------------------- ------------------------ Mar. 31 1993 9425.00 10000.00 10000.00 1994 10170.00 10410.00 10391.00 1995 11058.00 11479.00 11561.00 1996 14421.00 15046.00 15433.00 1997 16988.00 17652.00 18222.00 1998 23481.00 24525.00 26817.00 1999 24412.00 25254.00 28168.00 2000 24297.00 26908.00 29954.00 2001 23741.00 26921.00 30035.00 2002 25006.00 27296.00 31350.00 Mar. 31 2003 18212.00 20324.00 24206.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
LIPPER LARGE-CAP VALUE NATIONS VALUE FUND FUNDS AVERAGE RUSSELL 1000 VALUE INDEX ------------------ ---------------------- ------------------------ Mar. 31 1993 10000.00 10000.00 10000.00 1994 10790.00 10410.00 10391.00 1995 11733.00 11479.00 11561.00 1996 15301.00 15046.00 15433.00 1997 18025.00 17652.00 18222.00 1998 24914.00 24525.00 26817.00 1999 25901.00 25254.00 28168.00 2000 25779.00 26908.00 29954.00 2001 25189.00 26921.00 30035.00 2002 26531.00 27296.00 31350.00 Mar. 31 2003 19323.00 20324.00 24206.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/93 through 3/31/03) 6.81% 6.18%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Value Fund over the last 10 years. Figures for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole, include reinvestment of dividends. Funds in the Lipper Large-Cap Value Funds Average invest at least 75% of their equity assets in companies with market capitalizations greater than 300% of the dollar-weighted median market capitalization of the Standard & Poor's 500 Index. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 9/19/89 12/6/89 6/7/93 6/17/92 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -26.95% -27.17% -31.37% -27.72% -31.26% -27.72% -28.43% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS 3 YEARS -8.88% -9.16% -10.94% -9.82% -10.46% -9.82% -9.82% 5 YEARS -4.69% -4.96% -6.08% -5.67% -5.88% -5.61% -5.61% 10 YEARS 7.08% 6.81% 6.18% -- -- 6.14% 6.14% SINCE INCEPTION 8.25% 8.14% 7.66% 6.17% 6.17% 6.89% 6.89%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 35 NATIONS MIDCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Value Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations MidCap Value Fund Investor A Shares provided shareholders with a total return of -22.36%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS MIDCAP VALUE FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The investment process focuses on stocks with attractive valuations based upon their price-to-earnings ratio, price-to-cash flow and other measures and seeks to achieve lower volatility when compared with the broad market. It is our belief that undervalued and misunderstood stocks can deliver superior risk-adjusted performance over time. Further, we believe companies can go through periods when their fundamentals deteriorate, resulting in their stock being priced below what we perceive to be their fair value. We also believe that utilizing a disciplined investment process that combines a valuation screen, fundamental research and a comprehensive risk management strategy is the best way to locate these investment opportunities. The Fund invests primarily in companies with market capitalizations in the $1 billion to $10 billion range. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? In the twelve difficult months since our last report, U.S. investors sustained a series of significant political and economic blows. A sluggish consumer and business environment, concerns about terrorism and war, combined with an increasing lack of confidence in business leaders due to more allegations of fraud, deceit and accounting scandals helped weaken U.S. equity markets. Despite all these issues, we do not see any fundamental flaws with the U.S. economy or capital markets. Economic signals have been understandably mixed and over the last year, consumer confidence has dropped significantly because of this and the weaker employment market. Some of the more economically sensitive sectors like consumer cyclicals, retailing, communications and technology have suffered more than others have but the declines have been broad based. Out of the 12 economic sectors we track, only consumer staples, energy, finance, health care and utilities stocks outperformed our benchmark, the Russell MidCap Value Index,*** albeit not by much. This has clearly been a challenging environment for business, consumers and investors. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The Russell MidCap Value Index is an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value Index. The index 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. SHARE PRICES OF MID-CAPITALIZATION COMPANIES TEND TO BE MORE VOLATILE THAN THOSE OF LARGER COMPANIES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 36 NATIONS MIDCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued While value stocks once again generally outperformed growth stocks (as measured by the Russell Indexes), the relative performance advantage eroded over the last six months as technology and health care, the two most prominent sectors within the growth benchmarks, along with communications, have outperformed. Technology and communications both have strong cyclical components and what we have seen is more of a rebound in those stocks that have underperformed over the last several years, as opposed to a move driven by current or expected improvement in their fundamental outlook. We continue to favor companies with tangible earnings and attractive valuations. The Russell MidCap Value Index, the Fund's benchmark, returned -19.65%. By comparison, Nations MidCap Value Fund (Investor A Shares) returned -22.36%. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?& Relative to the benchmark, the Fund benefited from an overweight in the energy and consumer staples sectors and underweights in the communications and consumer cyclicals sectors. Favorable stock selection in the consumer staples and transportation areas also helped. Oil prices have risen dramatically over the last year due to the current geopolitical situation and war in Iraq. Given long term expectations for growing global demand, we believe the outlook is still favorable and we feel the same is true given the supply/demand picture for natural gas. Our overweight here is a theme that has benefited the portfolio and one we believe can continue to work for some time. Within the group, we took what we describe as a "barbell" approach. We owned a healthy weighting in the larger integrated oil companies which are a big part of our benchmark and we also owned oilfield services companies like Nabors Industries and ENSCO International Incorporated which will benefit from an increase in drilling activity when global uncertainties start to recede. Communications stocks have fairly strong cyclical tendencies and while a number of companies in the group have done a good job managing costs, given the excess capacity that exists today, we believed an underweight position versus the benchmark was appropriate. Also included in this group are publishing and advertising companies which have had to deal with a fairly significant slowdown. We were similarly underweight in consumer cyclicals which includes automotive, lodging, restaurants and entertainment companies for much the same reasons and this benefited the portfolio as well. Beginning in the first quarter of 2003, the market became more focused on the situation in Iraq and seemed to be more understanding of companies who might lower earnings guidance or miss consensus estimates by a penny or two. This 'free pass' was not in play during most of 2002 and so our overweight in consumer staples stocks like Brown-Forman Corporation, Kellogg Company, McCormick & Company, Incorporated and Avon Products, Inc., where earnings are more stable and predictable, proved to be a good strategy. Up until maybe five years ago, utilities would move together as a group. Now with the leveraging up of balance sheets to fund initiatives into unregulated businesses, many of which have done poorly; the spread between winners and losers in this &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 37 NATIONS MIDCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued group is wide. Fortunately, stock selection here was quite strong with companies like NSTAR, FirstEnergy Corp. and PPL Corporation that handily outpaced returns for the average stock in their group. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Concern about balance sheets was also evident in the communications group, specifically the cable companies. We sold Cablevision Systems Corporation and Charter Communications, Inc. over these concerns but not before a certain amount of damage was done. Stock selection in communications was a negative. An overweight in transportation and an underweight in finance were the sector decisions that hurt the portfolio the most. For the year, finance averaged almost 30% of the benchmark and was a little more than 23% of our portfolio. While we see many good opportunities, for instance in the insurance area, we have been underweight banks and thrifts because of valuations and expectations for slower growth. In transportation, we are beginning to see a reduction in fuel costs which should help the earnings outlook for that sector. However, whether it is the airlines or the railroads, in our opinion some sort of top line improvement will be necessary for these stocks to do well. Within finance, we started shifting our exposure in the banking group more towards banks that would benefit from an improving credit environment. This means we had less of an emphasis on those banks that mostly benefit from favorable spreads, which is the difference between the interest rates at which they borrow compared to the interest rates at which they lend. In the last several months this approach has benefited the portfolio although for most of the year it did not. Also in financials, we had exposure to companies like Waddell & Reed Financial, Inc. and A.G. Edwards, Inc., which we believe will benefit from an improving capital markets environment. These decisions caused stock selection in finance to be a negative contributor to performance. WHAT IS YOUR OUTLOOK FOR THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? The economic environment has been mixed and weak. We are on a slow growth plane with low inflation, which might normally be considered favorable. However, a soft job market and declining consumer confidence, concerns about consumer debt levels and how all this might impact consumer spending, are key components of the economy and the equity markets concerns today. We believe the U.S. economy should regain its momentum in the months after the Iraq war as many of the uncertainties that are holding back the consumer and businesses from spending are lifted. While some market strategists talk about the portfolio you want to own in war time, we believe investors should be thinking more in terms of what they want to own going into the recovery. President Bush has proposed a "jobs and growth" program which includes a number of tax cuts designed to improve spending and investment. We believe some portions of the president's program are likely to be passed by Congress in the coming months and a further reduction in interest rates by the Federal Reserve Board is not out of the question. From a fundamental standpoint, while we see little in the way of an improvement in the business environment, we do see signs that the 38 NATIONS MIDCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued declines have leveled off in many areas. While this is surely an environment with more than enough risk for most investors, we believe the economy, business and the markets are poised for a rebound. We continue to maintain a balance between defensive and more cyclically oriented issues but on the margin have sought to take advantage of what we believe are attractive valuations in the pro-cyclical groups. In financials, we continue to believe that corporate credit will improve in 2003 while consumer credit quality either moderates or declines. Recent data points have been supporting this thesis and we have positioned the portfolio to benefit from such a trend. We like the outlook for energy and think that the slowdown in capital spending in the last few years suggests a pent up demand for business investment spending, which could bode well for a number of technology companies later this year. 39 NATIONS MIDCAP VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 3.6% Diversified electronics 4.0% Health services 4.3% Electric power - Non nuclear 4.5% Lodging and recreation 4.6% Electric power - Nuclear 4.9% Insurance 5.2% Integrated oil 5.5% Semiconductors 6.0% Real Estate Investment Trusts (REITs) 12.1% Commercial banking 45.2% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Charter One Financial, Inc. 2.2% ------------------------------------------------- 2 Comerica Inc. 2.1% ------------------------------------------------- 3 CSX Corporation 2.0% ------------------------------------------------- 4 Compass Bancshares, Inc. 2.0% ------------------------------------------------- 5 Pitney Bowes Inc. 1.9% ------------------------------------------------- 6 ACE Ltd. 1.9% ------------------------------------------------- 7 Entergy Corporation 1.8% ------------------------------------------------- 8 Sovereign Bancorp, Inc. 1.8% ------------------------------------------------- 9 Tektronix, Inc. 1.7% ------------------------------------------------- 10 Zions Bancorporation 1.6% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
40 NATIONS MIDCAP VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
LIPPER MID-CAP CORE FUNDS NATIONS MIDCAP VALUE FUND AVERAGE RUSSELL MIDCAP VALUE INDEX ------------------------- ------------------------- -------------------------- Nov. 20|2001 9425 10000 10000 9987 10482 10415 10015 10332 10520 10034 10192 10691 Mar. 31|2002 10685 10840 11237 9983 9733 10712 8196 8115 8789 8664 8544 9411 Mar. 31|2003 8296 8244 9029
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
LIPPER MID-CAP CORE FUNDS NATIONS MIDCAP VALUE FUND AVERAGE RUSSELL MIDCAP VALUE INDEX ------------------------- ------------------------- -------------------------- Nov. 20|2001 10000 10000 10000 10596 10482 10415 10626 10332 10520 10646 10192 10691 Mar. 31|2002 11337 10840 11237 10592 9733 10712 8696 8115 8789 9193 8544 9411 Mar. 31|2003 8802 8244 9029
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (11/20/01 through 3/31/03) -8.96% -12.84%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations MidCap Value Fund from the inception of the share class. Figures for the Russell MidCap Value Index, an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and forecasted growth values, include reinvestment of dividends. The stocks are also members of the Russell 1000 Value Index. Funds in the Lipper Mid-Cap Core Funds Average invest at least 75% of their equity assets in companies with market capitalizations less than 300% of the median market capitalization of the middle 1,000 securities of the S&P MidCap 400 Index. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 11/20/01 11/20/01 11/20/01 11/20/01 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -22.27% -22.36% -26.83% -22.93% -26.77% -22.89% -23.66% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS SINCE INCEPTION -8.73% -8.96% -12.84% -9.59% -12.25% -9.58% -9.58%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 41 NATIONS SMALLCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Value Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing in companies believed to be undervalued. PERFORMANCE REVIEW For the period from the Fund's inception on May 1, 2002 through March 31, 2003, Nations SmallCap Value Fund Investor A Shares provided shareholders with a cumulative total return of - -22.75%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS SMALLCAP VALUE FUND'S PERFORMANCE SINCE THE FUND'S INCEPTION THROUGH MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The investment process focuses on stocks with valuations the team believes are attractive based upon their price-to-earnings ratio, price-to-cash flow and other measures and seeks to achieve moderately lower volatility when compared with the broad market. It is our belief that undervalued and misunderstood stocks with attractive valuations and good long-term growth prospects can deliver superior risk-adjusted performance over time. Further, we believe companies can go through periods when their fundamentals deteriorate, resulting in their stock being priced below what we perceive to be their fair value. We also believe that utilizing a disciplined investment process that combines a valuation screen, fundamental research and a comprehensive risk management strategy is the best way to locate these investment opportunities. The Fund focuses on companies in the $200 million to $2 billion market capitalization range. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 11 MONTHS? U.S. investors have sustained a series of significant political and economic blows in the period since the Fund's inception. A sluggish consumer and business environment, concerns about terrorism and war, combined with an increasing lack of confidence in business leaders due to more allegations of fraud, deceit and accounting scandals helped weaken U.S. equity markets. Despite all these issues, we do not see any fundamental flaws with the U.S. economy or capital markets. Economic signals have been understandably mixed and over the last year, consumer confidence has dropped significantly because of this and the weaker employment market. Some of the more economically sensitive sectors like consumer cyclicals, retailing, communications and technology have suffered more than others have but the declines have been broad based. Out of the 12 economic sectors we track, only consumer staples, energy, finance, transportation and utilities stocks outperformed our benchmark, 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 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. Source for all statistical data -- Banc of America Capital Management, LLC. BECAUSE SMALL COMPANIES OFTEN HAVE NARROWER MARKETS AND LIMITED FINANCIAL RESOURCES, AND THEIR STOCKS ARE NOT AS ACTIVELY TRADED AS LARGE COMPANY STOCKS, THEIR SHARE PRICES MAY BE MORE VOLATILE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 42 NATIONS SMALLCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued Russell 2000 Value Index***, albeit not by much. This has clearly been a challenging environment for business, consumers and investors. While many value stocks continued to outperform growth stocks (as measured by the Russell Indexes), the relative performance advantage eroded over the last six months primarily due to a rebound in technology, which is the most prominent sector within the growth benchmarks. This move in technology and, to a lesser extent, in communications and transportation is, in our opinion, more a matter of groups that have underperformed over the last several years rebounding as opposed to a move driven by current or expected improvement in their fundamental outlook. We continue to favor companies with tangible earnings and which have, in our opinion, attractive valuations. Since the Fund's inception on May 1, 2002 through March 31, 2003, the Russell 2000 Value Index, the Fund's benchmark, returned -25.88% compared with Nations SmallCap Value Fund (Investor A Shares) which returned -22.75%, significantly outperforming the benchmark. WHAT SECTORS AND STOCKS PROVED TO BE FAVORABLE TO FUND PERFORMANCE DURING THE LAST 11 MONTHS?& Relative to the benchmark, the Fund benefited from an overweight in the consumer staples sector and underweights in both the basic industries and consumer cyclicals sectors. Positive stock selection across a number of sectors was the main contributor to the portfolio's performance. In 2002, the market became more focused on companies with solid earnings prospects regardless of the macroeconomic difficulties. As a result, our overweight in consumer staples stocks like Del Monte Foods Company and Energizer Holdings, Inc., where earnings are more stable and predictable, proved to be a good strategy. Oil prices have risen dramatically over the last year due to the current geopolitical situation and war in Iraq. Given long term expectations for growing global demand, we believe the outlook is still favorable and we feel the same is true given the supply/demand picture for natural gas. Within the group, our focus has been primarily on the oilfield services companies such as Grey Wolf, Inc. and Oil States International, Inc., which we believe will benefit from an increase in drilling activity when global uncertainties start to recede. These stocks have already contributed positively to performance. In the basic industries sector, stock selection was helped by CLARCOR Inc., which handily beat earnings estimates in the most recent quarter. CLARCOR is a prototype small capitalization value company -- it is a diversified manufacturer in the unglamorous business of producing filtration and packaging products but produces steady earnings growth over time. Finance was a positive contributor to performance for the Fund due to strong stock selection. A number of our positions within the finance sector were actually up well over 10% in a group where the average stock price declined nearly 12%. Brookline Bancorp, Inc., First Community Bancorp, Flagstar Bancorp, Inc., Hancock Holding Company, Pacifica Capital ***The Russell 2000 Value Index is an unmanaged index which measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 43 NATIONS SMALLCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued Bancorp and The First American Corporation all added significantly to relative returns. Our most dramatic results were in health care where our lack of exposure to biotechnology has hurt us somewhat recently but has helped significantly over the long term. With the average stock in the benchmark down nearly 34% over the period, having stocks in the portfolio like AMERIGROUP Corporation, Coventry Health Care, Inc., and VCA Antech, Inc. that were slightly up or only slightly down helped drive strong performance in the sector. Retailing was also a positive contributor with our stock selection leaning decidedly away from those companies that suffered through a disappointing Christmas season and more towards footwear which performed quite well. WHAT SECTORS AND STOCKS PROVED TO BE UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? Finance stocks contributed positively to performance; however, we were underweight in the sector as a whole. For the year, finance averaged just over 30% of the benchmark and was a little more than 22% of our portfolio. In particular we have been underweight in the regional banks and real estate investment trusts where valuations are a bit higher and our outlook is for slower revenue growth. Stock selection in consumer cyclicals was a detractor to relative returns. Jack in the Box Inc. reported a disappointing quarter and weaker travel hurt results at Six Flags, Inc. The biggest challenge we had, though, was within the automotive group where component makers like Aftermarket Technology Corp., GenCorp Inc. and Tower Automotive, Inc. suffered along with the general downturn in auto sales. WHAT IS YOUR OUTLOOK FOR THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? The economic environment has been mixed and weak. We are on a slow growth plane with low inflation which might normally be considered favorable. However, a soft job market and declining consumer confidence, concerns about consumer debt levels and how all this might impact consumer spending, are key concerns facing the economy and the equity markets. We believe the U.S. economy could regain its momentum in the months after the Iraq war as many of the uncertainties that are holding back the consumer and businesses from spending are lifted. While some market strategists talk about the portfolio you want to own in war time, we believe investors should be thinking more in terms of what they want to own going into the recovery. President Bush has proposed a "jobs and growth" program which includes a number of tax cuts designed to improve spending and investment. We believe some portion of the President's program is likely to be passed by Congress in the coming months and a further reduction in interest rates by the Federal Reserve Board is not out of the question. From a fundamental standpoint, while we see little in the way of an improvement in the business environment, we do see signs that the declines have leveled off in many areas. While this is surely an environment with more than enough risk for most investors, we believe the economy, business and the markets are poised for a rebound. We continue to maintain a balance between defensive and more cyclically oriented issues, but on the margin we have sough to take advantage of attractive valuations in the pro-cyclical groups. In financials, we believe that corporate credit will 44 NATIONS SMALLCAP VALUE FUND VALUE STRATEGIES TEAM COMMENTARY continued improve in 2003 while consumer credit quality either moderates or declines. Recent data points have been supporting this thesis and we have positioned the portfolio to benefit from such a trend. We like the outlook for energy and think that the slowdown in capital spending in the last few years suggests a pent up demand for business investment spending which could bode well for a number of technology companies later this year. Our approach here has been to also focus on those companies driven by government spending like MTC Technologies, Inc., Veridian Corporation and SRA International, Inc., where the market has been firmer. 45 NATIONS SMALLCAP VALUE FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 2.7% Aerospace and defense 2.9% Semiconductors 3.0% Diversified manufacturing 3.2% Commercial services 4.4% Chemicals - Specialty 5.1% Medical devices and supplies 5.3% Specialty stores 6.5% Real Estate Investment Trusts (REITs) 7.7% Commercial banking 7.7% Insurance 51.5% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Biotech HOLDRs Trust 1.4% ------------------------------------------------- 2 Western Digital Corporation 1.2% ------------------------------------------------- 3 Platinum Underwriters Holdings, Ltd. 1.2% ------------------------------------------------- 4 SL Green Realty Corporation 1.1% ------------------------------------------------- 5 Coventry Health Care, Inc. 1.1% ------------------------------------------------- 6 Ruby Tuesday, Inc. 1.1% ------------------------------------------------- 7 Cooper Companies, Inc. 1.1% ------------------------------------------------- 8 ESCO Technologies Inc. 1.1% ------------------------------------------------- 9 WPS Resources Corporation 1.0% ------------------------------------------------- 10 Prentiss Properties Trust 1.0% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
46 NATIONS SMALLCAP VALUE FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS SMALLCAP VALUE LIPPER SMALL-CAP CORE FUND RUSSELL 2000 VALUE INDEX FUNDS AVERAGE ---------------------- ------------------------ --------------------- May 1 2002 9425 10000 10000 5/31/2002 9152 9669 9644 6/30/2002 8992 9455 9137 7/31/2002 7908 8050 7888 8/31/2002 7889 8015 7913 9/30/2002 7428 7443 7364 10/31/2002 7701 7554 7564 11/30/2002 8030 8157 8081 12/31/2002 7772 7809 7732 Mar. 31 2003 7281 7412 7356
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS SMALLCAP VALUE LIPPER SMALL-CAP CORE FUND RUSSELL 2000 VALUE INDEX FUNDS AVERAGE ---------------------- ------------------------ --------------------- May 1 2002 10000 10000 10000 5/31/2002 9710 9669 9644 6/30/2002 9540 9455 9137 7/31/2002 8390 8050 7888 8/31/2002 8370 8015 7913 9/30/2002 7881 7443 7364 10/31/2002 8171 7554 7564 11/30/2002 8520 8157 8081 12/31/2002 8246 7809 7732 Mar. 31 2003 7725 7412 7356
CUMULATIVE TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (5/1/02 through 3/31/03) -22.75% -27.19%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations SmallCap Value Fund from the inception of the share class. Figures for the Russell 2000 Value Index, an unmanaged index comprised of securities in the Russell 2000 Index, measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates, include reinvestment of dividends. Funds in the Lipper Small-Cap Core Funds Average invest at least 75% of their equity assets in companies with market capitalization less than 250% of the dollar-weighted median of the smallest 500 of the middle 1,000 securities of the S&P SuperComposite 1500 Index. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the difference in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 5/1/02 5/1/02 5/1/02 5/1/02 - ------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE RETURNS SINCE INCEPTION -22.50% -22.75% -27.19% -23.20% -27.04% -23.29% -24.06%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 47 NATIONS MARSICO GROWTH FUND PORTFOLIO MANAGER COMMENTARY* PORTFOLIO MANAGEMENT Thomas F. Marsico and James A. Hillary are co-Portfolio Managers of Nations Marsico Growth Fund. Mr. Marsico is also Chief Executive Officer of Marsico Capital Management, LLC, investment sub-adviser to the Fund.** INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Marsico Growth Fund Investor A Shares provided shareholders with a total return of - -19.43%.*** IN THE FOLLOWING INTERVIEW, MR. MARSICO AND MR. HILLARY SHARE THEIR VIEWS ON NATIONS MARSICO GROWTH FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND THEIR OUTLOOK FOR THE FUTURE. EFFECTIVE MAY 10, 2002, THE FUND CHANGED ITS NAME AND INVESTMENT OBJECTIVE, ELIMINATING THE SLIGHT EMPHASIS ON INCOME. THE INVESTMENT PHILOSOPHY AND INVESTMENT APPROACH ARE UNCHANGED. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Marsico Growth Fund seeks long-term growth of capital. The Fund invests primarily in large-capitalization equity securities that are selected for their long-term growth potential. Generally, the Fund holds 30 to 50 securities allocated across a variety of economic sectors and industries. The investment process blends "top-down" macroeconomic analysis with "bottom-up" stock selection. Specific "macro" factors include interest rates, inflation, productivity data, commodity prices, the regulatory environment, fiscal policy, and geopolitical issues. Characteristics sought in individual companies include strong brand franchise; improving "fundamentals" (e.g., gains in market share, improving profitability, strong free cash flow); strong balance sheets; excellent distribution and marketing capabilities; apparent commitment to shareholder interests; and talented, well-incented management teams. The Fund will typically own three "types" of stocks: core growth, aggressive growth, and life cycle change. The latter category refers to companies that are experiencing some sort of positive, fundamental transformation in their business (e.g., new product, acquisition, divestiture, new management team) that, in our view, augurs well for future earnings growth potential. WHAT WERE THE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD? In general terms, the past year has been exceedingly difficult for equity investors. The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)& , which we consider to be a good proxy for the performance of large capitalization U.S. stocks, had a total return of -24.75% for the 12-month period ending March 31, 2003. Stock market losses were widespread; of the 10 economic sectors included in the S&P 500 Index, seven registered declines of 20% or more over the course of the year, including information technology and telecommunications *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **On February 1, 2003, Mr. Hillary joined Mr. Marsico as co-portfolio manager of the Fund. Prior to that time, Mr. Marsico was the sole portfolio manager. ***The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. &The 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. Source for all statistical data -- Marsico Capital Management, LLC. THE FUND MAY INVEST UP TO 25% OF ITS ASSETS IN FOREIGN SECURITIES. INVESTING IN THESE SECURITIES MAY INVOLVE ADDITIONAL RISKS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 48 NATIONS MARSICO GROWTH FUND PORTFOLIO MANAGER COMMENTARY continued services, both of which posted losses of about 33%. U.S. economic activity was far from robust over the reporting period, hobbled by a combination of disappointing corporate earnings, diminished capital spending, a seemingly endless number of accounting and corporate governance-related scandals, and escalated geopolitical concerns. These factors seemed to more than offset some of the more favorable economic factors, including low interest rates, quiescent inflation, continued productivity gains, inventory corrections, and monetary/fiscal stimulus. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED? For the 12-month period ending March 31, 2003, Nations Marsico Growth Fund (Investor A Shares) had a total return of -19.43%. This return compared favorably to the S&P 500 Index, which had a total return of -24.75%. WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? Overall, our view is that the factors cited above -- earnings shortfalls, reduced capital spending activity, corporate accounting scandals, geopolitics -- all exerted a major influence on general equity market performance, as well as our Funds, last year. In our view, geopolitical concerns have dominated the investment landscape over the past three to six months. Earlier in the reporting period, corporate accounting problems and earnings disappointments were more prevalent factors impacting stock prices. WHAT COMPANIES AND SECTORS WERE FAVORABLE TO FUND PERFORMANCE?&& For the 12-month period ending March 31, 2003, there were several primary factors contributing to the Fund's outperformance as compared to the S&P 500 Index: The Fund benefited from an overweighted posture in the health care equipment and services industry, with UnitedHealth Group Inc. being a particularly strong individual company performer. The Fund's performance was positively impacted by maintaining a generally underweighted (as compared to the S&P 500 Index) posture in information technology. From an industry standpoint, the Fund's relatively modest allocation to hardware and equipment companies was a significant source of added value for the reporting period. Stock selection also helped performance, highlighted by the Fund's investment in Qualcomm Inc. The Fund's underweight position in telecommunications was also a positive for performance. In the financial services sector, the Fund's position in SLM Corporation was a notably strong performer over the reporting period. The Fund benefited from stock selection in the industrials sector, most notably Ryanair Holdings plc. WHAT INVESTMENT DECISIONS CONTRIBUTED TO PERFORMANCE AND WHICH DECISIONS HINDERED PERFORMANCE? As might be discerned from the response to the preceding question, the decisions to be "less aggressive" in sectors such as information technology and telecommunications services positively impacted the Fund's performance over much of the 12 months ended March 31, 2003. In addition, investment results were &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 49 NATIONS MARSICO GROWTH FUND PORTFOLIO MANAGER COMMENTARY continued helped by investments in industrials, health care equipment/services, and select financial services positions. The primary detriments to performance over the past 12 months were our underweighted postures in industries such as banking and household/personal products, which were relatively good performers. The Fund's media-related positions, in aggregate, had a negative impact on performance. Omnicom Group declined by more than 30% during the period while it was held in the Fund. This decline offset gains by other media holdings such as Clear Channel Communications. Our stock selection in lodging companies -- notably Four Seasons Hotels -- also detracted from performance. In addition, certain software and services companies struggled during the reporting period. These included Cisco Systems, Inc. and Intuit Inc. Retailer Tiffany & Co. was among the worst performing positions in the Fund, declining nearly 30% in the 12-month period. WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD? The near-term, i.e., the next 30-120 days, is likely to be an extremely difficult period in terms of forecasting stock prices. The corporate profit environment continues, on balance, to be very tough. Relatively few companies offer a high degree of "earnings visibility" and many have abandoned providing earnings guidance altogether. This is largely attributable, in our view, to the high level of uncertainty regarding the war in Iraq and its dampening impact on worldwide economic activity. Areas of continued uncertainty include the human, economic, and financial costs associated with the war. Until there is more clear evidence pointing to a political resolution in Iraq, we think equity markets -- as they have for much of the past several months -- will likely continue to be influenced in significant part by war-related news. In addition, while news about Iraq presently dominates the headlines, there are other serious geopolitical issues to be concerned about, including North Korea and the Middle East. Finally, we think it would be unwise to overlook or discount the potentially negative psychological impact on the capital markets if another major terrorist attack took place on U.S. soil. In terms of our market outlook, we have attempted to balance sensitivity to the near-term risks outlined above with a more positive longer-term perspective that incorporates what we consider to be a variety of favorable economic and financial factors. At bottom, we believe that military and political success in Iraq may be achievable. Renewed U.S. diplomacy and leadership in North Korea and the Middle East needs to occur; we believe it will. In addition, we would look for more constructive, cooperative dialogue in the United Nations. These developments, we think, should serve to help remove a good part of the serious overhang of uncertainty that has plagued the stock market for an extended period of time. We believe that this may serve as a major catalyst for improved economic activity, including more vigorous corporate capital spending, better labor markets, and stronger consumer confidence. We believe there is a substantial amount of monetary and fiscal stimulus that is already either "built in" to the economy (e.g., low interest rates, constrained inflation, reduced income taxes) or under serious legislative consideration (e.g., curtailment or elimination of dividend taxation, further income tax reductions). These types of factors have the potential to, at some point, positively impact economic growth. Declining oil prices, which probably are predicated on resolution of the Iraq situation, would likely have a powerful and positive "stimulus" impact that would be rapidly felt throughout the economy. 50 NATIONS MARSICO GROWTH FUND PORTFOLIO MANAGER COMMENTARY continued In addition, aggregate equity market valuations generally appear reasonable to us, with certain sectors and industries offering quite compelling valuation profiles. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THEM? In general terms, the Fund's economic sector allocations as of March 31, 2003 favored consumer discretionary, health care, and financial services. We think these types of areas offer a degree of "assured demand" for their services or products that may be relatively independent of geopolitical concerns or economic slow-downs. Within these sectors, there generally is some industry-specific focus. As examples, our consumer discretionary holdings include substantial investments in retailing and media companies. Health care positions favor equipment and services companies, as well as select pharmaceutical and biotechnology companies. In recent months we have been gradually shifting the Fund's aggregate holdings to "tilt" it more toward economically sensitive areas. Again, this is based on our longer-term view that the economy may improve. While we remain cautious towards the overall technology sector, we have selectively increased our weighting in certain software and hardware/equipment companies during the past several months. As of March 31, 2003, the Fund had no investments in several sectors, including energy and materials. 51 NATIONS MARSICO GROWTH FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 3.7% Lodging and recreation 3.7% Household products 4.4% Telecommunications services 4.5% Networking and telecommunications equipment 5.2% Broadcasting and cable 5.5% Finance - Miscellaneous 5.6% Specialty stores 6.1% Software 7.3% Pharmaceuticals 10.8% Health services 43.2% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 UnitedHealth Group Inc. 5.7% ------------------------------------------------- 2 SLM Corporation 5.5% ------------------------------------------------- 3 Procter & Gamble Company 3.7% ------------------------------------------------- 4 Amgen Inc. 3.6% ------------------------------------------------- 5 Nextel Communications, Inc., Class A 3.5% ------------------------------------------------- 6 Citigroup Inc. 3.4% ------------------------------------------------- 7 General Electric Company 3.3% ------------------------------------------------- 8 Lowe's Companies, Inc. 2.9% ------------------------------------------------- 9 Viacom Inc., Class B 2.9% ------------------------------------------------- 10 Dell Computer Corporation 2.9% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
52 NATIONS MARSICO GROWTH FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN GRAPH]
NATIONS MARISCO GROWTH LIPPER LARGE-CAP GROWTH FUND FUNDS AVERAGE S&P 500 INDEX ---------------------- ----------------------- ------------- Dec. 31 1997 9425 10000 10000 6/98 12330 12011 11771 12/98 13065 13359 12858 6/99 14899 15053 14451 12/99 19874 18491 15564 6/00 18613 19093 15498 12/00 16800 15714 14148 6/01 14701 13181 13202 12/01 13480 12022 12468 6/02 13451 9776 10828 12/02 11419 8624 9713 Mar. 31 2003 11736 8528 9407
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN GRAPH]
NATIONS MARISCO GROWTH LIPPER LARGE-CAP GROWTH FUND FUNDS AVERAGE S&P 500 INDEX ---------------------- ----------------------- ------------- Dec. 31 1997 10000 10000 10000 6/98 13082 12011 11771 12/98 13862 13359 12858 6/99 15808 15053 14451 12/99 21086 18491 15564 6/00 19749 19093 15498 12/00 17825 15714 14148 6/01 15598 13181 13202 12/01 14302 12022 12468 6/02 14272 9776 10828 12/02 12116 8624 9713 Mar. 31 2003 12452 8528 9407
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (12/31/97 through 3/31/03) 3.54% 2.38%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Marsico Growth Fund from the inception of the share class. Figures for the Standard & Poor's 500 Composite Stock Price Index (Standard & Poor's 500 Index), an unmanaged index of 500 widely held common stocks, include reinvestment of dividends. Funds in the Lipper Large-Cap Growth Funds Average normally invest in large capitalization companies with long-term earnings expected to grow significantly. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/31/97 12/31/97 12/31/97 12/31/97 - ----------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -19.20% -19.43% -24.07% -20.01% -24.01% -20.06% -20.86% - ----------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -17.69% -17.91% -19.51% -18.52% -19.33% -18.52% -18.52% 5 YEARS 0.11% -0.04% -1.21% -0.77% -1.17% -0.76% -0.76% SINCE INCEPTION 3.69% 3.54% 2.38% 2.82% 2.65% 2.84% 2.84%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. 53 NATIONS STRATEGIC GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Growth Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Strategic Growth Fund Investor A Shares provided shareholders with a total return of - -28.61%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS STRATEGIC GROWTH FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Strategic Growth Fund is managed using a long-term capital growth strategy with a focus on maximizing after-tax returns. Our intent is to hold a blend of large capitalization "growth" and "value" stocks. Typically, securities are purchased for the Fund with a two- to four-year time horizon in mind. We "build" the Fund by utilizing an integrated approach to portfolio construction. We start with a macro view, forecasting factors such as the economy, sector trends and long-term investment themes (e.g., the aging of the U.S. population, globalization and innovation). We then combine fundamental and quantitative research analysis to select companies that we believe have long term sustainable competitive advantages. The Fund typically invests in companies that are recognized leaders, have strong track records and are in sound financial condition. Through our "top down" framework and "bottom-up" stock selection, we create a portfolio of 60 to 80 securities in which we attempt to carefully control and monitor risk through diversification and quantitative techniques. One of the techniques that monitors risk utilizes a "tracking error" method. This approach measures over time the volatility of the Fund's performance and seeks a variation of no more than 500 basis points (5.00%) between the Fund's return and that of its benchmark, the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index).*** In addition, we employ customized risk measurement tools which seek to ensure that we understand the risks taken in the portfolio and that we are taking risks for which we will be rewarded. WHAT WAS THE MARKET ENVIRONMENT OVER THE REPORTING PERIOD? The past 12 months was a difficult investment period for the stock market with the S&P 500 Index and the Russell 1000 Index& dropping 24.75% and 24.51%, respectively. Regulators stepped up their efforts during the year to expose unethical and illegal business practices. But, investors lost confidence in the financial markets as revelations of fraudulent accounting practices mounted and a handful of well- known companies fell into bankruptcy. The uncertain economic environment, the threat of terrorism and the prospect of war with Iraq also weighed on the nation. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The 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 1000 is a subset of the Russell 3000 Index, measuring the performance of the 1,000 largest companies in the Russell 3000 Index. The Index 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. 54 NATIONS STRATEGIC GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY continued As a result, investor risk tolerance plummeted and investors determined that the price paid for future earnings growth demanded a much lower premium. This is borne out by the fact that the price-to-earnings ratio on the S&P 500 Index declined from roughly 21 times to 17 times during the 12-month period. Volatility was also very high, with the stock market producing two periods of 20% or greater gains and two periods of 20% or greater losses. In addition, the onset of the war in Iraq resulted in a 12% gain during mid-March 2003. WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? The recession of 2001 gave way to modest and fluctuating economic growth over the past 12 months. Although quarterly Gross Domestic Product has remained positive during this time, it has fluctuated wildly from quarter to quarter, indicating no trend of a "true" recovery in place. The production of goods and services decelerated in the second quarter of 2002 but rebounded in the third quarter. This pattern reappeared on a smaller scale in the second half of the 12-month period. Lackluster holiday sales restrained growth in the fourth quarter of 2002, while war-related fears caused economic weakness in the first quarter of 2003. Interest rates dropped substantially during the 12-month period leading to a mortgage refinancing boom that supported consumer spending. In addition, continued low inflation, retailer discounting, and generous auto incentives prompted consumers to continue spending. However, due to uncertainty over the potential military conflict in Iraq as well as continued weak employment levels, consumer spending began to slow in the first quarter of 2003. War fears also led to lessened corporate activity, including capital expenditures and hiring. As a result, what appeared to be an economy on the mend deteriorated during the first quarter of 2003. The swings in economic performance further eroded investor sentiment and led to additional stock market volatility. While most investors believe the recession ended in 2001, the economic performance of the past 12 months has hardly been indicative of a typical recovery. As a result, the stock market has continued to trade in a volatile and often unpredictable fashion. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? As mentioned above, the stock market over the past 12 months has been very volatile. As a Fund with a long-term focus on high quality stocks, we suffered in a market that effectively produced two bull markets (gains in excess of 20%) and two bear markets (declines in excess of 20%). For the 12 months ended March 31, 2003, Nations Strategic Growth Fund (Investor A Shares) returned -28.61% vs. -24.75% for the benchmark S&P 500 Index. One of the most damaging periods for the Fund was during October and November of 2002, when the market rallied 20%. This rally was largely led by lower quality companies with suspect earnings prospects. Because the Fund focuses on high quality companies with strong earnings prospects, we lagged the benchmark during this rally. 55 NATIONS STRATEGIC GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY continued WHICH SECTORS AND COMPANIES PROVED FAVORABLE FOR FUND PERFORMANCE AND WHICH PROVED UNFAVORABLE FOR FUND PERFORMANCE?&& The three sectors that were most positive to Fund performance were basic industry, consumer staples and utilities. As investor risk aversion increased during the year, many investors gravitated toward "defensive" stocks with a history of reliable earnings. Securities such as 3M Company, Colgate-Palmolive Company, Procter & Gamble Co., Inc. and Southern Company all contributed positively to the Fund's performance. In addition, stocks in other sectors likewise benefited from this rotation into companies with reliable earnings. Such companies owned by the Fund include SLM Corporation, UnitedHealth Group Incorporated, and AFLAC Incorporated. Finally, a variety of economically sensitive stocks performed well during market rallies over the past 12 months. As a result, the Fund benefited from owning Electronic Arts, Inc., Amgen Inc. and Maxim Integrated Products, Inc. Sectors that proved detrimental to performance include finance, technology, and communications. The Wall Street research scandals had a very negative effect on capital markets firms such as Citigroup Inc. and Merrill Lynch & Co, Inc., while the continued weakness in the telecommunications industry drove down earnings for SBC Communications Inc. AOL Time Warner Inc. struggled with its online business, and ultimately had to write-off almost $100 billion related to its acquisition of Time Warner. Technology stocks continued to flounder, still deflating from the bubble era as Cisco Systems, Inc. and Intel Corporation both traded sharply lower. Finally, one of the single largest contributors to negative performance for the Fund was the decline of The Home Depot, Inc. as the company lost its reputation as "a rapid grower". WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? We believe investor sentiment, which has been poor for much of the past three years, will begin to improve following the culmination of the Iraq war and the expected U.S. victory. The uncertainty caused by the process leading up to the war has largely been removed; the only thing yet to be known is the timing of the eventual end of the war. Although inactivity on the part of corporations and consumers alike led to weak economic growth during the first quarter of 2003, we believe that pent up demand on the part of both groups will lead to improved economic growth, lower unemployment, and higher corporate earnings over the next 12 months. We believe tame inflation, fiscal and monetary stimulus, auto and retailer discounting and continued low mortgage rates should also prove beneficial to economic growth in the near term. Although we expect the markets to remain volatile, we believe the 3-year trend of negative performance will end in 2003. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? In accordance with our belief that investor sentiment and economic growth will improve, we believe that economically sensitive and so-called "high beta" stocks will perform well over the next 12 months. The best performing stocks over the past two years have been "defensive" stocks in industries such as consumer products, managed care, and regional banking. However, over the coming 12 months, we expect more economically sensitive stocks in industries such as &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 56 NATIONS STRATEGIC GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY continued semiconductors, computer software and hardware, media/broadcasting, and retailing to lead the pack. As a result, we are selectively adding high quality stocks in these industries to the portfolio, while we look to reduce, on strength, holdings in the more defensive industries mentioned above. As a result of the markets severe downdraft over the past few years, many economically sensitive companies now trade at what we believe are attractive valuations, even relative to their reduced growth prospects. 57 NATIONS STRATEGIC GROWTH FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 4.2% Diversified manufacturing 4.2% Semiconductors 4.6% Commercial banking 5.1% Medical devices and supplies 5.5% Broadcasting and cable 5.5% Department and discount stores 6.5% Integrated oil 7.1% Insurance 8.6% Pharmaceuticals 8.9% Software 39.8% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Microsoft Corporation 4.7% ------------------------------------------------- 2 General Electric Company 3.5% ------------------------------------------------- 3 Wal-Mart Stores, Inc. 3.1% ------------------------------------------------- 4 Intel Corporation 2.9% ------------------------------------------------- 5 Citigroup Inc. 2.8% ------------------------------------------------- 6 Johnson & Johnson 2.6% ------------------------------------------------- 7 Exxon Mobil Corporation 2.4% ------------------------------------------------- 8 XL Capital Ltd., Class A 2.4% ------------------------------------------------- 9 Electronic Arts Inc. 2.3% ------------------------------------------------- 10 Comcast Corporation, Class A 2.1% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
58 NATIONS STRATEGIC GROWTH FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS STRATEGIC GROWTH LIPPER LARGE-CAP GROWTH STANDARD & POOR'S 500 FUND FUNDS AVERAGE INDEX ------------------------ ----------------------- --------------------- Oct. 2 1998 9425.00 10000.00 10000.00 11935.00 10710.00 12130.00 1999 13488.00 11872.00 13633.00 15522.00 12768.00 14683.00 15662.00 12837.00 15015.00 13574.00 11882.00 13707.00 2001 12597.00 10898.00 12790.00 11888.00 10247.00 12079.00 9936.00 8808.00 10490.00 8599.00 7816.00 9410.00 Mar. 31 2003 8426.00 7565.00 9113.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS STRATEGIC GROWTH LIPPER LARGE-CAP GROWTH STANDARD & POOR'S 500 FUND FUNDS AVERAGE INDEX ------------------------ ----------------------- --------------------- Oct. 2 1998 10000.00 10000.00 10000.00 12663.00 10710.00 12130.00 1999 14311.00 11872.00 13633.00 16469.00 12768.00 14683.00 16618.00 12837.00 15015.00 14402.00 11882.00 13707.00 2001 13366.00 10898.00 12790.00 12613.00 10247.00 12079.00 10542.00 8808.00 10490.00 9124.00 7816.00 9410.00 Mar. 31 2003 8940.00 7565.00 9113.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (10/2/98 through 3/31/03) -2.46% -3.74%
The chart to the left shows the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Strategic Growth Fund from the inception of the share class. Figures for the Standard & Poor's 500 Composite Stock Price Index (Standard & Poor's 500 Index), an unmanaged index of 500 widely held common stocks, include reinvestment of dividends. Funds in the Lipper Large-Cap Core Funds Average invest at least 75% of their equity assets in companies with market capitalizations of greater than $10 billion. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Investor 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 3/31/03)
PRIMARY A INVESTOR A+ INVESTOR B+ INVESTOR C+ NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 10/2/98 8/2/99 8/2/99 8/2/99 - ----------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -28.55% -28.61% -32.71% -29.23% -32.76% -29.30% -30.01% - ----------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -19.59% -19.64% -21.22% -20.30% -21.10% -20.32% -20.32% SINCE INCEPTION -2.36% -2.46% -3.74% -3.08% -3.51% -3.08% -3.08%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. +Investor A, Investor B and Investor C Shares commenced operations on August 2, 1999 and have no performance prior to that date. Performance prior to August 2, 1999 is that of Primary A Shares, which do not have any 12b-1 or shareholder servicing fees. If Investor A, Investor B and Investor C Shares 12b-1 or shareholder servicing fees had been reflected, total returns would have been lower. 59 NATIONS CAPITAL GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Growth Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks growth of capital by investing in companies that are believed to have superior earnings growth potential. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Capital Growth Fund Investor A Shares provided shareholders with a total return of - -28.24%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS CAPITAL GROWTH FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Capital Growth Fund employs a long-term, large-capitalization growth strategy. Typically, securities are held in the Fund for a two- to four-year time horizon. We "build" the Fund by employing an integrated approach to portfolio construction. We start with a macro view, forecasting factors such as the economy, sector trends and long-term investment themes (e.g., the aging of the U.S. population, globalization and innovation). We then combine fundamental and quantitative research analysis to select high-growth companies that we believe will grow faster and/or longer than consensus expectations. The Fund typically invests in companies that are recognized leaders, have strong track records and possess key competitive advantages. Through our "top down" framework and "bottom-up" stock selection, we create a portfolio of 40 to 70 securities in which we attempt to carefully control and monitor risk through diversification and quantitative techniques. WHAT WAS THE MARKET ENVIRONMENT OVER THE REPORTING PERIOD? The past 12 months was a difficult investment period for the stock market with the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and the Russell 1000 Growth Index dropping 24.75 % and 26.76%, respectively.*** Regulators stepped up their efforts during the year to expose unethical and illegal business practices. But, investors lost confidence in the financial markets as revelations of fraudulent accounting practices mounted and a handful of well-known companies fell into bankruptcy. The uncertain economic environment, the threat of terrorism, and the prospect of war with Iraq also weighed on the nation. As a result, investor risk tolerance plummeted and investors determined that the price paid for future earnings growth demanded a much lower premium. This is borne out by the fact that the price-to-earnings ratio on the S&P 500 Index declined from roughly 21 times to 17 times during the 12-month period. Volatility was also very high, with the stock market producing two periods of 20% or greater gains and two periods of 20% or greater losses. In addition, the onset of the war in Iraq resulted in a 12% gain during mid-March 2003. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The 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 1000 Growth Index is an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Source for all statistical data -- Bank of America Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 60 NATIONS CAPITAL GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY continued WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? The recession of 2001 gave way to modest and fluctuating economic growth over the past 12 months. Although quarterly Gross Domestic Product has remained positive during this time, it has fluctuated wildly from quarter to quarter, indicating no trend of a "true" recovery in place. The production of goods and services decelerated in the second quarter of 2002 but rebounded in the third quarter. This pattern reappeared on a smaller scale in the second half of the 12-month period. Lackluster holiday sales restrained growth in the fourth quarter of 2002, while war-related fears caused economic weakness in the first quarter of 2003. Interest rates dropped substantially during the 12-month period leading to a mortgage refinancing boom that supported consumer spending. In addition, continued low inflation, retailer discounting and generous auto incentives prompted consumers to continue spending. However, due to uncertainty over the potential military conflict in Iraq as well as continued weak employment levels, consumer spending began to slow in the first quarter of 2003. War fears also led to lessened corporate activity, including capital expenditures and hiring. As a result, what appeared to be an economy on the mend deteriorated during the first quarter of 2003. The swings in economic performance further eroded investor sentiment and led to additional stock market volatility. While most investors believe the recession ended in 2001, the economic performance of the past 12 months has hardly been indicative of a typical recovery. As a result, the stock market has continued to trade in a volatile and often unpredictable fashion. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? As mentioned above, the stock market over the past 12 months has been very volatile. As a Fund with a long-term focus on high quality stocks, we suffered in a market that effectively produced two bull markets (gains in excess of 20%) and two bear markets (declines in excess of 20%). For the 12 months ended March 31, 2003, Nations Capital Growth Fund (Investor A Shares) returned -28.24% vs. -26.76% for the benchmark Russell 1000 Growth Index. One of the most damaging periods for the Fund was during October and November of 2002, when the market rallied 20%. This rally was largely led by lower quality companies with suspect earnings prospects. Because the Fund focuses on high quality companies with strong earnings prospects, we lagged our benchmark during this rally. WHICH SECTORS AND COMPANIES PROVED FAVORABLE FOR FUND PERFORMANCE& Nations Capital Growth Fund benefited from its exposure to the finance and capital goods sectors. Despite a falling stock market, SLM Corporation, a provider of student loan financing, appreciated 14.5% over the 12-month period as investors gravitated to its consistent and visible earnings growth. AFLAC Incorporated, an insurance company, appreciated 9.5%, as its Japanese business has shown strong growth. Within capital goods, Lockheed Martin Corporation, a provider of aerospace and defense systems, was a standout as investors anticipated greater government spending on defense. &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 61 NATIONS CAPITAL GROWTH FUND GROWTH STRATEGIES TEAM COMMENTARY continued In addition, as investor risk aversion increased during the year, investors gravitated toward "defensive" stocks with a history of reliable earnings. Securities such as Anheuser-Busch Companies, Inc., Colgate Palmolive, and Procter & Gamble Co., Inc. all contributed positively to the Fund's performance. WHAT PARTICULAR SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE? The biggest beneficiaries during the October and November market rallies were many stocks that had significantly underperformed the market for much of the year. These companies had been out of favor because of their recent profit declines and the risks to their potential future profitability. Instead of trying to buy exposure to these stocks, we stayed committed to companies that had done a better job posting profits in 2002's modest and fluctuating economy, and that we thought would continue to do well for the foreseeable future. We believe this positioning was consistent with the Fund's mandate to invest in high-quality large companies that are growing and, based on our research, appear likely to continue growing. In addition, there were several health care companies that detracted from performance. Tenet Healthcare Corporation, an operator of hospitals, dropped sharply in late October after reporting unusual billing practices. We had started selling Tenet in mid-October and completed the sale in November. Also, Baxter International, Inc. lagged for the year as earnings expectations dropped due to increased competition in their plasma business. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? We believe investor sentiment, which has been poor for much of the past three years, will begin to improve following the culmination of the Iraq war and the expected U.S. victory. The uncertainty caused by the process leading up to the war has largely been removed; the only thing yet to be known is the timing of the eventual end of the war. Although inactivity on the part of corporations and consumers alike led to weak economic growth during the first quarter of 2003, we believe that pent up demand on the part of both groups will lead to improved economic growth, lower unemployment, and higher corporate earnings over the next 12 months. We believe tame inflation, fiscal and monetary stimulus, auto and retailer discounting, and continued low mortgage rates should also prove beneficial to economic growth in the near term. Although we expect the markets to remain volatile, we believe the 3-year trend of negative performance will end in 2003. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? In accordance with our belief that investor sentiment and economic growth will improve, we believe that economically sensitive and so-called "high beta" stocks will perform well over the next 12 months. The best performing stocks over the past two years have been "defensive" stocks in industries such as consumer products, managed care, and regional banking. However, over the coming 12 months, we expect more economically sensitive stocks in industries such as semiconductors, computer software and hardware, media/broadcasting and retailing to lead the pack. As a result, we are selectively adding high quality stocks in these industries to the portfolio, while we look to reduce, on strength, holdings in the more defensive industries mentioned above. As a result of the markets severe downdraft over the past few years, many economically sensitive companies now trade at what we believe are attractive valuations, even relative to their reduced growth prospects. 62 NATIONS CAPITAL GROWTH FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 14.1% Pharmaceuticals 8.7% Medical devices and supplies 7.5% Software 6.5% Department and discount stores 6.4% Diversified manufacturing 5.1% Health services 4.6% Broadcasting and cable 4.5% Beverages 4.1% Networking and telecommunications equipment 4.0% Computers and office equipment 34.5% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 General Electric Company 5.6% ------------------------------------------------- 2 Pfizer Inc. 4.6% ------------------------------------------------- 3 Microsoft Corporation 4.3% ------------------------------------------------- 4 Johnson & Johnson 4.1% ------------------------------------------------- 5 Wal-Mart Stores, Inc. 3.5% ------------------------------------------------- 6 Cisco Systems, Inc. 3.4% ------------------------------------------------- 7 Intel Corporation 2.9% ------------------------------------------------- 8 UnitedHealth Group Inc. 2.6% ------------------------------------------------- 9 Fannie Mae 2.5% ------------------------------------------------- 10 Kohl's Corporation 2.3% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
63 NATIONS CAPITAL GROWTH FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS CAPITAL GROWTH LIPPER LARGE-CAP GROWTH FUND FUNDS AVERAGE RUSSELL 1000 GROWTH INDEX ---------------------- ----------------------- ------------------------- Mar. 31 1993 9425.00 10000.00 10000.00 1994 9661.00 10405.00 9918.00 10427.00 11397.00 11662.00 1996 13164.00 14810.00 15390.00 14688.00 16624.00 18080.00 1998 22595.00 24459.00 27022.00 25916.00 30782.00 34618.00 2000 33538.00 42796.00 46430.00 23171.00 26842.00 26595.00 2002 22333.00 25287.00 26063.00 Mar. 31 2003 16026.00 18447.00 19089.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS CAPITAL GROWTH LIPPER LARGE-CAP GROWTH FUND FUNDS AVERAGE RUSSELL 1000 GROWTH INDEX ---------------------- ----------------------- ------------------------- Mar. 31 1993 10000.00 10000.00 10000.00 1994 10250.00 10405.00 9918.00 11063.00 11397.00 11662.00 1996 13967.00 14810.00 15390.00 15584.00 16624.00 18080.00 1998 23973.00 24459.00 27022.00 27497.00 30782.00 34618.00 2000 35584.00 42796.00 46430.00 24585.00 26842.00 26595.00 2002 23695.00 25287.00 26063.00 Mar. 31 2003 17004.00 18447.00 19089.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/93 through 3/31/03) 5.45% 4.83%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Capital Growth Fund over the last 10 years. Figures for the Russell 1000 Growth Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole, include reinvestment of dividends. Funds in the Lipper Large-Cap Growth Funds Average normally invest in large capitalization companies with long-term earnings expected to grow significantly. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
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 -28.17% -28.24% -32.39% -28.84% -32.40% -28.79% -29.51% - -------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -21.63% -21.82% -23.35% -22.41% -23.02% -22.38% -22.38% 5 YEARS -6.38% -6.64% -7.74% -7.34% -7.55% -7.33% -7.33% 10 YEARS 5.70% 5.45% 4.83% -- -- 4.75% 4.75% SINCE INCEPTION 6.37% 6.12% 5.52% 5.12% 5.12% 5.40% 5.40%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. 64 NATIONS MARSICO FOCUSED EQUITIES FUND PORTFOLIO MANAGER COMMENTARY* PORTFOLIO MANAGEMENT Thomas F. Marsico and James A. Hillary are co-Portfolio Managers of Nations Marsico Focused Equities Fund. Mr. Marsico is also Chief Executive Officer of Marsico Capital Management, LLC, investment sub-adviser to the Fund.** INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Marsico Focused Equities Fund Investor A Shares provided shareholders with a total return of -19.47%.*** IN THE FOLLOWING INTERVIEW, MR. MARSICO AND MR. HILLARY SHARE THEIR VIEWS ON NATIONS MARSICO FOCUSED EQUITIES FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND THEIR OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Marsico Focused Equities Fund seeks long-term growth in capital. Typically, the Fund will hold a core position of approximately 20-30 large capitalization equity securities that we believe may offer attractive long-term appreciation potential. The Fund may take substantial positions in individual companies, and typically will have significant allocations to a relatively limited number of major economic sectors. However, the Fund's assets typically will be diversified across a variety of industries within each broad economic sector. The investment process blends "top-down" macroeconomic analysis with "bottom-up" stock selection. Specific "macro" factors include interest rates, inflation, productivity data, commodity prices, the regulatory environment, fiscal policy, and geopolitical issues. Characteristics sought in individual companies include strong brand franchise; improving "fundamentals" (e.g., gains in market share, improving profitability, strong free cash flow); strong balance sheets; excellent distribution and marketing capabilities; apparent commitment to shareholder interests; and talented, well-incented management teams. The Fund will typically own three "types" of stocks: core growth, aggressive growth, and life cycle change. The latter category refers to companies that are experiencing some sort of positive, fundamental transformation in their business (e.g., new product, acquisition, divestiture, new management team) that, in our view, augurs well for future earnings growth potential. WHAT WERE THE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD? In general terms, the past year has been exceedingly difficult for equity investors. The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)&, *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **On February 1, 2003, Mr. Hillary joined Mr. Marsico as co-portfolio manager of the Fund. Prior to that time, Mr. Marsico was the sole portfolio manager. ***The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. &The 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. Source for all statistical data -- Marsico Capital Management, LLC. THE FUND NORMALLY INVESTS IN A CORE PORTFOLIO OF 20-30 COMMON STOCKS. BY MAINTAINING A RELATIVELY CONCENTRATED PORTFOLIO, THE FUND MAY BE SUBJECT TO A GREATER RISK THAN A FUND THAT IS MORE FULLY DIVERSIFIED. THIS FUND MAY INVEST UP TO 25% OF ITS ASSETS IN FOREIGN SECURITIES. INVESTING IN THESE SECURITIES MAY INCLUDE ADDITIONAL RISK. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 65 NATIONS MARSICO FOCUSED EQUITIES FUND PORTFOLIO MANAGER COMMENTARY continued which we consider to be a good proxy for the performance of large capitalization U.S. stocks, had a total return of -24.75% for the 12-month period ending March 31, 2003. Stock market losses were widespread; of the 10 economic sectors included in the S&P 500 Index, seven registered declines of 20% or more over the course of the year, including information technology and telecommunications services, both of which posted losses of about 33%. U.S. economic activity was far from robust over the reporting period, hobbled by a combination of disappointing corporate earnings, diminished capital spending, a seemingly-endless number of accounting and corporate governance-related scandals, and escalated geopolitical concerns. These factors seemed to more than offset some of the more favorable economic factors, including low interest rates, quiescent inflation, continued productivity gains, inventory corrections, and monetary/fiscal stimulus. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED? For the 12-month period ending March 31, 2003, Nations Marsico Focused Equities Fund (Investor A Shares) had a total return of -19.47%. This return compared very favorably to the S&P 500 Index, which had a total return of -24.75%. WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? Overall, our view is that the factors cited above -- earnings shortfalls, reduced capital spending activity, corporate accounting scandals, geopolitics -- all exerted a major influence on general equity market performance, as well as on the Fund, last year. In our view, geopolitical concerns have dominated the investment landscape over the past three to six months. Earlier in the reporting period, corporate accounting problems and earnings disappointments were more prevalent factors impacting stock prices. WHAT COMPANIES/SECTORS WERE FAVORABLE TO FUND PERFORMANCE?&& For the 12-month period ending March 31, 2003, there were several primary factors contributing to the Fund's outperformance as compared to the S&P 500 Index. The Fund benefited from an overweighted posture in the health care equipment and services industry, with UnitedHealth Group Inc. being a particularly strong individual company performer. Performance was positively impacted by maintaining a generally underweighted (as compared to the S&P 500 Index) posture in information technology. From an industry standpoint, the Fund's relatively modest allocation to hardware and equipment companies was a significant source of added value for the reporting period. Stock selection also helped performance, highlighted by the Fund's investment in Qualcomm Inc. The Fund's underweight position in telecommunications was also a positive for performance. In the financial services sector, the Fund's position in SLM Corporation was a notably strong performer over the reporting period. In industrials, the Fund benefited from stock selection, most notably Ryanair Holdings plc. &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 66 NATIONS MARSICO FOCUSED EQUITIES FUND PORTFOLIO MANAGER COMMENTARY continued WHAT INVESTMENT DECISIONS CONTRIBUTED TO PERFORMANCE AND WHICH DECISIONS HINDERED PERFORMANCE? As might be discerned from the response to the preceeding question, the decisions to be "less aggressive" in sectors such as information technology and telecommunications services positively impacted the Fund's performance over much of the fiscal year ended March 31, 2003. In addition, investment results were helped by investments in the aerospace/defense industry, health care equipment/services, and select financial services positions. The primary detriments to performance over the past year were our underweighted postures in industries such as banking and household/personal products, which were relatively good performers. Our stock selection in lodging companies -- notably Four Seasons Hotels -- also detracted meaningfully from performance. In addition, certain software and services companies struggled during the reporting period. These included Cisco Systems, Inc. and Intuit Inc. Retailer Tiffany & Co. was among the worst performing positions in the Fund, declining nearly 30% in the 12-month period. WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD? The near-term, i.e., the next 30-120 days, is likely to be an extremely difficult period in terms of forecasting stock prices. The corporate profit environment continues, on balance, to be very tough. Relatively few companies offer a high degree of "earnings visibility" and many have abandoned providing earnings guidance altogether. This is largely attributable, in our view, to the high level of uncertainty regarding the war in Iraq and its dampening impact on worldwide economic activity. Areas of continued uncertainty include the human, economic, and financial costs associated with the war. Until there is more clear evidence pointing to a political resolution in Iraq, we think equity markets -- as they have for much of the past several months -- will likely continue to be influenced in significant part by war-related news. In addition, while news about Iraq presently dominates the headlines, there are other serious geopolitical issues to be concerned about, including North Korea and the Middle East. Finally, we think it would be unwise to overlook or discount the potentially negative psychological impact on the capital markets if another major terrorist attack took place on U.S. soil. In terms of our market outlook, we have attempted to balance sensitivity to the near-term risks outlined above with a more positive longer-term perspective that incorporates what we consider to be a variety of favorable economic and financial factors. At bottom, we believe that military and political success in Iraq may be achievable. Renewed U.S. diplomacy and leadership in North Korea and the Middle East needs to occur; we believe it will. In addition, we would look for more constructive, cooperative dialogue in the United Nations. These developments, we think, should serve to help remove a good part of the serious overhang of uncertainty that has plagued the stock market for an extended period of time. We believe that this may serve as a major catalyst for improved economic activity, including more vigorous corporate capital spending, better labor markets, and stronger consumer confidence. We believe there is a substantial amount of monetary and fiscal stimulus that is already either "built in" to the economy (e.g., low interest rates, constrained inflation, reduced income taxes) or under serious 67 NATIONS MARSICO FOCUSED EQUITIES FUND PORTFOLIO MANAGER COMMENTARY continued legislative consideration (e.g., curtailment or elimination of dividend taxation, further income tax reductions). These types of factors have the potential to, at some point, positively impact economic growth. Declining oil prices, which probably are predicated on resolution of the Iraq situation, would likely have a powerful and positive "stimulus" impact that would be rapidly felt throughout the economy. In addition, aggregate equity market valuations generally appear reasonable to us, with certain sectors and industries offering quite compelling valuation profiles. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THEM? In general terms, the Fund's economic sector allocations as of March 31, 2003 favored consumer discretionary, health care, and financial services. We think these types of companies offer a degree of "assured demand" for their services or products that may be relatively independent of geopolitical concerns or economic slow-downs. Within these sectors, there generally is some industry-specific focus. As examples, our consumer discretionary holdings include substantial investments in retailing and media companies. Health care positions favor equipment and services companies, as well as select pharmaceutical and biotechnology companies. In recent months we have been gradually shifting the Fund's aggregate holdings to "tilt" it more towards economically sensitive areas; again, this is based on our longer-term view that the economy may improve. While we remain cautious towards the overall technology sector, we have selectively increased our weighting in certain software and hardware/equipment companies during the past several months. As of March 31, 2003, the Fund had no investments in several sectors, including energy, materials, and utilities. 68 NATIONS MARSICO FOCUSED EQUITIES FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 3.7% Consumer credit and mortgages 3.7% Commercial services 3.9% Automotive 4.7% Networking and telecommunications equipment 6.3% Broadcasting and cable 6.7% Software 7.3% Specialty stores 7.6% Finance -- Miscellaneous 7.6% Pharmaceuticals 16.6% Health services 31.9% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 UnitedHealth Group Inc. 8.4% ------------------------------------------------- 2 SLM Corporation 7.6% ------------------------------------------------- 3 Quest Diagnostics Inc. 4.9% ------------------------------------------------- 4 Tiffany & Company 4.3% ------------------------------------------------- 5 Viacom Inc., Class B 4.0% ------------------------------------------------- 6 Amgen Inc. 3.8% ------------------------------------------------- 7 Fannie Mae 3.7% ------------------------------------------------- 8 Nextel Communications, Inc., Class A 3.6% ------------------------------------------------- 9 Citigroup Inc. 3.6% ------------------------------------------------- 10 HCA Inc. 3.4% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
69 NATIONS MARSICO FOCUSED EQUITIES FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS MARISCO FOCUSED LIPPER LARGE-CAP CORE STANDARD & POOR'S 500 EQUITIES FUND FUNDS AVERAGE INDEX ----------------------- --------------------- --------------------- Dec. 31 1997 9425.00 10000.00 10000.00 12697.00 12165.00 11771.00 12/98 14151.00 13761.00 12858.00 16298.00 15348.00 14451.00 12/99 21630.00 18720.00 15564.00 19849.00 18821.00 15498.00 12/00 17884.00 17421.00 14148.00 15359.00 15978.00 13202.00 12/01 14466.00 15023.00 12468.00 14629.00 12913.00 10828.00 12/02 12191.00 11459.00 9713.00 Mar. 31 2003 12191.00 11092.00 9407.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS MARISCO FOCUSED LIPPER LARGE-CAP CORE STANDARD & POOR'S 500 EQUITIES FUND FUNDS AVERAGE INDEX ----------------------- --------------------- --------------------- Dec. 31 1997 10000.00 10000.00 10000.00 13472.00 12165.00 11771.00 12/98 15014.00 13761.00 12858.00 17292.00 15348.00 14451.00 12/99 22950.00 18720.00 15564.00 21060.00 18821.00 15498.00 12/00 18975.00 17421.00 14148.00 16296.00 15978.00 13202.00 12/01 15349.00 15023.00 12468.00 15522.00 12913.00 10828.00 12/02 12935.00 11459.00 9713.00 Mar. 31 2003 12935.00 11092.00 9407.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (12/31/97 through 3/31/03) 5.03% 3.85%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Marsico Focused Equities Fund from the inception of the share class. Figures for the Standard & Poor's 500 Composite Stock Price Index (Standard & Poor's 500 Index), an unmanaged index of 500 widely held common stocks, include reinvestment of dividends. Funds in the Lipper Large-Cap Core Funds Average invest at least 75% of their equity assets in companies with market capitalizations of greater than $10 billion. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/31/97 12/31/97 12/31/97 12/31/97 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -19.28% -19.47% -24.09% -20.09% -24.09% -20.09% -20.89% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS 3 YEARS -17.11% -17.31% -18.93% -17.93% -18.76% -17.93% -17.93% 5 YEARS 1.47% 1.28% 0.09% 0.57% 0.17% 0.63% 0.63% SINCE INCEPTION 5.20% 5.03% 3.85% 4.31% 4.15% 4.38% 4.38%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. Source for all statistical data -- Marsico Capital Management, LLC. 70 NATIONS MIDCAP GROWTH FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Small&MidCap Growth Strategies Team of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations MidCap Growth Fund Investor A Shares provided shareholders with a total return of -34.56%** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS MIDCAP GROWTH FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. EFFECTIVE MARCH 1, 2003, PORTFOLIO MANAGEMENT OF THE FUND MOVED FROM THE GROWTH STRATEGIES TEAM TO THE SMALL&MIDCAP GROWTH STRATEGIES TEAM. THE OUTLOOK FOR THE COMING YEAR IS PROVIDED BY THE NEW MANAGEMENT TEAM. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. The investment philosophy of Nations MidCap Growth Fund is based on the premise that stock prices are driven by earnings growth and that superior stock market returns occur when a company experiences rapid and accelerating earnings growth due to superior fundamentals. Our approach emphasizes a rigorous fundamental process that seeks to identify successful mid-sized companies between $1 billion and $10 billion in market capitalization that are poised to become tomorrow's successful larger companies. We attempt to identify these opportunities before others recognize their potential. WHAT WAS THE MARKET ENVIRONMENT OVER THE REPORTING PERIOD? The past 12 months was a difficult investment period for the stock market irrespective of market capitalization or investment style. The broad market, represented by the Standard & Poor's 500 Composite Stock Price Index*** fell 24.75%. The uncertain economic environment, the threat of terrorism, and the prospect of war with Iraq weighed on the nation. Additionally, despite regulators' increased efforts during the year to expose unethical and illegal business practices, many investors lost confidence in the financial markets as revelations of fraudulent accounting practices mounted and a handful of well-known companies fell into bankruptcy. In the face of so much uncertainty, as well as enormous market volatility, the tolerance for risk on the part of many investors plummeted. The incredible rally in U.S. Treasury bonds, resulting in 40-year lows in yields provides the best evidence that investors generally had little interest beyond risk-free assets. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. ***The 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. Source for all statistical data -- Banc of America Capital Management, LLC. SHARE PRICES OF MID-CAPITALIZATION COMPANIES TEND TO BE MORE VOLATILE THAN THOSE OF LARGER COMPANIES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 71 NATIONS MIDCAP GROWTH FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY continued WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? The recession of 2001 gave way to modest and fluctuating economic growth over the past 12 months. The production of goods and services decelerated in the second quarter of 2002 but rebounded in the third quarter. This pattern reappeared on a smaller scale in the second half of the reporting period. Lackluster holiday sales restrained growth in the fourth quarter of 2002, while war-related fears contributed to economic weakness in the first quarter of 2003. Interest rates dropped substantially during the 12-month period -- the yield on the 10-year U.S. Treasury bond fell to 3.6% -- leading to a mortgage refinancing boom that supported consumer spending. Low interest rates and generous auto incentives helped make the housing and auto sectors the biggest recipient of consumer spending. However, due to uncertainty over the potential military conflict in Iraq as well as continued weak employment levels, consumer spending began to slow in the first quarter of 2003. War fears also led to lessened corporate activity, including capital expenditures and hiring. As a result, an economy that appeared to be on the mend deteriorated during the first quarter of 2003. Although the economy improved from the previous year, the unemployment rate stayed relatively flat reflecting a jobless recovery. Weak employment numbers and worries over a war and terrorism kept both confidence and spending on the part of businesses and consumers stubbornly low. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? During the 12 months ending March 31, 2003 Nations Midcap Growth Fund (Investor A Shares) fell 34.56% compared with a 26.11% decline for the benchmark Russell MidCap Growth Index&. The Fund's underperformance was generally attributable to security selection whereas sector allocation decisions provided a positive contribution to performance. WHICH SECTORS AND COMPANIES PROVED FAVORABLE TO FUND PERFORMANCE?&& The basic industry, capital goods and transportation sectors provided the best performance during the period. The best defense in a weak market is typically earnings growth, or at a minimum earnings stability. The health care sector, one of the least economically sensitive segments of the market, provided many of the best performing stocks over the past year bolstered by their strong earnings. Forest Laboratories, Inc., Barr Laboratories Inc., Biomet, Inc., Gilead Sciences, Inc. and Taro Pharmaceutical Industries Ltd. each rose substantially during the period. Among the companies able to defy the weak economy were Jacobs Engineering, Group, Inc. Ecolab, Inc., Expeditors International of Washington, Inc., Career Education Corporation and Murphy Oil Corporation. &The Russell MidCap Growth Index is an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and higher forecasted growth values The stocks are also members of the Russell 1000 Growth Index. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. &&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 72 NATIONS MIDCAP GROWTH FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY continued WHICH SECTORS AND COMPANIES PROVED UNFAVORABLE TO FUND PERFORMANCE? The communications, finance and technology sectors detracted most from performance. Stocks from these three sectors were almost entirely responsible for the relative underperformance. A number of companies in the portfolio had formerly been rapidly growing businesses that, although still generating healthy earnings and cash flow, saw the pace of growth slow dramatically as business conditions worsened. Concord EFS, Inc., CSG Systems International, Inc., Convergys Corporation and SunGard Data Systems Inc. were hit extremely hard by investor response to lower expectations. Because of the large positions held in the Fund, Concord EFS and CSG Systems contributed significantly to the underperformance. Within the communications sector, cable holdings severely penalized performance. In addition to the well-documented fraud at Adelphia Communications Corporation, investors fled from Charter Communications, Inc. and Cablevision Systems Corporation due to high debt levels and perceived funding risks. The Fund's technology holdings also detracted from performance this year. In addition to valuation, the Fund focused on companies that were levered to a recovery in the economy. The Fund maintained exposure through the spring and summer as prices declined, believing the portfolio would be well positioned for improving fundamentals. This strategy paid off in the fourth quarter as the technology sector rallied, but not enough to offset the underperformance earlier in the year. Portfolio holdings included Maxim Integrated Products, Inc., Xilinx, Inc., Tekelec and Citrix Systems, Inc. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? We remain optimistic on the outlook for mid-cap stocks in the coming year. We believe valuations are attractive versus other segments of the market, earnings are still relatively stable, and coming out of a recession mid-cap stocks tend to perform fairly well coming out of a recession in relation to some of their large-cap counterparts. In addition, we are seeing mid-cap stocks increase their buyback activity and enhancing shareholder value. Beyond the unknown geopolitical risks that still loom on the horizon, improving psychology on the part of many investors and corporate managers alike may also aid the outlook for mid-caps and the equity markets as a whole in the coming year. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? Individual investment opportunities are based on our level of conviction and outlook for a company's competitive edge, financial strength, management expertise, partnerships, future catalysts, stock liquidity, and risk management. The portfolio's stock selections continue to focus on companies with steady, predictable earnings, and good earnings visibility going forward. As always, we take a "bottom-up" stock picking approach to our work, which makes the Fund's sector weights a residual of the stock picking process. As a means of managing risk, we will seek to stay within 10% of the benchmark sector weight. Currently, we are finding ideas in a broad spectrum of sectors and industries as we head into the new fiscal year. 73 NATIONS MIDCAP GROWTH FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 2.5% Chemicals - Basic 3.0% Medical devices and supplies 3.5% Diversified electronics 4.6% Insurance 5.5% Semiconductors 6.1% Specialty stores 6.3% Oilfield services 7.6% Software 9.4% Health services 9.4% Pharmaceuticals 42.1% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Ambac Financial Group, Inc. 2.0% ------------------------------------------------- 2 Affiliated Computer Services, Inc., Class A 1.9% ------------------------------------------------- 3 Barr Laboratories, Inc. 1.6% ------------------------------------------------- 4 Bed Bath & Beyond Inc. 1.6% ------------------------------------------------- 5 Jacobs Engineering Group Inc. 1.6% ------------------------------------------------- 6 Amphenol Corporation, Class A 1.5% ------------------------------------------------- 7 Electronic Arts Inc. 1.5% ------------------------------------------------- 8 Express Scripts, Inc. 1.5% ------------------------------------------------- 9 Health Management Associates, Inc., Class A 1.5% ------------------------------------------------- 10 Tiffany & Company 1.4% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
74 NATIONS MIDCAP GROWTH FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS MIDCAP GROWTH LIPPER MID-CAP GROWTH RUSSELL MID-CAP GROWTH FUND FUNDS AVERAGE INDEX --------------------- --------------------- ---------------------- Mar. 31 1993 9425.00 10000.00 10000.00 1994 10368.00 11077.00 10678.00 11557.00 12133.00 11948.00 1996 15526.00 16112.00 15377.00 15554.00 16341.00 16351.00 1997 22532.00 23332.00 23278.00 20862.00 24368.00 25347.00 2000 36472.00 46215.00 44915.00 28820.00 29056.00 24515.00 2002 25947.00 28768.00 23636.00 Mar. 31 2003 16979.00 20865.00 17263.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS MIDCAP GROWTH LIPPER MID-CAP GROWTH RUSSELL MID-CAP GROWTH FUND FUNDS AVERAGE INDEX --------------------- --------------------- ---------------------- Mar. 31 1993 10000.00 10000.00 10000.00 1994 11001.00 11077.00 10678.00 12262.00 12133.00 11948.00 1996 16474.00 16112.00 15377.00 16503.00 16341.00 16351.00 1998 23907.00 23332.00 23278.00 22135.00 24368.00 25347.00 2000 38697.00 46215.00 44915.00 30578.00 29056.00 24515.00 2002 27529.00 28768.00 23636.00 Mar 31 2003 18015.00 20865.00 17263.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
10-YEAR NAV** MOP* (3/31/93 through 3/31/03) 6.06% 5.43%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations MidCap Growth Fund over the last 10 years. Figures for the Russell MidCap Growth Index, an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values, include reinvestment of dividends. The companies are included in the Russell 1000 Growth Index. Funds in the Lipper Mid-Cap Growth Funds Average invest at least 75% of their equity assets in companies with market capitalizations less than 300% of the dollar-weighted median market capitalization of the middle 1,000 securities of the S&P Super Composite 1500 Index. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
INVESTOR A INVESTOR B INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/4/92 12/10/92 6/7/93 12/18/92 - --------------------------------------------------------------------------------------------------------------------------------- 1 YEAR PERFORMANCE -34.44% -34.56% -38.34% -35.19% -38.43% -35.09% -35.74% - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS 3 YEARS -22.27% -22.50% -24.01% -23.09% -23.71% -23.06% -23.06% 5 YEARS -5.24% -5.50% -6.61% -6.22% -6.47% -6.19% -6.19% 10 YEARS 6.32% 6.06% 5.43% -- -- 5.35% 5.35% SINCE INCEPTION 6.07% 5.94% 5.34% 5.44% 5.44% 5.23% 5.23%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. 75 NATIONS MARSICO 21ST CENTURY FUND PORTFOLIO MANAGER COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by Corydon J. Gilchrist of Marsico Capital Management, LLC, investment sub-adviser to the Fund.** INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Marsico 21st Century Fund Investor A Shares provided shareholders with a total return of -12.32%.*** IN THE FOLLOWING INTERVIEW, MR. GILCHRIST SHARES HIS VIEWS ON NATIONS MARSICO 21ST CENTURY FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND HIS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. Nations Marsico 21st Century Fund seeks long-term growth of capital. The Fund is a diversified portfolio and invests primarily in common stocks that are selected for their long-term growth potential. The Fund may invest in companies of any size across the market capitalization spectrum, and typically will own a core position of between 35 and 50 stocks. The investment process blends top-down macroeconomic analysis with bottom-up stock selection. Specific "macro" factors include interest rates, inflation, productivity data, commodity prices, the regulatory environment, fiscal policy, and geopolitical issues. Characteristics sought in individual companies include strong brand franchise; improving "fundamentals" (e.g., gains in market share, improving profitability, strong free cash flow); strong balance sheets; excellent distribution and marketing capabilities; apparent commitment to shareholder interests; and talented, well-incentivized management teams. The Fund will typically own three "types of stocks: core growth, aggressive growth, and life cycle change. The latter category refers to companies that are experiencing some sort of positive, fundamental transformation in their business (e.g., new product, acquisition, divestiture, new management team) that, in our view, augurs well for future earnings growth potential. WHAT WERE THE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE REPORTING PERIOD? In general terms, the past year has been exceedingly difficult for equity investors. The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)&, which we consider to be the primary benchmark for the Fund, had a total return of -24.75% for the 12-month period ending March 31, 2003. Stock market losses were widespread; of the 10 economic sectors included in the S&P 500 Index, seven registered declines of 20% or more over the course of the year, including information technology and telecommunications services, both of which posted losses of about 33%. U.S. economic activity was far from robust over the reporting period, hobbled by a combination of disappointing corporate earnings, diminished capital spending, a seemingly-endless number of accounting and corporate governance-related scandals, and escalated geopolitical concerns. These factors *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **Corydon Gilchrist replaced James A. Hillary as portfolio manager of the Fund on February 1, 2003. ***The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. &The 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. Source for all statistical data -- Marsico Capital Management, LLC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 76 NATIONS MARSICO 21ST CENTURY FUND PORTFOLIO MANAGER COMMENTARY continued seemed to more than offset some of the more favorable economic factors, including low interest rates, quiescent inflation, continued productivity gains, inventory corrections, and monetary/fiscal stimulus. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED? For the 12-month period ending March 31, 2003, Nations Marsico 21st Century Fund (Investor A Shares) had a total return of -12.32%. This return compares very favorably to the S&P 500 Index, the Fund's primary benchmark, which returned -24.75% and to the Nasdaq Composite Index&&, which returned -26.97%. WHAT ECONOMIC FACTORS MOST INFLUENCED PERFORMANCE? Overall, our view is that the factors cited above -- earnings shortfalls, reduced capital spending activity, corporate accounting scandals, geopolitics -- all exerted a major influence on general equity market performance, as well as our own portfolios/funds, last year. In our view, geopolitical concerns have dominated the investment landscape over the past three to six months. Earlier in the reporting period, corporate accounting problems and earnings disappointments were more prevalent factors impacting stock prices. WHAT COMPANIES AND SECTORS WERE FAVORABLE TO FUND PERFORMANCE?&&& For the 12-month period ending March 31, 2003, there were several factors that positively contributed to the Fund's performance. The Fund maintained an overweighted allocation to the consumer discretionary sector for much of the reporting period. Consumer durables, automobiles, retailing, and select media positions had a favorable impact on performance. The Fund's strong stock selection in the health care sector, coupled with an overweighted posture in the health care equipment and services industry, had a very material positive affect on performance. UnitedHealth Group Inc. and pharmaceutical/biotechnology positions Amgen Inc. and Inspire Pharmaceuticals, Inc. were among the Fund's top performing positions for the year. In the information technology sector stock selection in the hardware and equipment industry was a significant source of added value for the reporting period, highlighted by the Fund's investment in Qualcomm Inc. Other notable performers were SLM Corporation and JetBlue Airways Corporation. WHAT INVESTMENT DECISIONS CONTRIBUTED TO PERFORMANCE AND WHICH DECISIONS HINDERED PERFORMANCE? As discussed above, stock selection in the consumer discretionary sector was the largest contributor to the Fund's outperformance versus its benchmark. In addition, investment results were helped by investments in industrials, health care equipment/ services, and select financial services sector companies. &&The Nasdaq Composite Index tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System traded foreign stocks and ADRs. It is unmanaged and unavailable for investment. &&&Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 77 NATIONS MARSICO 21ST CENTURY FUND PORTFOLIO MANAGER COMMENTARY continued The primary detriments to performance last year were our underweighted postures in industries such as banking and household/personal products, which were relatively good performers last year. Our stock selection in lodging companies -- notably Four Seasons Hotels -- also detracted from performance. Certain automobile holdings including Porsche AG and Bayersche Motoren Werke AG also performed poorly during the reporting period. Select positions in the industrials sector, particularly aerospace/defense positions Lockheed Martin and L-3 Communications, declined in value by more than 15% during the period they were held in the Fund. In addition, software and services companies including Electronic Arts, Intuit Inc., and Siebel Systems had a negative impact on performance. WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD? The near-term, i.e., the next 30-120 days, is likely to be an extremely difficult period in terms of forecasting stock prices. The corporate profit environment continues, on balance, to be very tough. Relatively few companies offer a high degree of "earnings visibility" and many have abandoned providing earnings guidance altogether. This is largely attributable, in our view, to the high level of uncertainty regarding the war in Iraq and its dampening impact on worldwide economic activity. Areas of continued uncertainty include the human, economic, and financial costs associated with the war. Until there is more clear evidence pointing to a political resolution in Iraq, we think equity markets -- as they have for much of the past several months -- will likely continue to be influenced in significant part by war-related news. In addition, while news about Iraq presently dominates the headlines, there are other serious geopolitical issues to be concerned about, including North Korea and the Middle East. Finally, we think it would be unwise to overlook or discount the potentially negative psychological impact on the capital markets if another major terrorist attack took place on U.S. soil. In terms of our market outlook, we have attempted to balance sensitivity to the near-term risks outlined above with a more positive longer-term perspective that incorporates what we consider to be a variety of favorable economic and financial factors. At bottom, we believe that military and political success in Iraq may be achievable. Renewed U.S. diplomacy and leadership in North Korea and the Middle East needs to occur; we believe it will. In addition, we would look for more constructive, cooperative dialogue in the United Nations. These developments, we think, should serve to help remove a good part of the serious overhang of uncertainty that has plagued the stock market for an extended period of time. We believe that this may serve as a major catalyst for improved economic activity, including more vigorous corporate capital spending, better labor markets, and stronger consumer confidence. We believe there is a substantial amount of monetary and fiscal stimulus that is already either "built in" to the economy (e.g., low interest rates, constrained inflation, reduced income taxes) or under serious legislative consideration (e.g., curtailment or elimination of dividend taxation, further income tax reductions). These types of factors have the potential to, at some point, positively impact economic growth. Declining oil prices, which probably are predicated on resolution of the Iraq situation, would likely have a powerful and positive "stimulus" impact that would be rapidly felt throughout the economy. 78 NATIONS MARSICO 21ST CENTURY FUND PORTFOLIO MANAGER COMMENTARY continued In addition, aggregate equity market valuations generally appear reasonable to us, with certain sectors and industries offering quite compelling valuation profiles. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THEM? In general terms, the Fund's economic sector allocations as of March 31, 2003 favored consumer discretionary, information technology, financials, industrials, and health care. Within the sectors, we seek investments we believe offer a degree of "assured demand" for their services or products that may be relatively independent of geopolitical concerns or economic slow-downs. Within these sectors, there generally is some industry-specific focus. As examples, our consumer discretionary holdings include substantial investments in retailing and media companies. Industrial holdings favor transportation companies. In recent months we have been gradually shifting the Fund's aggregate holdings to "tilt" it more towards economically sensitive areas. Again, this is based on our longer-term view that the economy may improve. While we remain cautious towards the overall technology sector, we have selectively increased our weighting in certain software and hardware/equipment companies during the past several months. As of March 31, 2003, the Fund had no investments in several sectors, including energy and materials. 79 NATIONS MARSICO 21ST CENTURY FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 4.5% Computers and office equipment 5.2% Specialty stores 6.5% Broadcasting and cable 6.5% Lodging and recreation 6.5% Software 6.7% Airlines 7.5% Automotive 7.8% Finance - Miscellaneous 8.5% Pharmaceuticals 10.1% Telecommunications services 30.2% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 Bayerische Motoren Werke (BMW) AG 5.0% ------------------------------------------------- 2 Echostar Communications Corporation 4.6% ------------------------------------------------- 3 Dell Computer Corporation 4.5% ------------------------------------------------- 4 Marvel Enterprises, Inc. 4.3% ------------------------------------------------- 5 SLM Corporation 4.1% ------------------------------------------------- 6 Nextel Communications, Inc., Class A 4.1% ------------------------------------------------- 7 UnitedHealth Group Inc. 4.0% ------------------------------------------------- 8 Ryanair Holdings plc, ADR 3.9% ------------------------------------------------- 9 Clear Channel Communications, Inc. 3.9% ------------------------------------------------- 10 UCBH Holdings Inc. 3.7% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
80 NATIONS MARSICO 21ST CENTURY FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/03) RETURN CHART]
NATIONS MARSICO 21ST STANDARD & POOR'S 500 LIPPER MULTI-CAP GROWTH CENTURY FUND INDEX FUNDS AVERAGE -------------------- --------------------- ----------------------- Apr. 10 2000 9425.00 10000.00 10000.00 8973.00 9958.00 10995.00 9500.00 9861.00 11440.00 8040.00 9090.00 9008.00 2001 6569.00 8013.00 6855.00 6909.00 8482.00 7506.00 5598.00 7238.00 5568.00 6541.00 8011.00 6615.00 2002 6654.00 8033.00 6365.00 6635.00 6957.00 5303.00 5815.00 5756.00 4438.00 5900.00 6241.00 4672.00 Mar. 31 2003 5834.00 6044.00 4638.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/03) RETURN CHART]
NATIONS MARSICO 21ST STANDARD & POOR'S 500 LIPPER MULTI-CAP GROWTH CENTURY FUND INDEX FUNDS AVERAGE -------------------- --------------------- ----------------------- Apr. 10, 2000 10000.00 10000.00 10000.00 9520.00 9958.00 10995.00 10080.00 9861.00 11440.00 8530.00 9090.00 9008.00 2001 6970.00 8013.00 6855.00 7330.00 8482.00 7506.00 5940.00 7238.00 5568.00 6940.00 8011.00 6615.00 2002 7060.00 8033.00 6365.00 7040.00 6957.00 5303.00 6170.00 5756.00 4438.00 6260.00 6241.00 4672.00 Mar. 31 2003 6190.00 6044.00 4638.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (4/10/00 through 3/31/03) -14.90% -16.58%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Marsico 21st Century Fund from the inception of the share class. Figures for the Standard & Poor's 500 Composite Stock Price Index (Standard & Poor's 500 Index), an unmanaged index of 500 widely held common stocks, include reinvestment of dividends. Funds in the Lipper Multi-Cap Growth Funds Average invest in a variety of market capitalization ranges, without concentrating 75% of one market capitalization range. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
INVESTOR A INVESTOR B INVESTOR C PRIMARY A NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 4/10/00 4/10/00 4/10/00 4/10/00 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -12.11% -12.32% -17.36% -13.07% -17.42% -13.07% -13.94% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS SINCE INCEPTION -14.67% -14.90% -16.58% -15.55% -16.41% -15.55% -15.55%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. 81 NATIONS SMALL COMPANY FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY* PORTFOLIO MANAGEMENT The Fund is managed by the Small&MidCap Growth Strategies Team (formerly the SmallCap Strategies Team) of Banc of America Capital Management, LLC, investment adviser to the Fund. INVESTMENT OBJECTIVE The Fund seeks long-term capital growth by investing primarily in equity securities. PERFORMANCE REVIEW For the 12-month period ended March 31, 2003, Nations Small Company Fund Investor A Shares provided shareholders with a total return of -32.88%.** IN THE FOLLOWING INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS SMALL COMPANY FUND'S PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2003 AND ITS OUTLOOK FOR THE FUTURE. PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY. We believe the potential for above-average returns may be attained through investment in small companies that are strategically well positioned to achieve rapid growth in earnings. We typically invest in companies between $200 million and $2 billion in market capitalization with projected growth in profits greater than peers and the industry average. These companies are subject to thorough fundamental analysis and we attempt to identify companies that display a competitive edge, financial strength, management expertise, solid partnerships and valuation attractiveness. HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE PAST 12 MONTHS? Over the last 12 months, most equities declined as investors faced a continuing wave of concerns throughout the year such as accounting irregularities, choppy economic news, and continued tension in the Middle East. Positive news did include an additional rate cut by the Federal Reserve Board and minimal signs of inflation, but that was not enough to offset the declines seen throughout most of the year. Within the Fund, it was a combination of stock selection and sector allocation that allowed us to keep pace with our benchmark, the Russell 2000 Growth Index.*** For the period ending March 31, 2003, Nations Small Company Fund (Investor A shares) returned -32.88%, slightly underperforming the benchmark, which returned -31.63%. *The outlook for this Fund may differ from that presented for other Nations Funds mutual funds. **The performance shown does not reflect the maximum front-end sales charge of 5.75%, which may apply to purchases of Investor A Shares. For standardized performance, please refer to the Performance table. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other services providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. ***The Russell 2000 Growth Index is an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance with a greater than average growth orientation. Companies in the Russell 2000 Growth Index tend to exhibit higher price-to-book and price- earnings ratios. The Index 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. BECAUSE SMALL COMPANIES OFTEN HAVE NARROWER MARKETS, LIMITED FINANCIAL RESOURCES AND STOCKS THAT ARE NOT AS ACTIVELY TRADED AS LARGE COMPANY STOCKS, THEIR SHARE PRICES MAY BE MORE VOLATILE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 82 NATIONS SMALL COMPANY FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY continued WHAT SECTORS AND STOCKS PROVED FAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS?& The Fund's consumer cyclical stocks fared better than most during the year, resulting from good stock selection combined with a resilient consumer. Career Education Corporation was the Fund's leading performer as the company consistently reported strong revenue and earnings growth, had record enrollment trends, and continued to benefit from consumers' interest in going back to school to enhance their skill set and their subsequent marketability in today's challenging workplace. Rare Hospitality International, Inc. posted a solid gain as it had better than expected same-store-sales performance at most of their restaurants. Finally, Rent-A-Center, Inc. also posted a gain as they purchased nearly 300 stores from a weaker competitor, further solidifying their leading position in the industry. The Fund's energy holdings also made a relative contribution as steady gains were made in some of our oil services holdings. Both Patterson-UTI Energy, Inc and Precision Drilling experienced gains in their stock prices as they started to see a gradual increase in rig utilization. Prices were also supported by the market's belief that increased drilling would be necessary to offset the reported decreases in natural gas production resulting from depletion. In addition, both companies have strong balance sheets, providing them with the financial flexibility needed to prosper in an uncertain market. WHAT SECTORS AND STOCKS PROVED UNFAVORABLE TO FUND PERFORMANCE DURING THE LAST 12 MONTHS? While the decision to overweight finance was a positive as the sector outperformed the Index, our stock selection was weak and the Fund's finance stocks suffered losses during the period. Low interest rates and minimal inflation were not enough to offset an uncertain stock market and investors' preference to remain on the sidelines. Most of our weakness was confined to the asset management industry as a weak market environment drove the industry down as a whole on the fear that redemptions from mutual funds would decrease fee revenue. Stocks in the Fund with asset management exposure included Affiliated Managers Group, Inc., Phoenix Cos. and Boston Private Financial Holdings, Inc. Technology stocks also detracted from performance. There was a clear weakness in the equipment, semiconductor, and software industries, which contributed to the decline. During most of the year, investors cited high valuations, low earnings visibility, and unimpressive earnings results as reasons to invest money elsewhere. Stocks in the Fund that were most affected included C-COR.net Corp. in equipment, Aeroflex Incorporated in equipment, and Tier Technologies, Inc. in software and services. WHAT INVESTMENT DECISIONS CONTRIBUTED TO PERFORMANCE AND WHICH DECISIONS HINDERED PERFORMANCE? The primary contribution to performance is expected to come from security selection. Other sources of performance include sector weights, risk control, and trading. During the past year, our stock selection in the retail, health care, energy, &Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. 83 NATIONS SMALL COMPANY FUND SMALL&MIDCAP GROWTH STRATEGIES TEAM COMMENTARY continued and consumer cyclical sectors aided performance. From a sector weight perspective, our underweight in technology, overweight in health care, and overweight in finance also contributed positively to performance. Decisions that hindered performance were mainly stock selection in both technology and finance. WHAT IS YOUR OUTLOOK FOR THE YEAR AHEAD? We remain optimistic on the outlook for small-capitalization stocks in the coming year. Although the small-cap segment of the market has performed relatively well during the past few years, many of the factors that contributed to the small-cap outperformance still exist. Attractive valuations, greater earnings and sales growth, the historical duration of outperformance as, in our view, the economy emerges from a slowdown, and the low interest rate environment, continue to provide small capitalization companies with the opportunity to outperform. WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THE COMING YEAR, AND HOW ARE YOU POSITIONING THE FUND? Individual investment opportunities are based on our level of conviction and outlook for a company's competitive edge, financial strength, management expertise, partnerships, future catalysts, stock liquidity, and risk management. The portfolio's stock selections continue to focus on companies with steady, predictable earnings, and good earnings visibility going forward. As always, we take a "bottom-up" stock picking approach to our work, which makes the Fund's sector weights a residual of the stock picking process. As a means of managing risk, we will seek to stay within 10% of the benchmark sector weight. Currently, we are finding ideas in a broad spectrum of sectors and industries as we head into the new fiscal year. 84 NATIONS SMALL COMPANY FUND PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/03) [PIE CHART] 3.5% Finance - Miscellaneous 3.5% Diversified electronics 3.7% Insurance 3.9% Specialty stores 4.0% Software 4.5% Medical devices and supplies 5.8% Commercial banking 5.9% Oilfield services 7.1% Health services 7.1% Pharmaceuticals 51.0% Other
PORTFOLIO HOLDINGS WERE CURRENT AS OF MARCH 31, 2003, ARE SUBJECT TO CHANGE AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS. TOP 10 HOLDINGS ------------------------------------------------- 1 City National Corporation 2.9% ------------------------------------------------- 2 Cato Corporation 2.3% ------------------------------------------------- 3 Cooper Companies, Inc. 2.3% ------------------------------------------------- 4 Commonwealth Telephone Enterprises, Inc. 2.2% ------------------------------------------------- 5 Career Education Corporation 2.1% ------------------------------------------------- 6 Shuffle Master, Inc. 2.1% ------------------------------------------------- 7 Affiliated Managers Group, Inc. 2.0% ------------------------------------------------- 8 Triad Hospitals, Inc. 1.8% ------------------------------------------------- 9 Medicis Pharmaceutical Corporation, Class A 1.6% ------------------------------------------------- 10 F.N.B. Corporation 1.5% ------------------------------------------------- THE TOP 10 HOLDINGS ARE PRESENTED TO ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND SECURITIES IN WHICH THE FUND MAY INVEST.
85 NATIONS SMALL COMPANY FUND PERFORMANCE GROWTH OF A $10,000 INVESTMENT [INVESTOR A SHARES AT MOP* (AS OF 3/31/02) RETURN CHART]
NATIONS SMALL COMPANY LIPPER SMALL-CAP GROWTH FUND RUSSELL 2000 GROWTH FUND INDEX --------------------- ------------------------ ----------------------- Dec. 12 1995 9425.00 10000.00 10000.00 9313.00 10213.00 9879.00 1996 11169.00 11302.00 11719.00 13343.00 12710.00 13707.00 1998 13506.00 12812.00 14486.00 20868.00 18258.00 23438.00 2000 20486.00 14119.00 22278.00 17984.00 12770.00 19874.00 2002 12955.00 8906.00 13967.00 Mar. 31 2003 12219.00 8561.00 13411.00
[INVESTOR A SHARES AT NAV** (AS OF 3/31/02) RETURN CHART]
NATIONS CAPITAL GROWTH LIPPER SMALL-CAP GROWTH FUND RUSSELL 2000 GROWTH FUND INDEX ---------------------- ------------------------ ----------------------- Dec. 12 1995 10000.00 10000.00 10000.00 9881.00 10213.00 9879.00 1996 11850.00 11302.00 11719.00 14157.00 12710.00 13707.00 1998 14330.00 12812.00 14486.00 22141.00 18258.00 23438.00 2000 21736.00 14119.00 22278.00 19081.00 12770.00 19874.00 2002 13745.00 8906.00 13967.00 Mar. 31 2003 12964.00 8561.00 13411.00
AVERAGE ANNUAL TOTAL RETURN Investor A Shares
SINCE INCEPTION NAV** MOP* (12/12/95 through 3/31/03) 3.62% 2.78%
The charts to the left show the growth in value of a hypothetical $10,000 investment in Investor A Shares of Nations Small Company Fund from the inception of the share class. Figures for the Russell 2000 Growth Index, an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Companies in the Russell 2000 Growth Index tend to exhibit higher price-to-book and price-earnings ratios. Funds in the Lipper Small-Cap Growth Funds Average invest at least 75% of their equity assets in companies with market capitalizations of less than $3 billion. The Index and Lipper Average are unavailable for investment and do not reflect fees, brokerage commissions or other expenses of investing. The performance of Primary A, Investor B and Investor C Shares may vary based on the differences in sales loads and fees paid by the shareholders investing in each class. [CHART LEGEND] TOTAL RETURN (AS OF 3/31/03)
PRIMARY A INVESTOR A INVESTOR B INVESTOR C NAV** MOP* NAV** CDSC*** NAV** CDSC*** Inception date 12/12/95 12/12/95 12/12/95 9/22/97 - ------------------------------------------------------------------------------------------------------------------------------ 1 YEAR PERFORMANCE -32.71% -32.88% -36.76% -33.40% -36.73% -33.43% -34.09% - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS 3 YEARS -20.38% -20.56% -22.12% -21.16% -21.86% -21.16% -21.16% 5 YEARS -4.68% -4.93% -6.05% -5.60% -5.91% -5.56% -5.56% SINCE INCEPTION 3.92% 3.62% 2.78% 2.92% 2.92% -3.59% -3.59%
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF FUTURE RESULTS AND DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER MAY PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of distributions. *Figures at maximum offering price (MOP) reflect the maximum front-end sales charge of 5.75%. **Figures at net asset value (NAV) do not reflect any sales charges. Investor A Shares are available with a reduced or waived sales charge only under certain circumstances as described in the prospectus. ***Figures at CDSC reflect the maximum applicable contingent deferred sales charge. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. 86 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 12.6% BEVERAGES -- 0.4% 80,600 Anheuser-Busch Companies, Inc. ............................... $ 3,757 ---------- BROADCASTING AND CABLE -- 0.8% 50,300 Clear Channel Communications, Inc.!!.......................... 1,706 144,450 The Walt Disney Company....................................... 2,459 99,000 Viacom Inc., Class B!!........................................ 3,615 ---------- 7,780 ---------- COMMERCIAL BANKING -- 0.0%+ 46,147 Bank United Corporation!!..................................... 6 ---------- COMPUTER SERVICES -- 0.1% 24,750 Automatic Data Processing, Inc. .............................. 762 ---------- DEPARTMENT AND DISCOUNT STORES -- 0.4% 69,600 Wal-Mart Stores, Inc. ........................................ 3,621 ---------- DIVERSIFIED MANUFACTURING -- 0.7% 47,000 3M Company.................................................... 6,111 40,000 General Electric Company...................................... 1,020 ---------- 7,131 ---------- ELECTRIC POWER -- NON NUCLEAR -- 0.7% 68,000 Cinergy Corporation........................................... 2,288 229,924 NiSource Inc. ................................................ 4,185 ---------- 6,473 ---------- FINANCE -- MISCELLANEOUS -- 0.6% 120,000 Moody's Corporation........................................... 5,548 ---------- FOOD PRODUCTS -- 0.6% 106,600 Wm. Wrigley Jr. Company....................................... 6,023 ---------- HOUSEHOLD PRODUCTS -- 1.0% 97,000 Fortune Brands, Inc. ......................................... 4,158 65,000 Procter & Gamble Company...................................... 5,789 ---------- 9,947 ---------- INSURANCE -- 0.3% 116,750 Protective Life Corporation................................... 3,333 ---------- INTEGRATED OIL -- 0.7% 55,000 ChevronTexaco Corporation..................................... 3,555 120,096 Unocal Corporation............................................ 3,160 ---------- 6,715 ---------- MEDICAL DEVICES AND SUPPLIES -- 0.8% 133,575 Johnson & Johnson............................................. 7,730 ----------
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.5% 221,700 Comverse Technology, Inc.!!................................... $ 2,508 410,000 Corning Inc.!!(a)............................................. 2,394 ---------- 4,902 ---------- OILFIELD SERVICES -- 2.0% 182,550 Diamond Offshore Drilling, Inc.(a)............................ 3,543 149,300 Halliburton Company........................................... 3,095 366,651 Pride International, Inc.!!................................... 4,947 80,000 Schlumberger Ltd. ............................................ 3,041 170,000 Transocean Inc. .............................................. 3,477 ---------- 18,103 ---------- PHARMACEUTICALS -- 0.7% 55,000 Amgen Inc.!!.................................................. 3,165 80,700 Teva Pharmaceutical Industries Ltd., ADR@..................... 3,361 ---------- 6,526 ---------- RAILROADS, TRUCKING AND SHIPPING -- 0.1% 20,000 Union Pacific Corporation..................................... 1,100 ---------- SEMICONDUCTORS -- 1.0% 76,000 Analog Devices, Inc.!!........................................ 2,090 245,500 Intel Corporation............................................. 3,997 101,300 Linear Technology Corporation................................. 3,127 ---------- 9,214 ---------- SOFTWARE -- 0.9% 87,560 Affiliated Computer Services, Inc., Class A!!................. 3,875 30,000 Mercury Interactive Corporation!!............................. 890 160,000 Microsoft Corporation......................................... 3,874 ---------- 8,639 ---------- SPECIALTY STORES -- 0.1% 20,000 Best Buy Company, Inc.!!...................................... 539 ---------- TELECOMMUNICATIONS SERVICES -- 0.2% 50,000 CenturyTel, Inc. ............................................. 1,380 75,000 Nextel Communications, Inc., Class A!!........................ 1,004 ---------- 2,384 ---------- TOTAL COMMON STOCKS (Cost $132,794)............................................. 120,233 ---------- PRINCIPAL AMOUNT (000) - --------- CONVERTIBLE BONDS AND NOTES -- 60.3% AEROSPACE AND DEFENSE -- 0.5% $ 4,180 L-3 Communications Holdings, Inc., 4.000% 09/15/11............................................. 4,426 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 87 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- AIRLINES -- 0.1% $ 980 Alaska Air Group, Inc., 3.786% 03/21/23@(a)......................................... $ 951 ---------- APPAREL AND TEXTILES -- 0.9% 8,050 Jones Apparel Group, Inc., 3.420%*** 02/01/21.......................................... 4,398 2,720 Reebok International Ltd., 4.250%** 03/01/21........................................... 3,114 980 Reebok International Ltd., 4.250%** 03/01/21(a)........................................ 1,122 ---------- 8,634 ---------- AUTOMOTIVE -- 0.9% 1,968 Pep Boys -- Manny, Moe & Jack, 4.250% 06/01/07(a).......................................... 1,614 8,700 Sonic Automotive Inc., 5.250% 05/07/09(a).......................................... 7,003 ---------- 8,617 ---------- BROADCASTING AND CABLE -- 1.3% 1,975 Liberty Media Corporation, 3.500% 01/15/31(a).......................................... 1,274 12,310 Liberty Media Corporation, 3.250% 03/15/31(a).......................................... 11,464 ---------- 12,738 ---------- COMMERCIAL BANKING -- 0.7% 6,725 JMH Finance Ltd., 4.750% 09/06/07@(a)......................................... 6,775 ---------- COMMERCIAL SERVICES -- 2.0% 4,290 Acxiom Corporation, 3.750% 02/15/09............................................. 5,148 4,920 Cendant Corporation, 3.875% 11/27/11............................................. 5,025 7,897 Lennox International Inc., 6.250% 06/01/09............................................. 8,963 ---------- 19,136 ---------- COMPUTER SERVICES -- 1.8% 14,690 Amazon.com, Inc., 4.750% 02/01/09............................................. 12,284 3,850 The BISYS Group, Inc., 4.000% 03/15/06............................................. 3,730 975 The BISYS Group, Inc., 4.000% 03/15/06............................................. 945 ---------- 16,959 ---------- CONGLOMERATES -- 1.9% 13,750 Tyco International Group, 2.750% 01/15/18@(a)......................................... 12,718 5,950 Tyco International Group, 3.125% 01/15/23@(a)......................................... 5,296 ---------- 18,014 ---------- CONSTRUCTION -- 0.8% 11,750 Shaw Group Inc., 2.500%*** 05/01/21(a)....................................... 7,461 ----------
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- DEPARTMENT AND DISCOUNT STORES -- 1.3% $ 4,980 Best Buy Company, Inc., 2.250% 01/15/22(a).......................................... $ 4,482 8,805 Best Buy Company, Inc., 2.250% 01/15/22............................................. 7,925 ---------- 12,407 ---------- DIVERSIFIED ELECTRONICS -- 1.0% 4,776 Electro Scientific Industries, Inc., 4.250% 12/21/06............................................. 4,125 5,840 Tech Data Corporation, 2.000% 12/15/21............................................. 5,300 ---------- 9,425 ---------- DIVERSIFIED MANUFACTURING -- 0.4% 3,485 Sanmina-SCI Corporation, 4.250% 05/01/04(a).......................................... 3,367 ---------- EDUCATION -- 0.6% 970 School Specialty Inc., 6.000% 08/01/08............................................. 913 5,330 School Specialty, Inc., 6.000% 08/01/08............................................. 5,017 ---------- 5,930 ---------- EXPLORATION AND PRODUCTION -- 1.7% 6,205 Devon Energy Corporation, 4.950% 08/15/08............................................. 6,345 8,925 Kerr-McGee Corporation, 5.250% 02/15/10............................................. 9,460 ---------- 15,805 ---------- FOOD PRODUCTS -- 1.4% 4,000 Bunge Ltd., 3.750% 11/15/22@............................................ 4,325 8,050 Performance Food Group Company, 5.500% 10/16/08(a).......................................... 9,519 ---------- 13,844 ---------- HEALTH SERVICES -- 0.4% 3,970 Affymetrix Inc., 4.750% 02/15/07............................................. 3,523 ---------- INSURANCE -- 2.5% 9,870 Horace Mann Educators Corporation, 1.425% 05/14/32............................................. 4,293 5,892 Ohio Casualty Corporation, 5.000% 03/19/22............................................. 5,737 5,850 PMI Group Inc., 2.500% 07/15/21............................................. 5,974 7,550 Radian Group Inc., 2.250% 01/01/22............................................. 7,598 248 Zenith National Insurance, 5.750% 03/30/23(+).......................................... 263 ---------- 23,865 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 88 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- LODGING AND RECREATION -- 1.2% $ 8,045 GTECH Holdings Corporation, 1.750% 12/15/21............................................. $ 11,243 ---------- MEDICAL DEVICES AND SUPPLIES -- 4.1% 2,000 Apogent Technologies Inc., 2.250% 10/15/21............................................. 1,968 7,850 Apogent Technologies Inc., 2.250% 10/15/21............................................. 7,722 7,410 Charles River Labs Inc., 3.500% 02/01/22............................................. 7,401 7,150 Invitrogen Corporation, 2.250% 12/15/06(a).......................................... 6,229 900 Invitrogen Corporation, 5.500% 03/01/07(a).......................................... 855 4,750 Invitrogen Corporation, 5.500% 03/01/07............................................. 4,513 9,790 Medtronic Inc., 1.250% 09/15/21............................................. 10,206 ---------- 38,894 ---------- METALS AND MINING -- 0.4% 4,995 Inco Ltd., 1.000% 03/14/23@(a)......................................... 4,302 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 2.2% 12,189 Adaptec, Inc., 3.000% 03/05/07............................................. 10,512 2,000 Comverse Technology, Inc., 1.500% 12/01/05(a).......................................... 1,813 4,700 Comverse Technology, Inc., 1.500% 12/01/05(a).......................................... 4,259 4,940 Corning Inc., 3.500% 11/01/08(a).......................................... 4,854 ---------- 21,438 ---------- OILFIELD SERVICES -- 2.5% 3,450 Diamond Offshore Drilling, Inc., 1.500% 04/15/31............................................. 3,161 8,226 Hanover Compressor Company, 4.750% 03/15/08(a).......................................... 6,571 8,740 Loews Corporation, 3.125% 09/15/07............................................. 8,018 1,000 Pride International, Inc., 2.500% 03/01/07............................................. 1,104 5,050 Transocean Sedco Forex Inc., 1.500% 05/15/21............................................. 4,747 ---------- 23,601 ---------- PHARMACEUTICALS -- 7.2% 9,920 Amgen Inc., 0.920%*** 03/01/32.......................................... 7,552 2,970 Axcan Pharmaceuticals, Inc., 4.250% 04/15/08@............................................ 3,144 1,790 Cephalon Inc., 2.500% 12/15/06............................................. 1,613 2,000 Cephalon, Inc., 5.250% 05/01/06............................................. 1,923
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- PHARMACEUTICALS -- (CONTINUED) $ 5,000 Cephalon, Inc., 5.250% 05/01/06............................................. $ 4,806 2,000 Cephalon, Inc., 2.500% 12/15/06............................................. 1,803 11,260 Enzon Pharmaceuticals 4.500% 07/01/08(a).......................................... 8,797 935 Genzyme Corporation, 3.000% 05/15/21............................................. 912 6,745 Genzyme Corporation, 3.000% 05/15/21............................................. 6,576 1,400 IVAX Corporation, 4.500% 05/15/08............................................. 1,229 5,700 IVAX Corporation, 4.500% 05/15/08(a).......................................... 5,002 170 Medicis Pharmaceutical Corporation, Inc., 2.500% 06/04/32(a).......................................... 204 8,000 Medicis Pharmaceutical Corporation, Inc., 2.500% 06/04/32(a).......................................... 9,579 8,940 Teva Pharmaceutical Industries Ltd., 0.375% 11/15/22............................................. 10,057 1,970 Vertex Pharmaceuticals, Inc., 5.000% 09/19/07............................................. 1,581 4,970 Watson Pharmaceuticals, 1.750% 03/15/23@............................................ 5,038 ---------- 69,816 ---------- PUBLISHING AND ADVERTISING -- 1.4% 2,000 Interpublic Group of Companies, Inc., 1.000%*** 12/14/21.......................................... 1,648 1,980 Interpublic Group of Companies, Inc., 4.500% 03/15/23@(a)......................................... 2,299 9,755 Lamar Advertising Company, 5.250% 09/15/06............................................. 9,816 ---------- 13,763 ---------- RAILROADS, TRUCKING AND SHIPPING -- 2.4% 875 Airborne Inc., 5.750% 04/01/07............................................. 947 3,723 Airborne, Inc., 5.750% 04/01/07(a).......................................... 4,030 5,875 GATX Corporation, 7.500% 02/01/07............................................. 5,662 1,805 GATX Corporation, 7.500% 02/01/07(a).......................................... 1,740 10,550 United Parcel Service, Inc., Class B, 1.750% 09/27/07(a).......................................... 10,774 ---------- 23,153 ---------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.3% 3,120 EOP Operating, LP, 7.250%** 11/15/08........................................... 3,260 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 89 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- RETAIL -- SPECIALTY -- 1.1% $ 8,700 J.C. Penney Company, Inc., 5.000% 10/15/08............................................. $ 8,787 1,950 J.C. Penney Company, Inc., 5.000% 10/15/08(a).......................................... 1,970 ---------- 10,757 ---------- SEMICONDUCTORS -- 9.1% 11,875 Agere Systems Inc. 6.500% 12/15/09............................................. 11,347 9,745 Agilent Technologies, Inc., 3.000% 12/01/21............................................. 8,892 7,880 Analog Devices, Inc., 4.750% 10/01/05............................................. 7,959 7,255 AT&T Corporation -- Liberty Media Group, 3.500% 01/15/31............................................. 4,679 4,470 Cypress Semiconductor Corporation, 4.000% 02/01/05(a).......................................... 3,973 4,818 Fairchild Semiconductor Corporation, 5.000% 11/01/08............................................. 4,469 2,000 Fairchild Semiconductor Corporation, Class A, 5.000% 11/01/08(a).......................................... 1,855 4,950 General Semiconductor, Inc., 5.750% 12/15/06............................................. 4,653 12,220 International Rectifier Corporation, 4.250% 07/15/07(a).......................................... 10,783 2,920 Kulicke & Soffa Industries Inc., 5.250% 08/15/06............................................. 2,040 2,940 Kulicke & Soffa Industries Inc., 4.750% 12/15/06............................................. 1,937 6,930 LSI Logic Corporation, 4.250% 03/15/04............................................. 6,826 990 LSI Logic Corporation, 4.000% 11/01/06(a).......................................... 848 4,351 LSI Logic Corporation, 4.000% 11/01/06(a).......................................... 3,726 3,960 Micron Technology, Inc., 2.500% 02/01/10@(a)......................................... 3,891 10,830 Semtech Corporation, 4.500% 02/01/07(a).......................................... 10,221 ---------- 88,099 ---------- SOFTWARE -- 3.4% 10,325 BEA Systems, Inc., 4.000% 12/15/06............................................. 9,551 3,680 Documentum, Inc., 4.500% 04/01/07(a).......................................... 3,418 4,855 HNC Software Inc., 5.250% 09/01/08............................................. 5,820 900 HNC Software Inc., 5.250% 09/01/08............................................. 1,079 10,540 Mercury Interactive Corporation, 4.750% 07/01/07............................................. 9,894 2,188 Network Associates, Inc., 5.250% 08/15/06(a).......................................... 2,527 ---------- 32,289 ----------
PRINCIPAL AMOUNT VALUE (000) (000) - ---------------------------------------------------------------------------------------- SPECIALTY STORES -- 1.3% $ 5,295 Barnes & Noble, Inc., 5.250% 03/15/09............................................. $ 5,196 5,920 Gap, Inc., 5.750% 03/15/09@............................................ 7,244 ---------- 12,440 ---------- TELECOMMUNICATIONS SERVICES -- 3.5% 13,720 American Tower Corporation, 2.250% 10/15/09............................................. 10,804 1,250 Bell Atlantic Financial Services, 5.750% 04/01/03............................................. 1,250 1,000 Bell Atlantic Financial Services, 5.750% 04/01/03............................................. 1,000 2,900 Centurytel Inc., 4.750% 08/01/32@............................................ 3,281 6,800 Harris Corporation, 3.500% 08/15/22............................................. 7,115 11,560 Nextel Communications, Inc., Class A, 5.250% 01/15/10(a).......................................... 9,927 ---------- 33,377 ---------- TOTAL CONVERTIBLE BONDS AND NOTES (Cost $579,507)............................................. 578,309 ---------- SHARES - --------- CONVERTIBLE PREFERRED STOCKS -- 23.1% AEROSPACE AND DEFENSE -- 1.0% 60,350 Northrop Grumman Corporation(a)............................... 5,990 68,500 Raytheon Company(a)........................................... 3,511 ---------- 9,501 ---------- AUTOMOTIVE -- 1.3% 426,200 General Motors Corporation, Series A.......................... 10,208 102,600 General Motors Corporation, Series B.......................... 2,329 ---------- 12,537 ---------- COMMERCIAL BANKING -- 2.7% 146,600 Commerce Capital Trust........................................ 7,806 3,300 Commerce Capital Trust II..................................... 176 111,400 Sovereign Capital Trust II.................................... 8,584 145,000 Washington Mutual Capital Trust I............................. 7,621 40,000 Washington Mutual Inc. ....................................... 2,102 ---------- 26,289 ---------- COMMERCIAL SERVICES -- 0.5% 138,680 Cendant Corporation!!(a)...................................... 4,930 ---------- ELECTRIC POWER -- NON NUCLEAR -- 2.3% 288,200 Ameren Corporation............................................ 7,583 120,200 Cinergy Corporation........................................... 6,707 330,000 Duke Energy Corporation(a).................................... 4,158 175,300 PPL Capital Fund Trust I...................................... 3,241 ---------- 21,689 ---------- HEALTH SERVICES -- 0.7% 83,200 Anthem, Inc. ................................................. 6,806 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 90 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- HEAVY MACHINERY -- 1.0% 42,000 Cummins Capital Trust I....................................... $ 1,827 179,200 Cummins Capital Trust I....................................... 7,795 ---------- 9,622 ---------- HOUSEHOLD PRODUCTS -- 1.1% 219,890 Newell Financial Trust I...................................... 10,197 ---------- INSURANCE -- 1.4% 196,225 Prudential Financial Inc. .................................... 10,096 66,000 Reinsurance Group of America Inc. ............................ 3,143 ---------- 13,239 ---------- INTEGRATED OIL -- 0.6% 123,000 Unocal Corporation............................................ 6,073 ---------- METALS AND MINING -- 0.1% 24,350 Arch Coal, Inc. .............................................. 1,424 ---------- MINING -- 0.5% 214,800 Freeport McMoran Corporation!!................................ 4,489 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.2% 8,845 Lucent Technologies Inc. ..................................... 7,486 270,000 Merrill Lynch-Series Cisco.................................... 3,699 ---------- 11,185 ---------- OIL AND GAS -- 0.7% 119,200 Chesapeake Energy Corporation@................................ 6,362 ---------- PAPER AND FOREST PRODUCTS -- 2.7% 172,500 Boise Cascade Corporation..................................... 6,640 249,040 International Paper Capital Trust............................. 12,141 170,200 Temple-Inland Inc. ........................................... 6,799 ---------- 25,580 ---------- PUBLISHING AND ADVERTISING -- 0.6% 5,940 News Corporation Finance Trust II@............................ 5,925 ---------- RAILROADS, TRUCKING AND SHIPPING -- 1.1% 136,100 Union Pacific Capital Trust................................... 6,941 72,000 Union Pacific Capital Trust................................... 3,672 ---------- 10,613 ---------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.7% 226,200 Equity Residential Properties Trust........................... 5,653 30,000 The Rouse Company............................................. 1,500 ---------- 7,153 ---------- SEMICONDUCTORS -- 0.5% 154,990 Motorola, Inc.(a)............................................. 4,582 ---------- TELECOMMUNICATIONS SERVICES -- 2.4% 199,600 Alltel Corporation............................................ 9,383 116,000 CenturyTel, Inc. ............................................. 2,843
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) 228,000 Citizens Communications Company............................... $ 4,948 113,600 Citizens Utilities Trust!!.................................... 5,453 ---------- 22,627 ---------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $228,597)............................................. 220,823 ---------- PRINCIPAL AMOUNT (000) - --------- FOREIGN CONVERTIBLE BONDS AND NOTES -- 0.8% (Cost $6,821) $ 9,800 Nortel Networks Corporation, 4.250% 09/01/08............................................. 7,203 ---------- SHARES (000) - --------- INVESTMENT COMPANIES -- 15.5% (Cost $148,431) 148,431 Nations Cash Reserves, Capital Class Shares#.................. 148,431 ---------- TOTAL INVESTMENTS (Cost $1,096,150*)................................ 112.3% 1,074,999 ---------- OTHER ASSETS AND LIABILITIES (NET).................. (12.3)% Receivable for investment securities sold..................... $ 9,213 Receivable for Fund shares sold............................... 3,683 Dividends receivable.......................................... 508 Interest receivable........................................... 5,267 Collateral on securities loaned............................... (128,392) Payable for Fund shares redeemed.............................. (1,593) Investment advisory fee payable............................... (518) Administration fee payable.................................... (183) Shareholder servicing and distribution fees payable........... (183) Due to custodian.............................................. (2,119) Payable for investment securities purchased................... (2,658) Accrued Trustees' fees and expenses........................... (70) Accrued expenses and other liabilities........................ (300) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................................... (117,345) ---------- NET ASSETS.......................................... 100.0% $ 957,654 ========== NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 152 Accumulated net realized loss on investments sold............. (105,175) Net unrealized depreciation of investments.................... (21,151) Paid-in capital............................................... 1,083,828 ---------- NET ASSETS.................................................... $ 957,654 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 91 NATIONS FUNDS Nations Convertible Securities Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE - ---------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($523,270,485 / 38,008,776 shares outstanding).............. $13.77 ========== INVESTOR A SHARES: Net asset value and redemption price per share ($292,622,072 / 21,247,699 shares outstanding).............. $13.77 ========== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $14.61 INVESTOR B SHARES: Net asset value and offering price per share& ($111,468,479 / 8,173,941 shares outstanding)............... $13.64 ========== INVESTOR C SHARES: Net asset value and offering price per share& ($30,292,838 / 2,199,299 shares outstanding)................ $13.77 ==========
- --------------- * Federal income tax information (see Note 11). **Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2003. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2003. !!Non-income producing security. & The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. @ 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%. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $128,392. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $128,446 and $123,128, respectively. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 92 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------ COMMON STOCKS -- 63.8% AEROSPACE AND DEFENSE -- 1.7% 24,602 Boeing Company.............................................. $ 617 10,770 General Dynamics Corporation................................ 593 38,168 United Technologies Corporation............................. 2,205 -------- 3,415 -------- AUTOMOTIVE -- 0.5% 28,600 Lear Corporation!!.......................................... 1,011 -------- BEVERAGES -- 1.9% 16,875 Anheuser-Busch Companies, Inc. ............................. 787 17,824 Coca-Cola Company........................................... 722 55,768 PepsiCo, Inc. .............................................. 2,230 -------- 3,739 -------- BROADCASTING AND CABLE -- 2.0% 188,963 AOL Time Warner Inc.!!...................................... 2,052 9,997 Clear Channel Communications, Inc.!!........................ 339 25,745 Comcast Corporation, Class A!!.............................. 708 25,132 Viacom Inc., Class B!!...................................... 918 -------- 4,017 -------- BUILDING MATERIALS -- 0.6% 18,056 American Standard Companies Inc.!!.......................... 1,242 -------- CHEMICALS -- BASIC -- 0.4% 20,400 E.I. duPont de Nemours and Company.......................... 793 -------- COMMERCIAL BANKING -- 6.3% 22,650 Bank One Corporation........................................ 784 34,507 Charter One Financial, Inc. ................................ 954 115,566 Citigroup Inc.##............................................ 3,981 25,661 Comerica Inc. .............................................. 972 60,000 FleetBoston Financial Corporation........................... 1,433 23,389 Hibernia Corporation, Class A............................... 397 36,520 Sovereign Bancorp, Inc. .................................... 506 39,550 US Bancorp.................................................. 751 56,453 Washington Mutual, Inc. .................................... 1,991 13,973 Zions Bancorporation........................................ 598 -------- 12,367 -------- COMMERCIAL SERVICES -- 0.4% 33,819 Waste Management, Inc. ..................................... 716 -------- COMPUTER SERVICES -- 1.1% 19,925 Automatic Data Processing, Inc. ............................ 613 24,832 Computer Sciences Corporation!!(a).......................... 808 50,324 Convergys Corporation!!..................................... 664 -------- 2,085 -------- COMPUTERS AND OFFICE EQUIPMENT -- 2.1% 174,295 EMC Corporation!!........................................... 1,260 37,675 International Business Machines Corporation##............... 2,955 -------- 4,215 --------
VALUE SHARES (000) - ------------------------------------------------------------------------------------ CONGLOMERATES -- 1.0% 33,850 Pentair, Inc. .............................................. $ 1,197 20,883 SPX Corporation!!........................................... 713 -------- 1,910 -------- CONSUMER CREDIT AND MORTGAGES -- 2.0% 36,055 Fannie Mae.................................................. 2,356 105,525 MBNA Corporation............................................ 1,588 -------- 3,944 -------- DEPARTMENT AND DISCOUNT STORES -- 1.7% 8,742 Kohl's Corporation!!........................................ 495 55,298 Wal-Mart Stores, Inc. ...................................... 2,877 -------- 3,372 -------- DIVERSIFIED ELECTRONICS -- 0.5% 29,962 Cooper Industries, Ltd., Class A............................ 1,070 -------- DIVERSIFIED MANUFACTURING -- 1.6% 6,344 3M Company.................................................. 825 92,710 General Electric Company.................................... 2,364 -------- 3,189 -------- ELECTRIC POWER -- NON NUCLEAR -- 0.9% 36,693 Entergy Corporation......................................... 1,767 -------- ELECTRIC POWER -- NUCLEAR -- 1.2% 35,365 FirstEnergy Corporation..................................... 1,114 21,160 FPL Group, Inc. ............................................ 1,247 -------- 2,361 -------- EXPLORATION AND PRODUCTION -- 0.6% 25,730 Anadarko Petroleum Corporation.............................. 1,171 -------- FINANCE -- MISCELLANEOUS -- 0.7% 30,171 H & R Block, Inc. .......................................... 1,288 -------- FOOD AND DRUG STORES -- 0.5% 74,357 The Kroger Company!!........................................ 978 -------- FOOD PRODUCTS -- 0.5% 35,012 Kellogg Company............................................. 1,073 -------- HEALTH SERVICES -- 2.8% 24,309 Express Scripts, Inc.!!(a).................................. 1,354 27,200 Quest Diagnostics Inc.!!.................................... 1,624 10,558 UnitedHealth Group Inc. .................................... 968 20,800 Wellpoint Health Networks Inc.!!............................ 1,596 -------- 5,542 -------- HOUSEHOLD PRODUCTS -- 1.6% 24,550 Colgate-Palmolive Company................................... 1,337 20,345 Procter & Gamble Company.................................... 1,811 -------- 3,148 --------
SEE NOTES TO FINANCIAL STATEMENTS. 93 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------ INSURANCE -- 2.2% 37,891 ACE Ltd.!!.................................................. $ 1,097 41,300 Ambac Financial Group, Inc. ................................ 2,086 24,407 American International Group, Inc. ......................... 1,207 -------- 4,390 -------- INTEGRATED OIL -- 2.8% 24,995 ChevronTexaco Corporation................................... 1,616 115,014 Exxon Mobil Corporation##................................... 4,020 -------- 5,636 -------- INVESTMENT SERVICES -- 1.6% 61,630 Merrill Lynch & Company, Inc. .............................. 2,182 23,975 Morgan Stanley.............................................. 919 -------- 3,101 -------- LODGING AND RECREATION -- 0.8% 40,752 Brunswick Corporation....................................... 774 30,080 Mandalay Resort Group!!..................................... 829 -------- 1,603 -------- MEDICAL DEVICES AND SUPPLIES -- 2.7% 20,753 Abbott Laboratories......................................... 781 27,137 Boston Scientific Corporation!!............................. 1,106 21,631 Cardinal Health, Inc. ...................................... 1,232 38,091 Johnson & Johnson........................................... 2,204 -------- 5,323 -------- METALS AND MINING -- 0.4% 22,549 Phelps Dodge Corporation!!.................................. 732 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.6% 120,925 Merrill Lynch-Series Cisco!!................................ 1,570 194,951 Motorola, Inc. ............................................. 1,610 -------- 3,180 -------- OILFIELD SERVICES -- 0.5% 48,555 National-Oilwell, Inc.!!.................................... 1,087 -------- PACKAGING AND CONTAINERS -- 0.4% 15,221 Ball Corporation............................................ 848 -------- PAPER AND FOREST PRODUCTS -- 0.3% 17,151 International Paper Company................................. 580 -------- PHARMACEUTICALS -- 4.8% 45,250 Amgen Inc.!!................................................ 2,604 78,766 Bristol-Myers Squibb Company................................ 1,664 87,300 Pfizer Inc.##............................................... 2,720 55,967 Pharmacia Corporation....................................... 2,423 -------- 9,411 -------- PUBLISHING AND ADVERTISING -- 0.6% 56,347 Interpublic Group of Companies, Inc.(a)..................... 524 11,325 McGraw-Hill Companies, Inc. ................................ 630 -------- 1,154 --------
VALUE SHARES (000) - ------------------------------------------------------------------------------------ RAILROADS, TRUCKING AND SHIPPING -- 0.4% 13,775 United Parcel Service, Inc., Class B........................ $ 785 -------- SEMICONDUCTORS -- 2.4% 148,796 Intel Corporation........................................... 2,422 30,925 Linear Technology Corporation............................... 955 13,902 Maxim Integrated Products, Inc. ............................ 502 55,300 Texas Instruments Inc. ..................................... 905 -------- 4,784 -------- SOFTWARE -- 3.0% 18,959 Electronic Arts Inc.!!...................................... 1,112 32,945 Intuit Inc.!!............................................... 1,226 112,322 Microsoft Corporation....................................... 2,719 80,950 Oracle Corporation!!........................................ 878 -------- 5,935 -------- SPECIALTY STORES -- 1.4% 33,304 Barnes & Noble, Inc.!!...................................... 632 42,358 Home Depot, Inc. ........................................... 1,032 30,483 Ross Stores, Inc. .......................................... 1,102 -------- 2,766 -------- TELECOMMUNICATIONS SERVICES -- 2.0% 31,954 CenturyTel, Inc. ........................................... 882 112,480 Citizens Communications Company!!........................... 1,123 61,906 Nextel Communications, Inc., Class A!!...................... 829 33,400 Verizon Communications Inc. ................................ 1,181 -------- 4,015 -------- TOBACCO -- 0.9% 56,657 Altria Group, Inc. ......................................... 1,697 -------- UNIT INVESTMENT TRUST -- 2.4% 57,000 Standard & Poor's Depositary Receipts....................... 4,830 -------- TOTAL COMMON STOCKS (Cost $126,681)........................................... 126,270 -------- PRINCIPAL AMOUNT (000) - --------- ASSET-BACKED SECURITIES -- 1.5% ASSET-BACKED -- AUTO LOANS -- 0.6% $ 800 AmeriCredit Automobile Receivables Trust, Series 2001-B, Class A4, 5.370% 06/12/08........................................... 836 450 Ford Credit Auto Owner Trust, Series 2002-B, Class B, 5.180% 10/16/06........................................... 479 -------- 1,315 --------
SEE NOTES TO FINANCIAL STATEMENTS. 94 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 0.3% $ 500 Citibank Credit Card Master Trust I, Series 1999-5, Class A, 6.100% 05/15/08........................................... $ 553 -------- ASSET-BACKED -- HOME EQUITY LOANS -- 0.1% 102 First Plus Home Loan Trust, Series 1998-2, Class M1, 7.220% 05/10/24........................................... 107 -------- ASSET-BACKED -- OTHER -- 0.5% 900 CIT Equipment Collateral, Series 2002-VT1, Class A4, 4.670% 12/21/09........................................... 944 -------- TOTAL ASSET-BACKED SECURITIES (Cost $2,756)............................................. 2,919 -------- CORPORATE BONDS AND NOTES -- 8.9% AEROSPACE AND DEFENSE -- 0.1% 151 Northrop Grumman Corporation, 7.125% 02/15/11........................................... 175 -------- AUTOMOTIVE -- 0.5% 137 Delphi Corporation, 6.125% 05/01/04........................................... 141 148 Ford Motor Company, 7.450% 07/16/31........................................... 113 362 Ford Motor Credit Company, 5.800% 01/12/09........................................... 324 21 General Motors Acceptance Corporation, 6.125% 09/15/06........................................... 22 185 General Motors Acceptance Corporation, 6.875% 09/15/11........................................... 183 113 General Motors Acceptance Corporation, 8.000% 11/01/31........................................... 110 -------- 893 -------- BEVERAGES -- 0.0%+ 91 Anheuser-Busch Companies, Inc., 5.950% 01/15/33........................................... 95 -------- BROADCASTING AND CABLE -- 0.4% 206 AOL Time Warner Inc., 6.150% 05/01/07(a)........................................ 218 83 AOL Time Warner Inc., 7.625% 04/15/31........................................... 88 68 Clear Channel Communications, Inc., 6.000% 11/01/06........................................... 73 151 Comcast Cable Communications, Inc., 7.125% 06/15/13........................................... 167 21 Comcast Corporation, Class A, 5.850% 01/15/10(a)........................................ 22 11 Lenfest Communications, Inc., 8.375% 11/01/05........................................... 12
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ BROADCASTING AND CABLE -- (CONTINUED) $ 68 Tele-Communications, Inc., Class A, 9.875% 06/15/22........................................... $ 86 38 Time Warner Inc., 8.110% 08/15/06........................................... 42 51 Viacom Inc., Class B, 6.625% 05/15/11........................................... 58 77 Viacom Inc., Class B, 7.875% 07/30/30........................................... 96 -------- 862 -------- CHEMICALS -- BASIC -- 0.0%+ 44 Dow Chemical Company, 6.125% 02/01/11........................................... 45 50 Dow Chemical Company, 7.375% 11/01/29........................................... 52 -------- 97 -------- CHEMICALS -- DIVERSIFIED -- 0.0%+ 63 E.I. du Pont de Nemours and Company, 3.375% 11/15/07........................................... 64 -------- CHEMICALS -- SPECIALTY -- 0.1% 49 Praxair, Inc., 4.750% 07/15/07........................................... 52 68 Praxair, Inc., 6.500% 03/01/08........................................... 76 -------- 128 -------- COMMERCIAL BANKING -- 1.7% 131 AmSouth Bank NA, 4.850% 04/01/13........................................... 133 331 Bank One Corporation, 6.000% 08/01/08##......................................... 369 246 Citigroup Inc., 7.250% 10/01/10........................................... 291 98 Citigroup Inc., 6.000% 02/21/12........................................... 109 69 City National Corporation, 5.125% 02/15/13........................................... 69 260 FleetBoston Financial Corporation, 7.250% 09/15/05........................................... 290 141 Golden West Financial Corporation, 4.750% 10/01/12........................................... 144 225 J.P. Morgan Chase & Company, 5.250% 05/30/07........................................... 241 67 Key Bank N.A., 7.000% 02/01/11........................................... 78 101 Mellon Funding Corporation, 6.700% 03/01/08........................................... 115 102 PNC Funding Corporation, 7.000% 09/01/04........................................... 109 153 PNC Funding Corporation, 5.750% 08/01/06........................................... 167 161 Popular North America Inc., MTN, Series E, 6.125% 10/15/06........................................... 175 142 Regions Financial Corporation, 7.750% 09/15/24........................................... 169
SEE NOTES TO FINANCIAL STATEMENTS. 95 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ COMMERCIAL BANKING -- (CONTINUED) $ 53 SouthTrust Bank N.A., 4.750% 03/01/13........................................... $ 53 209 US Bank N.A., Minnesota, 6.375% 08/01/11........................................... 236 297 Wachovia Corporation, 4.950% 11/01/06........................................... 319 161 Washington Mutual, Inc., 7.500% 08/15/06........................................... 185 199 Wells Fargo Financial, Inc., 4.875% 06/12/07........................................... 213 -------- 3,465 -------- COMPUTERS AND OFFICE EQUIPMENT -- 0.1% 7 International Business Machines Corporation, 4.750% 11/29/12........................................... 7 102 International Business Machines Corporation, 6.500% 01/15/28........................................... 112 33 International Business Machines Corporation, 5.875% 11/29/32........................................... 34 123 Pitney Bowes Inc., 4.625% 10/01/12........................................... 125 -------- 278 -------- CONGLOMERATES -- 0.1% 118 Waste Management, Inc., 7.375% 08/01/10........................................... 133 -------- CONSUMER CREDIT AND MORTGAGES -- 0.2% 56 American Express Company, 3.750% 11/20/07........................................... 57 302 Countrywide Home Loans, Inc., MTN, Series J, 5.500% 08/01/06##......................................... 323 -------- 380 -------- DEPARTMENT AND DISCOUNT STORES -- 0.2% 21 Kohl's Corporation, 6.000% 01/15/33........................................... 21 22 Target Corporation, 3.375% 03/01/08........................................... 22 106 Target Corporation, 5.875% 03/01/12........................................... 115 225 Wal-Mart Stores, Inc., 5.450% 08/01/06........................................... 246 -------- 404 -------- DIVERSIFIED MANUFACTURING -- 0.1% 58 Brickman Group, Ltd., Series B, 11.750% 12/15/09@......................................... 62 77 The Scotts Company, Class A, 8.625% 01/15/09........................................... 82 -------- 144 --------
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ ELECTRIC POWER -- NON NUCLEAR -- 0.2% $ 135 Cinergy Corporation, 6.250% 09/01/04........................................... $ 140 35 Dominion Resources, Inc., 5.000% 03/15/13........................................... 35 40 Pepco Holdings, Inc., 5.500% 08/15/07@.......................................... 42 101 Pepco Holdings, Inc., 6.450% 08/15/12@.......................................... 110 -------- 327 -------- ELECTRIC POWER -- NUCLEAR -- 0.4% 212 Constellation Energy Group, Inc., 7.600% 04/01/32........................................... 243 83 Duquesne Light Company, Series O, 6.700% 04/15/12........................................... 94 132 FirstEnergy Corporation, Series B, 6.450% 11/15/11........................................... 140 117 Southern Company Capital Funding, Series A, 5.300% 02/01/07........................................... 124 66 Southern Power Company, Series B, 6.250% 07/15/12........................................... 72 93 Virginia Electric and Power Company, Series A, 5.375% 02/01/07........................................... 100 -------- 773 -------- EXPLORATION AND PRODUCTION -- 0.2% 282 Anadarko Finance Company, Series B, 7.500% 05/01/31........................................... 338 -------- FINANCE -- MISCELLANEOUS -- 0.5% 105 Associates Corporation of North America, 6.950% 11/01/18........................................... 123 42 General Electric Capital Corporation, MTN, Series A, 4.250% 01/15/08(a)........................................ 44 372 General Electric Capital Corporation, MTN, Series A, 6.750% 03/15/32##......................................... 419 211 Household Finance Corporation, 5.875% 02/01/09........................................... 228 30 Household Finance Corporation, 6.375% 11/27/12........................................... 33 17 Household Finance Corporation, 7.350% 11/27/32........................................... 20 81 Mellon Funding Corporation, 6.400% 05/14/11........................................... 91 90 National Rural Utilities Cooperative Finance Corporation, 5.750% 08/28/09........................................... 97 -------- 1,055 -------- FOOD AND DRUG STORES -- 0.1% 202 Fred Meyer, Inc., 7.450% 03/01/08........................................... 230 --------
SEE NOTES TO FINANCIAL STATEMENTS. 96 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ FOOD PRODUCTS -- 0.4% $ 213 Kellogg Company, Series B, 6.000% 04/01/06........................................... $ 234 206 Sara Lee Corporation, 6.250% 09/15/11........................................... 231 68 Tyson Foods Inc., Class A, 7.250% 10/01/06........................................... 73 227 Unilever Capital Corporation, 7.125% 11/01/10........................................... 269 -------- 807 -------- HEALTH SERVICES -- 0.2% 87 Cardinal Health, Inc., 6.750% 02/15/11........................................... 101 193 Wellpoint Health Networks Inc., 6.375% 06/15/06........................................... 213 45 Wellpoint Health Networks Inc., 6.375% 01/15/12........................................... 50 -------- 364 -------- HEAVY MACHINERY -- 0.1% 154 Caterpillar Finance Services Corporation, 5.950% 05/01/06........................................... 171 -------- HOUSEHOLD PRODUCTS -- 0.1% 114 Proctor & Gamble Company, 4.750% 06/15/07........................................... 123 -------- HOUSING AND FURNISHING -- 0.1% 194 Continental Homes Holding Corporation, 10.000% 04/15/06.......................................... 195 -------- INSURANCE -- 0.3% 30 Marsh & McLennan Companies, Inc., 3.625% 02/15/08........................................... 30 85 MetLife, Inc., 6.500% 12/15/32........................................... 90 30 Nationwide Financial Services, Inc., Class A, 5.900% 07/01/12........................................... 32 153 Principal Life Global, 6.250% 02/15/12@.......................................... 166 47 Progressive Corporation, 6.250% 12/01/32........................................... 49 212 Prudential Funding LLC, MTN, 6.600% 05/15/08........................................... 236 -------- 603 -------- INTEGRATED OIL -- 0.2% 288 PEMEX Master Trust, 8.625% 02/01/22........................................... 304 -------- INVESTMENT SERVICES -- 0.6% 167 Bear Stearns Companies Inc., 4.000% 01/31/08........................................... 170 105 Credit Suisse First Boston USA, Inc., 5.875% 08/01/06........................................... 114
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ INVESTMENT SERVICES -- (CONTINUED) $ 179 Credit Suisse First Boston USA, Inc., 6.125% 11/15/11........................................... $ 188 176 Goldman Sachs Group, Inc., 6.875% 01/15/11........................................... 201 152 Lehman Brothers Holdings Inc., 7.000% 02/01/08........................................... 174 189 Merrill Lynch & Company, Inc., 6.000% 02/17/09........................................... 209 120 Morgan Stanley, 6.100% 04/15/06........................................... 131 245 Morgan Stanley, 6.750% 04/15/11........................................... 274 -------- 1,461 -------- METALS AND MINING -- 0.1% 100 Alcoa Inc., 7.375% 08/01/10........................................... 118 -------- NATURAL GAS PIPELINES -- 0.1% 241 Kinder Morgan, Inc., 6.650% 03/01/05........................................... 257 -------- OIL REFINING AND MARKETING -- 0.2% 194 USX Corporation, 6.650% 02/01/06........................................... 215 84 Velero Energy Corporation, 7.500% 04/15/32........................................... 90 -------- 305 -------- PACKAGING AND CONTAINERS -- 0.0%+ 15 Container Corporation of America, 9.750% 04/01/03........................................... 15 -------- PHARMACEUTICALS -- 0.0%+ 27 Pharmacia Corporation, 6.600% 12/01/28........................................... 31 -------- PUBLISHING AND ADVERTISING -- 0.2% 81 Gannett Company, Inc., 6.375% 04/01/12........................................... 93 58 Knight-Ridder, Inc., 7.125% 06/01/11........................................... 68 274 News America Holdings, 8.150% 10/17/36........................................... 318 -------- 479 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.2% 147 Burlington Northern Santa Fe Corporation, 6.750% 07/15/11........................................... 168 234 FedEx Corporation, 6.625% 02/12/04........................................... 244 -------- 412 --------
SEE NOTES TO FINANCIAL STATEMENTS. 97 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ REAL ESTATE -- 0.1% $ 129 EOP Operating LP, 7.000% 07/15/11........................................... $ 145 16 ERP Operating LP, 5.200% 04/01/13........................................... 16 -------- 161 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1% 58 Health Care Property Investors, Inc., 6.450% 06/25/12........................................... 60 59 Health Care Property Investors, Inc., MTN, Series D, 7.480% 04/05/04........................................... 61 -------- 121 -------- TELECOMMUNICATIONS SERVICES -- 0.7% 49 AT&T Corporation, 8.375% 03/15/13........................................... 58 138 BellSouth Telecommunications Inc., 6.375% 06/01/28........................................... 150 124 Cox Communications, Inc., Class A, 7.750% 11/01/10........................................... 145 223 SBC Communications Inc., 6.250% 03/15/11........................................... 248 24 Sprint Capital Corporation, 6.125% 11/15/08........................................... 24 58 Sprint Capital Corporation, 8.375% 03/15/12........................................... 62 87 Sprint Capital Corporation, 6.900% 05/01/19........................................... 80 28 Verizon Global Funding Corporation, 7.750% 12/01/30........................................... 34 224 Verizon New England Inc., 6.500% 09/15/11........................................... 252 230 Verizon Pennsylvania Inc., Series A, 5.650% 11/15/11........................................... 245 -------- 1,298 -------- TOBACCO -- 0.3% 525 R.J. Reynolds Tobacco Holdings, Inc., 7.375% 05/15/03........................................... 527 -------- TOTAL CORPORATE BONDS AND NOTES (Cost $16,316)............................................ 17,593 -------- FOREIGN BONDS AND NOTES -- 0.5% BUILDING MATERIALS -- 0.1% 185 Hanson Overseas B.V., 6.750% 09/15/05........................................... 200 -------- CHEMICALS -- SPECIALTY -- 0.0%+ 23 Potash Corporation of Saskatchewan Inc., 4.875% 03/01/13........................................... 23 --------
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ INTEGRATED OIL -- 0.2% $ 142 Conoco Funding Company, 6.350% 10/15/11........................................... $ 161 338 Pemex Finance Ltd., 5.720% 11/15/03@.......................................... 342 -------- 503 -------- RAILROADS, TRUCKING AND SHIPPING -- 0.1% 95 Canadian National Railway Company, 6.900% 07/15/28........................................... 110 -------- TELECOMMUNICATIONS SERVICES -- 0.1% 63 Deutsche Telekon International Finance B.V., 8.500% 06/15/10........................................... 74 70 France Telecom SA, 9.250% 03/01/11........................................... 84 13 France Telecom SA, 10.000% 03/01/31.......................................... 17 -------- 175 -------- TOTAL FOREIGN BONDS AND NOTES (Cost $973)............................................... 1,011 -------- MORTGAGE-BACKED SECURITIES -- 11.2% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.6% 290 Credit Suisse First Boston, Series 2001, 5.088%** 12/05/13......................................... 288 4,979 JP Morgan Commercial Mortgage Finance Corporation, Series 1997-C4, Class X, Interest only, 1.232%** 12/26/28......................................... 186 6,762 Merrill Lynch Mortgage Investors, Inc., Series 1998-C3, Interest only, 1.104%** 12/15/30......................................... 270 24,237 Vendee Mortgage Trust, Series 1998-1, Class 2, Interest only, 0.436%** 09/15/27......................................... 242 28,932 Vendee Mortgage Trust, Series 1998-3, Class 1, Interest only, 0.298%** 03/15/29......................................... 207 -------- 1,193 -------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES -- 2.8% 8 8.000% 01/01/04........................................... 8 10 8.000% 07/01/10........................................... 11 1,100 4.500% 01/15/13(a)........................................ 1,117 2 10.500% 04/01/19.......................................... 2 271 8.000% 09/01/25........................................... 295 697 6.500% 07/01/29........................................... 727 1,216 6.500% 09/01/32........................................... 1,269 2,049 6.500% 11/01/32........................................... 2,137 -------- 5,566 --------
SEE NOTES TO FINANCIAL STATEMENTS. 98 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 5.2% $ 1 6.500% 01/01/06........................................... $ 1 253 8.500% 08/01/11........................................... 274 97 7.500% 10/01/11........................................... 104 8,300 6.000% 03/01/17(d)........................................ 8,679 189 10.000% 09/01/18.......................................... 217 99 7.000% 01/25/21........................................... 108 588 6.500% 08/25/29........................................... 617 144 4.311%** 08/01/36......................................... 148 -------- 10,148 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 2.6% 6 10.000% 02/15/16.......................................... 6 169 7.500% 12/15/23........................................... 182 4,900 5.500% 08/01/32(d)........................................ 5,029 -------- 5,217 -------- TOTAL MORTGAGE-BACKED SECURITIES (Cost $22,582)............................................ 22,124 -------- SOVEREIGN GOVERNMENT BONDS AND NOTES -- 0.8% 152 Government of Canada, 5.250% 11/05/08........................................... 170 310 Hellenic Republic, 6.950% 03/04/08........................................... 358 266 Quebec (Province of), 7.500% 09/15/29........................................... 336 154 Region of Lombardy, 5.804% 10/25/32........................................... 162 45 Republic of Chile, 5.500% 01/15/13........................................... 45 195 Republic of Italy, 6.000% 02/22/11........................................... 220 29 Republic of Italy, 6.875% 09/27/23........................................... 35 28 Republic of Korea, 8.875% 04/15/08(a)........................................ 34 129 United Mexican States, 8.375% 01/14/11(a)........................................ 149 -------- TOTAL SOVEREIGN GOVERNMENT BONDS AND NOTES (Cost $1,392)............................................. 1,509 -------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 1.5% FEDERAL HOME LOAN BANK (FHLB) -- 0.3% 500 4.500% 11/15/12........................................... 510 --------
PRINCIPAL AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------ FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.3% $ 550 5.750% 01/15/12........................................... $ 616 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 0.8% 1,250 6.125% 03/15/12........................................... 1,431 200 6.625% 11/15/30........................................... 236 -------- 1,667 -------- TENNESSEE VALLEY AUTHORITY -- 0.1% 150 6.750% 11/01/25........................................... 177 -------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $2,862)............................................. 2,970 -------- U.S. GOVERNMENT GUARANTEED BOND -- 0.7% FEDERAL HOME LOAN BANK (FHLB) -- 0.7% (Cost $1,481) 1,500 2.750% 03/14/08(a)........................................ 1,483 -------- U.S. TREASURY OBLIGATIONS -- 7.6% U.S. TREASURY NOTES -- 7.6% 13,000 3.000% 01/31/04........................................... 13,199 1,000 4.625% 05/15/06(a)........................................ 1,078 700 3.875% 02/15/13(a)........................................ 703 -------- 14,980 -------- U.S. TREASURY STRIPS -- 0.0%+ 100 Principal only, 5.311% 08/15/29........................................... 25 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $14,972)............................................ 15,005 -------- SHARES - --------- WARRANTS -- 0.0%+ (Cost $0) 195 Solutia Inc., Expire 07/15/09!!......................................... 0++ --------
SEE NOTES TO FINANCIAL STATEMENTS. 99 NATIONS FUNDS Nations Asset Allocation Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
SHARES VALUE (000) (000) - ------------------------------------------------------------------------------------ INVESTMENT COMPANIES -- 21.1% 514 Nations High Yield Portfolio@@.............................. $ 4,731 116 iShares Russell 1000 Index.................................. 5,209 31,808 Nations Cash Reserves, Capital Class Shares#................ 31,808 -------- TOTAL INVESTMENT COMPANIES (Cost $41,824)............................................ 41,748 -------- TOTAL INVESTMENTS (Cost $231,839*)................................ 117.6% 232,632 -------- CONTRACTS - --------- WRITTEN OPTIONS (2)(c) Call option on interest rate swap, expiring on 04/24/03. If exercised, Lehman Brothers pays fixed (4.67%) and receives 1 month LIBOR. Swap expires 04/26/13................................ $ (4) (2)(c) Call option on interest rate swap, expiring on 04/24/03. If exercised, Lehman Brothers pays fixed (4.27%) and receives 1 month LIBOR. Swap expires 04/26/13................................ (21) ------- TOTAL WRITTEN OPTIONS (Premium $27)................................... $ (25) ------- OTHER ASSETS AND LIABILITIES (NET)................ (17.6)% Receivable for investment securities sold................... $ 19,580 Receivable for Fund shares sold............................. 1,003 Dividends receivable........................................ 203 Interest receivable......................................... 525 Unrealized appreciation on swap contracts................... 2 Receivable for variation margin............................. 60 Unrealized depreciation on swap contracts................... (13) Written options, at value (premium $27)..................... (25) Collateral on securities loaned............................. (8,389) Payable for Fund shares redeemed............................ (14,014) Investment advisory fee payable............................. (120) Administration fee payable.................................. (43) Shareholder servicing and distribution fees payable......... (90) Due to custodian............................................ (4,682) Payable for investment securities purchased................. (28,558) Accrued Trustees' fees and expenses......................... (67) Accrued expenses and other liabilities...................... (143) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (34,771) -------- NET ASSETS........................................ 100.0% $197,861 ======== NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 352 Accumulated net realized loss on investments sold, swaps, options and futures contracts............................. (56,823) Net unrealized appreciation of investments, swaps, options and futures contracts..................................... 781 Paid-in capital............................................. 253,551 -------- NET ASSETS.................................................. $197,861 ========
VALUE - ------------------------------------------------------------------------------------ PRIMARY A SHARES: Net asset value, offering and redemption price per share ($35,514,433 / 2,162,873 shares outstanding).............. $16.42 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($88,010,644 / 5,352,691 shares outstanding).............. $16.44 ======== Maximum sales charge........................................ 5.75% Maximum offering price per share............................ $17.44 INVESTOR B SHARES: Net asset value and offering price per share+ ($72,344,087 / 4,435,279 shares outstanding).............. $16.31 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($1,992,025 / 122,124 shares outstanding)................. $16.31 ========
- --------------- *Federal income tax information (see Note 11). ** Variable rate note. The interest rate shown reflects the rate in effect at March 31, 2003. !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. @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 advised by Banc of America Capital Management, LLC. +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 advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $8,389. ##All or a portion of security segregated as collateral for futures contracts and TBA. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $7,307 and $7,127, respectively. (c) 1 contract = $1,000,000 notional amount. (d) TBA -- Securities purchased on a forward commitment basis. ABBREVIATIONS: MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS. 100 NATIONS FUNDS Nations Classic Value Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- COMMON STOCKS -- 99.6% AEROSPACE AND DEFENSE -- 1.6% 206,790 Boeing Company.............................................. $ 5,182 ---------- AIRLINES -- 0.8% 317,000 AMR Corporation!!(a)........................................ 666 226,700 Delta Air Lines, Inc.(a).................................... 2,017 ---------- 2,683 ---------- AUTOMOTIVE -- 4.5% 835,300 Ford Motor Company(a)....................................... 6,281 157,700 General Motors Corporation.................................. 5,302 484,500 Goodyear Tire & Rubber Company(a)........................... 2,505 ---------- 14,088 ---------- CHEMICALS -- SPECIALTY -- 1.8% 251,800 Great Lakes Chemical Corporation............................ 5,590 ---------- COMMERCIAL BANKING -- 4.4% 311,850 FleetBoston Financial Corporation........................... 7,447 275,300 J.P. Morgan Chase & Company................................. 6,527 ---------- 13,974 ---------- COMMERCIAL SERVICES -- 3.0% 1,125,000 Solectron Corporation!!..................................... 3,398 290,000 Waste Management, Inc. ..................................... 6,142 ---------- 9,540 ---------- COMPUTER SERVICES -- 5.6% 527,570 Electronic Data Systems Corporation......................... 9,285 910,600 Unisys Corporation!!........................................ 8,432 ---------- 17,717 ---------- COMPUTERS AND OFFICE EQUIPMENT -- 5.5% 367,080 Hewlett-Packard Company..................................... 5,708 202,110 NCR Corporation!!(a)........................................ 3,707 935,130 Xerox Corporation!!(a)...................................... 8,135 ---------- 17,550 ---------- ELECTRIC POWER -- NON NUCLEAR -- 4.0% 458,500 Edison International!!...................................... 6,277 485,200 PG & E Corporation!!........................................ 6,526 ---------- 12,803 ---------- ELECTRIC POWER -- NUCLEAR -- 5.9% 629,110 Duke Energy Corporation..................................... 9,147 68,340 Exelon Corporation.......................................... 3,445 188,800 FirstEnergy Corporation..................................... 5,947 ---------- 18,539 ---------- FINANCE -- MISCELLANEOUS -- 2.9% 539,000 CIT Group Inc. ............................................. 9,088 ---------- FOOD AND DRUG STORES -- 6.7% 215,600 Albertson's, Inc. .......................................... 4,064 467,090 Safeway Inc.!!.............................................. 8,843 635,750 The Kroger Company!!........................................ 8,360 ---------- 21,267 ----------
VALUE SHARES (000) - -------------------------------------------------------------------------------------- FOOD PRODUCTS -- 2.2% 650,365 Archer-Daniels-Midland Company.............................. $ 7,024 ---------- HEALTH SERVICES -- 1.8% 1,472,000 Service Corporation International!!(a)...................... 4,092 93,000 Tenet Healthcare Corporation!!.............................. 1,553 ---------- 5,645 ---------- HOUSEHOLD PRODUCTS -- 3.6% 271,200 American Greetings Corporation, Class A!!................... 3,553 111,220 Kimberly-Clark Corporation.................................. 5,056 199,200 Tupperware Corporation...................................... 2,753 ---------- 11,362 ---------- INSURANCE -- 4.9% 72,200 American National Insurance Company......................... 5,627 187,700 Loews Corporation........................................... 7,477 311,300 The Phoenix Companies, Inc.(a).............................. 2,254 ---------- 15,358 ---------- INTEGRATED OIL -- 1.7% 218,200 Marathon Oil Corporation.................................... 5,230 ---------- LODGING AND RECREATION -- 1.0% 237,000 Hasbro, Inc. ............................................... 3,292 ---------- NATURAL GAS DISTRIBUTION -- 2.7% 1,391,600 El Paso Corporation(a)...................................... 8,419 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 5.3% 2,039,488 Avaya Inc.!!................................................ 4,161 4,821,000 Lucent Technologies Inc.!!(a)............................... 7,086 657,000 Motorola, Inc. ............................................. 5,427 ---------- 16,674 ---------- PHARMACEUTICALS -- 4.7% 364,100 Bristol-Myers Squibb Company................................ 7,693 394,500 Schering-Plough Corporation................................. 7,034 ---------- 14,727 ---------- RESTAURANTS -- 2.4% 523,625 McDonald's Corporation...................................... 7,572 ---------- SEMICONDUCTORS -- 1.7% 677,340 Micron Technology, Inc.!!................................... 5,514 ---------- SPECIALTY STORES -- 2.8% 133,800 Sherwin-Williams Company.................................... 3,536 623,990 Toys "R" Us, Inc.!!......................................... 5,223 ---------- 8,759 ---------- STEEL -- 1.4% 447,300 United States Steel Corporation............................. 4,397 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 101 NATIONS FUNDS Nations Classic Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- 12.6% 492,000 BellSouth Corporation....................................... $ 10,663 506,100 SBC Communications Inc. .................................... 10,152 780,500 Sprint Corporation (FON Group).............................. 9,171 287,100 Verizon Communications Inc. ................................ 10,149 ---------- 40,135 ----------
TOBACCO -- 4.1% 196,400 Altria Group, Inc. ......................................... 5,884 72,100 R.J. Reynolds Tobacco Holdings, Inc. ....................... 2,326 178,000 UST Inc. ................................................... 4,913 --------- 13,123 --------- TOTAL COMMON STOCKS (Cost $458,182)........................................... 315,252 --------- SHARES (000) - -------- INVESTMENT COMPANIES -- 13.1% (Cost $41,498) 41,498 Nations Cash Reserves, Capital Class Shares#................ 41,498 --------- TOTAL INVESTMENTS (Cost $499,680*)................................ 112.7% 356,750 --------- OTHER ASSETS AND LIABLITIES (NET)................. (12.7)% Receivable for Fund shares sold............................. $ 731 Dividends receivable........................................ 515 Collateral on securities loaned............................. (40,152) Payable for Fund shares redeemed............................ (1,019) Investment advisory fee payable............................. (182) Administration fee payable.................................. (63) Shareholder servicing and distribution fees payable......... (56) Due to custodian............................................ (3) Accrued Trustees' fees and expenses......................... (13) Accrued expenses and other liabilities...................... (97) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (40,339) --------- NET ASSETS........................................ 100.0% $ 316,411 ========= NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 1,087 Accumulated net realized loss on investments................ (8,241) Net unrealized depreciation of investments.................. (142,930) Paid-in capital............................................. 466,495 --------- NET ASSETS.................................................. $ 316,411 =========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($239,487,871 / 31,868,392 shares outstanding)............ $7.51 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($15,341,018 / 2,043,912 shares outstanding).............. $7.51 ========= Maximum sales charge........................................ 5.75% Maximum offering price per share............................ $7.97 INVESTOR B SHARES: Net asset value and offering price per share+ ($27,384,409 / 3,666,759 shares outstanding).............. $7.47 ========= INVESTOR C SHARES: Net asset value and offering price per share+ ($34,197,493 / 4,580,982 shares outstanding).............. $7.47 =========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $40,152. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $70,982 and $37,614, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 102 NATIONS FUNDS Nations LargeCap Value Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- COMMON STOCKS -- 95.6% AEROSPACE AND DEFENSE -- 3.8% 7,500 Lockheed Martin Corporation................................... $ 357 5,600 Northrop Grumman Corporation.................................. 480 26,225 Raytheon Company.............................................. 744 23,975 United Technologies Corporation............................... 1,385 ------- 2,966 ------- AUTOMOTIVE -- 0.8% 81,900 Ford Motor Company............................................ 616 ------- BEVERAGES -- 2.3% 24,000 Diageo plc, ADR............................................... 986 19,515 PepsiCo, Inc. ................................................ 781 ------- 1,767 ------- BROADCASTING AND CABLE -- 4.6% 24,700 Clear Channel Communications, Inc.!!.......................... 838 71,075 Comcast Corporation, Class A!!................................ 1,954 47,900 The Walt Disney Company....................................... 815 ------- 3,607 ------- CHEMICALS -- BASIC -- 2.1% 19,900 PPG Industries, Inc. ......................................... 897 13,600 Praxair, Inc. ................................................ 766 ------- 1,663 ------- COMMERCIAL BANKING -- 15.3% 30,125 Charter One Financial, Inc. .................................. 833 101,600 Citigroup Inc. ............................................... 3,500 26,100 Comerica Inc. ................................................ 989 81,600 FleetBoston Financial Corporation............................. 1,949 43,954 US Bancorp.................................................... 834 68,500 Wachovia Corporation.......................................... 2,334 34,200 Wells Fargo & Company......................................... 1,539 ------- 11,978 ------- COMMERCIAL SERVICES -- 0.7% 27,400 Waste Management, Inc. ....................................... 580 ------- COMPUTERS AND OFFICE EQUIPMENT -- 1.9% 19,375 International Business Machines Corporation................... 1,520 ------- CONSUMER CREDIT AND MORTGAGES -- 3.4% 37,200 American Express Company...................................... 1,236 18,200 Freddie Mac................................................... 966 15,200 Household International, Inc.(e).............................. 416 ------- 2,618 ------- DIVERSIFIED MANUFACTURING -- 1.9% 68,975 Honeywell International Inc. ................................. 1,473 ------- 25,400 ELECTRIC POWER -- NON NUCLEAR -- 1.3% Consolidated Edison, Inc. .................................... 977 ------- ELECTRIC POWER -- NUCLEAR -- 2.8% 20,200 American Electric Power Company, Inc. ........................ 462 31,025 Dominion Resources, Inc. ..................................... 1,717 ------- 2,179 -------
VALUE SHARES (000) - ----------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.8% 401,709 Agere Systems Inc., Class A!!................................. $ 643 ------- EXPLORATION AND PRODUCTION -- 1.0% 16,600 Anadarko Petroleum Corporation................................ 755 ------- FOOD PRODUCTS -- 1.2% 30,800 Kellogg Company............................................... 944 ------- HOUSEHOLD PRODUCTS -- 1.1% 29,200 The Estee Lauder Companies Inc., Class A...................... 887 ------- INSURANCE -- 5.6% 40,300 ACE Ltd. ..................................................... 1,167 26,800 American International Group, Inc. ........................... 1,326 23,470 Prudential Financial, Inc. ................................... 686 84,779 Travelers Property Casualty Corporation, Class A.............. 1,195 985 Travelers Property Casualty Corporation, Class B.............. 14 ------- 4,388 ------- INTEGRATED OIL -- 7.4% 18,400 ChevronTexaco Corporation..................................... 1,190 92,800 Exxon Mobil Corporation....................................... 3,244 45,200 Occidental Petroleum Corporation.............................. 1,354 ------- 5,788 ------- INVESTMENT SERVICES -- 3.8% 11,200 Goldman Sachs Group, Inc. .................................... 762 33,200 Merrill Lynch & Company, Inc. ................................ 1,176 27,000 Morgan Stanley................................................ 1,035 ------- 2,973 ------- LODGING AND RECREATION -- 2.4% 41,600 Carnival Corporation.......................................... 1,003 36,000 Starwood Hotels & Resorts Worldwide, Inc. .................... 856 ------- 1,859 ------- MEDICAL DEVICES AND SUPPLIES -- 1.2% 24,500 Abbott Laboratories........................................... 921 ------- METALS AND MINING -- 1.0% 23,575 Phelps Dodge Corporation!!.................................... 766 ------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.8% 44,000 Nokia Corporation, ADR........................................ 616 ------- OIL REFINING AND MARKETING -- 1.9% 28,100 ConocoPhillips................................................ 1,506 ------- OILFIELD SERVICES -- 3.4% 59,400 ENSCO International Inc. ..................................... 1,515 29,200 Nabors Industries, Ltd.!!..................................... 1,164 ------- 2,679 -------
SEE NOTES TO FINANCIAL STATEMENTS. 103 NATIONS FUNDS Nations LargeCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 3.5% 40,950 Bowater Inc. ................................................. $ 1,521 35,150 International Paper Company................................... 1,188 ------- 2,709 ------- PHARMACEUTICALS -- 1.2% 21,700 Pharmacia Corporation......................................... 940 ------- RAILROADS, TRUCKING AND SHIPPING -- 2.8% 37,500 CSX Corporation............................................... 1,070 19,700 Union Pacific Corporation..................................... 1,083 ------- 2,153 ------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 3.2% 25,900 Boston Properties, Inc. ...................................... 982 45,500 Equity Office Properties Trust................................ 1,157 14,200 ProLogis Trust................................................ 360 ------- 2,499 ------- RESTAURANTS -- 0.9% 49,275 McDonald's Corporation........................................ 713 ------- SEMICONDUCTORS -- 3.0% 56,500 Agilent Technologies, Inc.!!.................................. 743 24,600 KLA-Tencor Corporation!!...................................... 884 62,625 Teradyne, Inc.!!.............................................. 729 ------- 2,356 ------- SOFTWARE -- 1.1% 32,749 Cadence Design Systems, Inc.!!................................ 327 34,900 PeopleSoft, Inc.!!............................................ 534 ------- 861 ------- SPECIALTY STORES -- 1.2% 72,400 Limited Brands................................................ 932 ------- STEEL -- 0.5% 11,200 Nucor Corporation............................................. 428 ------- TELECOMMUNICATIONS SERVICES -- 4.1% 48,800 BellSouth Corporation......................................... 1,057 32,546 SBC Communications Inc. ...................................... 653 42,300 Verizon Communications Inc. .................................. 1,496 ------- 3,206 ------- TOBACCO -- 1.6% 40,700 Altria Group, Inc. ........................................... 1,219 ------- TOTAL COMMON STOCKS (Cost $79,918).............................................. 74,685 -------
SHARES VALUE (000) (000) - ----------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 3.2% 9 iShares Russell 1000 Value Index.............................. $ 382 2,127 Nations Cash Reserves, Capital Class Shares#.................. 2,127 ------- TOTAL INVESTMENT COMPANIES (Cost $2,508)............................................... 2,509 ------- TOTAL INVESTMENTS (Cost $82,426*)................................... 98.8% 77,194 ------- OTHER ASSETS AND LIABLITIES (NET)................... 1.2% Receivable for investment securities sold..................... $ 336 Receivable for Fund shares sold............................... 682 Dividends receivable.......................................... 173 Receivable from administrator................................. 15 Payable for Fund shares redeemed.............................. (97) Investment advisory fee payable............................... (42) Shareholder servicing and distribution fees payable........... (11) Accrued Trustees' fees and expenses........................... (9) Accrued expenses and other liabilities........................ (100) ------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... 947 ------- NET ASSETS.......................................... 100.0% $78,141 ======= NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 100 Accumulated net realized loss on investments.................. (4,975) Net unrealized depreciation of investments.................... (5,232) Paid-in capital............................................... 88,248 ------- NET ASSETS.................................................... $78,141 =======
SEE NOTES TO FINANCIAL STATEMENTS. 104 NATIONS FUNDS Nations LargeCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE - ----------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($30,628,387 / 3,986,603 shares outstanding)................ $7.68 ======= INVESTOR A SHARES: Net asset value and redemption price per share ($46,005,762 / 5,991,051 shares outstanding)................ $7.68 ======= Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $8.15 INVESTOR B SHARES: Net asset value and offering price per share& ($1,394,519 / 182,229 shares outstanding)................... $7.65 ======= INVESTOR C SHARES: Net asset value and offering price per share& ($112,663 / 14,731 shares outstanding)...................... $7.65 =======
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. (e) Fair valued security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 105 NATIONS FUNDS Nations Value Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- COMMON STOCKS -- 95.5% AEROSPACE AND DEFENSE -- 3.7% 49,800 Lockheed Martin Corporation................................... $ 2,368 33,600 Northrop Grumman Corporation.................................. 2,883 178,900 Raytheon Company.............................................. 5,075 165,766 United Technologies Corporation............................... 9,578 -------- 19,904 -------- AUTOMOTIVE -- 0.7% 510,800 Ford Motor Company............................................ 3,841 -------- BEVERAGES -- 2.3% 167,651 Diageo plc, ADR............................................... 6,894 135,474 PepsiCo, Inc. ................................................ 5,419 -------- 12,313 -------- BROADCASTING AND CABLE -- 4.6% 164,200 Clear Channel Communications, Inc.!!.......................... 5,570 492,615 Comcast Corporation, Class A!!................................ 13,542 323,400 The Walt Disney Company....................................... 5,504 -------- 24,616 -------- CHEMICALS -- BASIC -- 2.1% 137,500 PPG Industries, Inc. ......................................... 6,198 93,000 Praxair, Inc. ................................................ 5,241 -------- 11,439 -------- COMMERCIAL BANKING -- 15.3% 217,085 Charter One Financial, Inc. .................................. 6,005 696,624 Citigroup Inc. ............................................... 23,998 186,500 Comerica Inc. ................................................ 7,065 565,642 FleetBoston Financial Corporation............................. 13,508 305,939 US Bancorp.................................................... 5,807 474,800 Wachovia Corporation.......................................... 16,176 225,600 Wells Fargo & Company......................................... 10,150 -------- 82,709 -------- COMMERCIAL SERVICES -- 0.7% 188,000 Waste Management, Inc. ....................................... 3,982 -------- COMPUTERS AND OFFICE EQUIPMENT -- 1.9% 126,910 International Business Machines Corporation................... 9,954 -------- CONSUMER CREDIT AND MORTGAGES -- 3.4% 254,773 American Express Company...................................... 8,466 125,108 Freddie Mac................................................... 6,643 116,200 Household International, Inc.(e).............................. 3,178 -------- 18,287 -------- DIVERSIFIED MANUFACTURING -- 1.9% 478,084 Honeywell International Inc. ................................. 10,212 -------- ELECTRIC POWER -- NON NUCLEAR -- 1.3% 176,200 Consolidated Edison, Inc.(a).................................. 6,778 --------
VALUE SHARES (000) - -------------------------------------------------------------------------------------- ELECTRIC POWER -- NUCLEAR -- 2.8% 148,000 American Electric Power Company, Inc. ........................ $ 3,382 213,014 Dominion Resources, Inc. ..................................... 11,794 -------- 15,176 -------- ELECTRICAL EQUIPMENT -- 0.8% 2,744,407 Agere Systems Inc., Class A!!(a).............................. 4,391 -------- EXPLORATION AND PRODUCTION -- 1.0% 113,242 Anadarko Petroleum Corporation................................ 5,153 -------- FOOD PRODUCTS -- 1.2% 211,100 Kellogg Company............................................... 6,470 -------- HOUSEHOLD PRODUCTS -- 1.1% 196,604 The Estee Lauder Companies Inc., Class A...................... 5,969 -------- INSURANCE -- 5.6% 260,700 ACE Ltd. ..................................................... 7,547 183,313 American International Group, Inc. ........................... 9,065 165,771 Prudential Financial, Inc. ................................... 4,849 581,205 Travelers Property Casualty Corporation, Class A.............. 8,189 21,172 Travelers Property Casualty Corporation, Class B.............. 299 -------- 29,949 -------- INTEGRATED OIL -- 7.5% 129,338 ChevronTexaco Corporation..................................... 8,362 642,577 Exxon Mobil Corporation....................................... 22,458 309,971 Occidental Petroleum Corporation.............................. 9,287 -------- 40,107 -------- INVESTMENT SERVICES -- 3.8% 77,100 Goldman Sachs Group, Inc. .................................... 5,249 1,425 Lehman Brothers Holdings Inc. ................................ 82 223,743 Merrill Lynch & Company, Inc. ................................ 7,921 180,264 Morgan Stanley................................................ 6,913 -------- 20,165 -------- LODGING AND RECREATION -- 2.3% 293,549 Carnival Corporation(a)....................................... 7,077 230,600 Starwood Hotels& Resorts Worldwide, Inc. ..................... 5,486 -------- 12,563 -------- MEDICAL DEVICES AND SUPPLIES -- 1.1% 156,000 Abbott Laboratories........................................... 5,867 -------- METALS AND MINING -- 0.9% 154,400 Phelps Dodge Corporation!!.................................... 5,015 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.8% 303,000 Nokia Corporation, ADR(a)..................................... 4,245 --------
SEE NOTES TO FINANCIAL STATEMENTS. 106 NATIONS FUNDS Nations Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- OIL REFINING AND MARKETING -- 1.9% 192,294 ConocoPhillips................................................ $ 10,307 -------- OILFIELD SERVICES -- 3.5% 409,300 ENSCO International Inc. ..................................... 10,441 204,019 Nabors Industries, Ltd.!!..................................... 8,134 -------- 18,575 -------- PAPER AND FOREST PRODUCTS -- 3.5% 283,720 Bowater Inc. ................................................. 10,540 246,973 International Paper Company................................... 8,348 -------- 18,888 -------- PHARMACEUTICALS -- 1.2% 148,100 Pharmacia Corporation......................................... 6,413 -------- RAILROADS, TRUCKING AND SHIPPING -- 2.7% 252,005 CSX Corporation............................................... 7,187 136,651 Union Pacific Corporation..................................... 7,516 -------- 14,703 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 3.3% 177,300 Boston Properties, Inc. ...................................... 6,720 314,795 Equity Office Properties Trust................................ 8,011 107,900 ProLogis Trust................................................ 2,732 -------- 17,463 -------- RESTAURANTS -- 0.9% 324,139 McDonald's Corporation........................................ 4,687 -------- SEMICONDUCTORS -- 3.1% 415,200 Agilent Technologies, Inc.!!.................................. 5,460 169,000 KLA-Tencor Corporation!!(a)................................... 6,074 433,668 Teradyne, Inc.!!(a)........................................... 5,048 -------- 16,582 -------- SOFTWARE -- 1.2% 256,375 Cadence Design Systems, Inc.!!................................ 2,564 239,300 PeopleSoft, Inc.!!............................................ 3,661 -------- 6,225 -------- SPECIALTY STORES -- 1.2% 499,800 Limited Brands................................................ 6,432 -------- STEEL -- 0.5% 77,100 Nucor Corporation............................................. 2,943 -------- TELECOMMUNICATIONS SERVICES -- 4.1% 340,900 BellSouth Corporation......................................... 7,387 230,769 SBC Communications Inc. ...................................... 4,629 289,098 Verizon Communications Inc. .................................. 10,220 -------- 22,236 --------
VALUE SHARES (000) - -------------------------------------------------------------------------------------- TOBACCO -- 1.6% 280,448 Altria Group, Inc. ........................................... $ 8,402 -------- TOTAL COMMON STOCKS (Cost $567,212)............................................. 512,961 -------- SHARES (000) - --------- INVESTMENT COMPANIES -- 8.6% 121 iShares Russell 1000 Value Index(a)........................... 5,264 40,972 Nations Cash Reserves, Capital Class Shares#.................. 40,972 -------- TOTAL INVESTMENT COMPANIES (Cost $46,225).............................................. 46,236 -------- TOTAL INVESTMENTS (Cost $613,437*).................................. 104.1% 559,197 -------- OTHER ASSETS AND LIABILITIES (NET)................................. (4.1)% Receivable for investment securities sold..................... $ 2,258 Receivable for Fund shares sold............................... 1,630 Dividends receivable.......................................... 1,211 Collateral on securities loaned............................... (25,769) Payable for Fund shares redeemed.............................. (500) Investment advisory fee payable............................... (290) Administration fee payable.................................... (103) Shareholder servicing and distribution fees payable........... (45) Due to custodian.............................................. (2) Accrued Trustees' fees and expenses........................... (109) Accrued expenses and other liabilities........................ (206) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................................... (21,925) -------- NET ASSETS.......................................... 100.0% $537,272 ======== NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 643 Accumulated net realized loss on investments sold............. (54,747) Net unrealized depreciation of investments.................... (54,240) Paid-in capital............................................... 645,616 -------- NET ASSETS.................................................... $537,272 ========
SEE NOTES TO FINANCIAL STATEMENTS. 107 NATIONS FUNDS Nations Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE - -------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($451,815,165 / 53,293,111 shares outstanding).............. $8.48 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($43,363,766 / 5,123,348 shares outstanding)................ $8.46 ======== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $8.98 INVESTOR B SHARES: Net asset value and offering price per share& ($37,399,385 / 4,533,089 shares outstanding)................ $8.25 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($4,693,468 / 569,438 shares outstanding)................... $8.24 ========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $25,769. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $25,661 and $24,272, respectively. (e) Fair valued security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 108 NATIONS FUNDS Nations MidCap Value Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - --------------------------------------------------------------------------------------- COMMON STOCKS -- 94.7% AEROSPACE AND DEFENSE -- 2.7% 36,100 Northrop Grumman Corporation.................................. $ 3,097 107,000 Raytheon Company.............................................. 3,036 102,700 Rockwell Collins, Inc. ....................................... 1,887 -------- 8,020 -------- CHEMICALS -- BASIC -- 2.8% 64,000 PPG Industries, Inc. ......................................... 2,885 60,500 Praxair, Inc. ................................................ 3,410 71,100 Rohm & Haas Company........................................... 2,117 -------- 8,412 -------- CHEMICALS -- SPECIALTY -- 1.1% 161,025 Pall Corporation.............................................. 3,221 -------- COMMERCIAL BANKING -- 12.2% 241,210 Charter One Financial, Inc. .................................. 6,671 164,200 Comerica Inc. ................................................ 6,219 188,800 Compass Bancshares, Inc. ..................................... 5,904 264,900 Hibernia Corporation, Class A................................. 4,493 75,900 Mercantile Bankshares Corporation............................. 2,576 386,700 Sovereign Bancorp, Inc. ...................................... 5,356 115,350 Zions Bancorporation.......................................... 4,935 -------- 36,154 -------- COMMERCIAL SERVICES -- 1.2% 176,100 Waste Management, Inc. ....................................... 3,730 -------- COMPUTERS AND OFFICE EQUIPMENT -- 1.9% 182,700 Pitney Bowes Inc. ............................................ 5,832 -------- DIVERSIFIED ELECTRONICS -- 3.6% 103,500 Cooper Industries, Ltd. ...................................... 3,696 47,200 Eastman Kodak Company......................................... 1,397 149,325 Harris Corporation............................................ 4,147 170,500 Symbol Technologies, Inc. .................................... 1,468 -------- 10,708 -------- DIVERSIFIED MANUFACTURING -- 2.2% 72,700 Harsco Corporation............................................ 2,217 63,500 Kennametal Inc. .............................................. 1,786 104,150 Mueller Industries, Inc.!!.................................... 2,601 -------- 6,604 -------- ELECTRIC POWER -- NON NUCLEAR -- 4.3% 87,500 Consolidated Edison, Inc. .................................... 3,366 111,900 Entergy Corporation........................................... 5,388 115,700 PPL Corporation............................................... 4,120 -------- 12,874 -------- ELECTRIC POWER -- NUCLEAR -- 4.6% 171,600 American Electric Power Company, Inc. ........................ 3,921 64,525 Dominion Resources, Inc. ..................................... 3,573 78,500 Energy East Corporation....................................... 1,397 72,100 FirstEnergy Corporation....................................... 2,271 69,000 NSTAR......................................................... 2,761 -------- 13,923 --------
VALUE SHARES (000) - --------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.6% 1,167,493 Agere Systems Inc., Class A!!................................. $ 1,868 -------- EXPLORATION AND PRODUCTION -- 0.7% 49,950 EOG Resources, Inc. .......................................... 1,976 -------- FOOD PRODUCTS -- 2.4% 110,100 Kellogg Company............................................... 3,375 132,500 McCormick and Company, Inc. .................................. 3,199 28,974 Smithfield Foods, Inc.!!...................................... 513 -------- 7,087 -------- HEALTH SERVICES -- 4.0% 116,700 First Health Group Corporation!!.............................. 2,969 153,900 Health Net Inc.!!............................................. 4,120 181,900 Triad Hospitals, Inc.!!....................................... 4,893 -------- 11,982 -------- HEAVY MACHINERY -- 0.6% 49,300 Parker-Hannifin Corporation................................... 1,910 -------- HOUSEHOLD PRODUCTS -- 1.3% 124,875 The Estee Lauder Companies Inc., Class A...................... 3,791 -------- INSURANCE -- 4.9% 192,700 ACE Ltd. ..................................................... 5,578 76,800 Ambac Financial Group, Inc. .................................. 3,879 112,700 Lincoln National Corporation.................................. 3,156 49,800 W.R. Berkley Corporation...................................... 2,134 -------- 14,747 -------- INTEGRATED OIL -- 5.2% 89,200 Kerr-McGee Corporation........................................ 3,622 123,450 Marathon Oil Corporation...................................... 2,959 131,200 Occidental Petroleum Corporation.............................. 3,930 87,900 Sunoco, Inc. ................................................. 3,215 43,600 Valero Energy Corporation..................................... 1,804 -------- 15,530 -------- INVESTMENT SERVICES -- 2.6% 134,875 A.G. Edwards, Inc. ........................................... 3,494 60,100 Legg Mason, Inc. ............................................. 2,929 26,100 Lehman Brothers Holdings Inc. ................................ 1,507 -------- 7,930 -------- LODGING AND RECREATION -- 4.5% 175,150 Brunswick Corporation......................................... 3,328 147,325 Carnival Corporation.......................................... 3,552 141,100 Mandalay Resort Group!!....................................... 3,889 110,100 Starwood Hotels & Resorts Worldwide, Inc. .................... 2,619 -------- 13,388 -------- METALS AND MINING -- 3.4% 153,325 Arch Coal, Inc. .............................................. 2,915 149,675 Newmont Mining Corporation.................................... 3,914 101,400 Phelps Dodge Corporation!!.................................... 3,293 -------- 10,122 --------
SEE NOTES TO FINANCIAL STATEMENTS. 109 NATIONS FUNDS Nations MidCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - --------------------------------------------------------------------------------------- OILFIELD SERVICES -- 3.2% 171,700 ENSCO International Inc. ..................................... $ 4,380 176,700 GlobalSantaFe Corporation..................................... 3,649 45,900 Precision Drilling Corporation!!.............................. 1,532 -------- 9,561 -------- PACKAGING AND CONTAINERS -- 0.8% 444,900 Crown Holdings, Inc.!!........................................ 2,500 -------- PAPER AND FOREST PRODUCTS -- 2.9% 86,500 Bowater Inc. ................................................. 3,214 185,500 Georgia-Pacific Corporation................................... 2,578 75,875 Temple-Inland Inc. ........................................... 2,838 -------- 8,630 -------- PHARMACEUTICALS -- 1.1% 173,100 Shire Pharmaceuticals Group plc, ADR!!........................ 3,208 -------- PUBLISHING AND ADVERTISING -- 1.2% 99,200 Dow Jones & Company, Inc. .................................... 3,516 -------- RAILROADS, TRUCKING AND SHIPPING -- 2.0% 208,450 CSX Corporation............................................... 5,945 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 6.0% 132,600 Arden Realty, Inc. ........................................... 3,007 119,975 Avalonbay Communities, Inc. .................................. 4,427 122,700 Boston Properties, Inc. ...................................... 4,651 120,000 Equity Residential Properties Trust........................... 2,888 120,200 ProLogis Trust................................................ 3,043 -------- 18,016 -------- SEMICONDUCTORS -- 4.9% 122,900 Agilent Technologies, Inc.!!.................................. 1,616 41,700 KLA-Tencor Corporation!!...................................... 1,499 145,600 Lam Research Corporation!!.................................... 1,658 126,475 National Semiconductor Corporation!!.......................... 2,155 293,050 Tektronix, Inc.!!............................................. 5,025 239,850 Teradyne, Inc.!!.............................................. 2,792 -------- 14,745 -------- SOFTWARE -- 2.0% 124,337 Cadence Design Systems, Inc.!!................................ 1,243 230,400 Network Associates, Inc.!!.................................... 3,183 101,200 PeopleSoft, Inc.!!............................................ 1,548 -------- 5,974 -------- SPECIALTY STORES -- 3.2% 238,900 American Eagle Outfitters, Inc.!!............................. 3,469 125,200 Barnes & Noble, Inc.!!........................................ 2,378 299,500 Limited Brands................................................ 3,854 -------- 9,701 --------
VALUE SHARES (000) - --------------------------------------------------------------------------------------- STEEL -- 0.6% 47,200 Nucor Corporation............................................. 1,802 -------- TOTAL COMMON STOCKS (Cost $302,143)............................................. 283,407 -------- PRINCIPAL AMOUNT (000) - ---------- CONVERTIBLE BONDS AND NOTES -- 0.6% SEMICONDUCTORS -- 0.6% (Cost $1,552) $ 2,000 Agere Systems Inc. 6.500% 12/15/09............................................. $ 1,911 -------- SHARES - ---------- CONVERTIBLE PREFERRED STOCKS -- 0.8% PAPER AND FOREST PRODUCTS -- 0.4% 34,310 Temple-Inland Inc. ........................................... 1,370 -------- STEEL -- 0.4% 27,100 U.S. Steel Corporation........................................ 1,130 -------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $3,157)............................................... 2,500 -------- SHARES (000) - ---------- INVESTMENT COMPANIES -- 3.5% (Cost $10,627) 10,627 Nations Cash Reserves, Capital Class Shares#.................. 10,627 -------- TOTAL INVESTMENTS (Cost $317,479*).................................. 99.6% 298,445 -------- OTHER ASSETS AND LIABILITIES (NET).................. 0.4% Receivable for Fund shares sold............................... $ 1,209 Dividends receivable.......................................... 661 Interest receivable........................................... 38 Payable for Fund shares redeemed.............................. (285) Investment advisory fee payable............................... (187) Administration fee payable.................................... (57) Shareholder servicing and distribution fees payable........... (3) Accrued Trustees' fees and expenses........................... (7) Accrued expenses and other liabilities........................ (134) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... 1,235 -------- NET ASSETS.......................................... 100.0% $299,680 ======== NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 290 Accumulated net realized loss on investments.................. (20,889) Net unrealized depreciation of investments.................... (19,034) Paid-in capital............................................... 339,313 -------- NET ASSETS.................................................... $299,680 ========
SEE NOTES TO FINANCIAL STATEMENTS. 110 NATIONS FUNDS Nations MidCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE - --------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($294,086,593 / 33,720,693 shares outstanding).............. $8.72 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($3,270,496 / 375,336 shares outstanding)................... $8.71 ======== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $9.24 INVESTOR B SHARES: Net asset value and offering price per share& ($1,960,603 / 226,226 shares outstanding)................... $8.67 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($362,516 / 41,724 shares outstanding)...................... $8.69 ========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 111 NATIONS FUNDS Nations SmallCap Value Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- COMMON STOCKS -- 94.3% AEROSPACE AND DEFENSE -- 2.7% 22,000 B.F. Goodrich Company......................................... $ 309 26,200 MTC Technologies, Inc.!!...................................... 506 32,500 United Defense Industries, Inc.!!............................. 703 21,800 Veridian Corporation!!........................................ 434 -------- 1,952 -------- APPAREL AND TEXTILES -- 1.4% 13,400 Brown Shoe Company, Inc. ..................................... 363 52,400 Phillips-Van Heusen Corporation............................... 647 -------- 1,010 -------- AUTOMOTIVE -- 0.8% 12,100 Borg Warner Inc. ............................................. 579 -------- BANK HOLDING COMPANIES -- 0.9% 54,736 First Niagara Financial Group, Inc. .......................... 643 -------- BROADCASTING AND CABLE -- 0.7% 31,700 Emmis Communications Corporation!! ........................... 535 -------- CHEMICALS -- SPECIALTY -- 4.4% 39,300 Airgas, Inc.!!................................................ 727 22,650 Cambrex Corporation........................................... 544 54,200 Millennium Chemicals Inc. .................................... 633 34,300 NL Industries, Inc. .......................................... 552 35,500 Spartech Corporation.......................................... 687 -------- 3,143 -------- COMMERCIAL BANKING -- 7.7% 49,900 Colonial BancGroup, Inc. ..................................... 561 13,600 Community Bank Systems, Inc. ................................. 427 34,300 First Republic Bank!!......................................... 742 31,800 First State Bancorporation.................................... 680 32,275 Fulton Financial Corporation.................................. 607 35,900 Independent Bank Corporation.................................. 719 31,400 Prosperity Bancshares, Inc. .................................. 521 15,300 Silicon Valley Bancshares!!................................... 278 24,800 Summit Bancshares, Inc. ...................................... 474 26,600 Superior Financial Corporation................................ 492 -------- 5,501 -------- COMMERCIAL SERVICES -- 3.2% 20,800 ABM Industries Inc. .......................................... 273 15,300 Emcor Group Inc.!!............................................ 739 41,700 Tetra Tech, Inc.!!............................................ 590 33,300 Watson Wyatt & Company Holdings!!............................. 669 -------- 2,271 -------- COMPUTER SERVICES -- 1.4% 54,300 ActivCard Corporation!!....................................... 535 148,000 Digitas Inc.!!................................................ 478 -------- 1,013 -------- COMPUTERS AND OFFICE EQUIPMENT -- 2.0% 53,000 Iomega Corporation!!.......................................... 588 91,700 Western Digital Corporation!!................................. 831 -------- 1,419 --------
VALUE SHARES (000) - ----------------------------------------------------------------------------------- CONGLOMERATES -- 0.9% 59,500 Dycom Industries, Inc.!!...................................... $ 615 -------- CONSUMER SERVICES -- 1.0% 22,300 Russ Berrie & Company Inc. ................................... 714 -------- DIVERSIFIED ELECTRONICS -- 2.5% 78,900 Aeroflex, Inc.!!.............................................. 447 40,800 EMS Technologies, Inc.!!...................................... 570 33,200 II-VI Inc.!!.................................................. 551 53,600 Merix Corporation!!........................................... 214 -------- 1,782 -------- DIVERSIFIED MANUFACTURING -- 3.0% 9,800 CLARCOR Inc. ................................................. 355 40,100 Federal Signal Corporation.................................... 569 21,000 Kennametal Inc. .............................................. 591 30,400 Sensient Technologies Corporation............................. 609 -------- 2,124 -------- ELECTRIC POWER -- NON NUCLEAR -- 1.0% 18,800 WPS Resources Corporation(a).................................. 752 -------- ELECTRICAL EQUIPMENT -- 1.4% 14,500 Imation Corporation!!......................................... 540 36,600 Planar Systems Inc.!!......................................... 430 -------- 970 -------- ENERGY -- MISCELLANEOUS -- 0.5% 37,000 Avista Corporation............................................ 392 -------- FINANCE -- MISCELLANEOUS -- 1.7% 47,900 Brookline Bancorp, Inc. ...................................... 600 30,600 IndyMac Bancorp, Inc. ........................................ 595 -------- 1,195 -------- FOOD AND DRUG STORES -- 0.9% 48,100 Duane Reade Inc.!!............................................ 610 -------- FOOD PRODUCTS -- 1.1% 76,700 Del Monte Foods Company!!..................................... 572 10,100 International Multifoods Corporation!!........................ 195 -------- 767 -------- HEALTH SERVICES -- 1.8% 23,200 Coventry Health Care, Inc.!!.................................. 763 34,900 VCA Antech, Inc.!!............................................ 540 -------- 1,303 -------- HEAVY MACHINERY -- 2.5% 31,300 Agco Corporation!!............................................ 504 22,400 Cummins, Inc.(a).............................................. 551 57,000 Terex Corporation!!........................................... 704 -------- 1,759 -------- HOUSEHOLD PRODUCTS -- 0.7% 62,300 Playtex Products, Inc.!!...................................... 502 --------
SEE NOTES TO FINANCIAL STATEMENTS. 112 NATIONS FUNDS Nations SmallCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- HOUSING AND FURNISHING -- 0.9% 25,600 Standard Pacific Corporation.................................. $ 653 -------- INSURANCE -- 7.7% 14,000 Delphi Financial Group, Inc., Class A......................... 549 27,600 First American Financial Corporation.......................... 673 20,500 IPC Holdings, Ltd. ........................................... 617 32,560 Platinum Underwriters Holdings, Ltd. ......................... 826 17,200 RLI Corporation............................................... 462 11,200 Stancorp Financial Group Inc. ................................ 577 18,400 Triad Guaranty Inc.!!......................................... 632 13,250 W.R. Berkley Corporation...................................... 568 32,000 Zenith National Insurance(a).................................. 687 -------- 5,591 -------- INTEGRATED OIL -- 1.0% 29,800 Tom Brown, Inc.!!............................................. 721 -------- INVESTMENT SERVICES -- 0.6% 20,400 American Capital Strategies, Ltd.(a).......................... 457 -------- LODGING AND RECREATION -- 1.7% 21,000 JAKKS Pacific, Inc.!!......................................... 218 44,300 Marcus Corporation............................................ 602 71,500 Six Flags, Inc.!!............................................. 400 -------- 1,220 -------- MEDICAL DEVICES AND SUPPLIES -- 5.1% 18,500 Bio-Rad Laboratories, Inc.!!.................................. 661 31,900 Coherent, Inc.!!.............................................. 598 25,300 Cooper Companies, Inc. ....................................... 757 23,300 Fisher Scientific International Inc.!!........................ 651 14,000 Mine Safety Appliances Company................................ 498 75,100 PSS World Medical, Inc.!!..................................... 490 -------- 3,655 -------- METALS AND MINING -- 1.8% 36,900 Arch Coal, Inc. .............................................. 702 54,400 Joy Global Inc.!!............................................. 589 -------- 1,291 -------- NATURAL GAS DISTRIBUTION -- 1.8% 32,700 Atmos Energy Corporation...................................... 695 18,600 New Jersey Resources Corporation.............................. 607 -------- 1,302 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.4% 122,800 3Com Corporation!!............................................ 605 13,600 Black Box Corporation......................................... 403 -------- 1,008 -------- OILFIELD SERVICES -- 1.4% 108,700 Grey Wolf, Inc.!!............................................. 428 48,700 Oil States International, Inc.!!.............................. 585 -------- 1,013 -------- PACKAGING AND CONTAINERS -- 1.9% 56,000 Constar International Inc.!!.................................. 355 78,300 Crown Holdings, Inc.!!........................................ 440 31,300 Packaging Corporation of America!!............................ 564 -------- 1,359 --------
VALUE SHARES (000) - ----------------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.9% 63,400 P.H. Glatfelter Company....................................... $ 676 -------- PHARMACEUTICALS -- 1.1% 23,000 ESCO Technologies Inc.!!...................................... 754 -------- RAILROADS, TRUCKING AND SHIPPING -- 2.7% 58,700 Aftermarket Technology Corporation!!.......................... 663 46,500 Pacer International, Inc.!!................................... 583 28,700 Yellow Corporation!!.......................................... 692 -------- 1,938 -------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 6.5% 30,700 Brandywine Realty Trust....................................... 675 12,300 Essex Property Trust, Inc. ................................... 643 20,600 Healthcare Realty Trust, Inc. ................................ 503 27,600 Prentiss Properties Trust..................................... 748 20,300 PS Business Parks, Inc. ...................................... 604 26,300 SL Green Realty Corporation................................... 805 22,200 Tanger Factory Outlet Centers, Inc. .......................... 685 -------- 4,663 -------- RESTAURANTS -- 2.0% 35,100 O'Charley's Inc.!!............................................ 673 37,200 Ruby Tuesday, Inc. ........................................... 759 -------- 1,432 -------- SEMICONDUCTORS -- 2.9% 17,600 Actel Corporation!!........................................... 300 50,300 Avnet, Inc.!!................................................. 528 45,500 Lam Research Corporation!!.................................... 518 58,000 Pixelworks, Inc.!!(a)......................................... 319 67,000 Skyworks Solutions, Inc.!!(a)................................. 417 -------- 2,082 -------- SOFTWARE -- 1.7% 112,600 Novell, Inc.!!................................................ 242 98,500 S1 Corporation!!.............................................. 505 112,000 TIBCO Software Inc.!!......................................... 470 -------- 1,217 -------- SPECIALTY STORES -- 5.3% 49,700 American Eagle Outfitters, Inc.!!............................. 722 28,600 AnnTaylor Stores Corporation!!................................ 587 52,900 Foot Locker, Inc. ............................................ 566 48,000 Kirkland's, Inc.!!............................................ 600 29,400 Regis Corporation............................................. 732 31,900 School Specialty, Inc.!!...................................... 567 -------- 3,774 -------- STEEL -- 0.7% 53,100 United States Steel Corporation............................... 522 --------
SEE NOTES TO FINANCIAL STATEMENTS. 113 NATIONS FUNDS Nations SmallCap Value Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- UTILITIES -- MISCELLANEOUS -- 1.0% 32,000 Philadelphia Suburban Corporation............................. $ 702 -------- TOTAL COMMON STOCKS (Cost $70,911).............................................. 67,581 -------- SHARES (000) - ------- INVESTMENT COMPANIES -- 11.8% 11 Biotech HOLDRs Trust(a)....................................... 988 7,492 Nations Cash Reserves, Capital Class Shares#.................. 7,492 -------- TOTAL INVESTMENT COMPANIES (Cost $8,397)............................................... 8,480 -------- TOTAL INVESTMENTS (Cost $79,308*)................................... 106.1% 76,061 -------- OTHER ASSETS AND LIABLITIES (NET).................................. (6.1)% Receivable for investment securities sold..................... $ 503 Receivable for Fund shares sold............................... 97 Dividends receivable.......................................... 88 Receivable from administrator................................. 10 Collateral on securities loaned............................... (3,241) Payable for Fund shares redeemed.............................. (28) Investment advisory fee payable............................... (52) Shareholder servicing and distribution fees payable........... (1) Payable for investment securities purchased................... (1,700) Accrued Trustees' fees and expenses........................... (9) Accrued expenses and other liabilities........................ (41) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... (4,374) -------- NET ASSETS.......................................... 100.0% $ 71,687 ======== NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 23 Accumulated net realized loss on investments.................. (5,870) Net unrealized depreciation of investments.................... (3,247) Paid-in capital............................................... 80,781 -------- NET ASSETS.................................................... $ 71,687 ========
VALUE - ----------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($70,167,780 / 9,079,362 shares outstanding)................ $7.73 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($1,122,302 / 145,532 shares outstanding)................... $7.71 ======== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $8.18 INVESTOR B SHARES: Net asset value and offering price per share& ($341,237 / 44,442 shares outstanding)...................... $7.68 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($55,707 / 7,259 shares outstanding)......................................... $7.67 ========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $3,241. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $3,117 and $3,071, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 114 NATIONS FUNDS Nations Marsico Growth Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE (000) - ------------------------------------------------------------------------------------ INVESTMENT COMPANIES -- 99.7% Investment in Nations Master Investment Trust, Marsico Growth Master Portfolio*........................................... $ 578,153 --------- TOTAL INVESTMENTS................................... 99.7% 578,153 --------- OTHER ASSETS AND LIABLITIES (NET).................................. 0.3% Receivable for Fund shares sold............................... $ 3,132 Payable for Fund shares redeemed.............................. (1,177) Administration fee payable.................................... (61) Shareholder servicing and distribution fees payable........... (218) Accrued Trustees' fees and expenses........................... (42) Accrued expenses and other liabilities........................ (166) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... 1,468 --------- NET ASSETS.......................................... 100.0% $ 579,621 ========= NET ASSETS CONSIST OF: Accumulated net realized loss on investments.................. $(188,846) Net unrealized appreciation of investments.................... 18,170 Paid-in capital............................................... 750,297 --------- NET ASSETS.................................................... $ 579,621 =========
VALUE - ------------------------------------------------------------------------------------ PRIMARY A SHARES: Net asset value, offering and redemption price per share ($106,436,226 / 8,907,990 shares outstanding)............... $11.95 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($279,840,120 / 23,595,558 shares outstanding).............. $11.86 ========= Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $12.58 INVESTOR B SHARES: Net asset value and offering price per share& ($137,431,463 / 12,022,912 shares outstanding).............. $11.43 ========= INVESTOR C SHARES: Net asset value and offering price per share& ($55,912,804 / 4,885,627 shares outstanding)................ $11.44 =========
- --------------- * The financial statements of the Marsico Growth Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the Marsico Growth 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. 115 NATIONS FUNDS Nations Strategic Growth Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE (000) - ------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 101.5% Investment in Nations Master Investment Trust, Strategic Growth Master Portfolio*.................................... $1,683,408 ---------- TOTAL INVESTMENTS................................... 101.5% 1,683,408 ---------- OTHER ASSETS AND LIABLITIES (NET)................... (1.5)% Receivable for Fund shares sold............................... $ 4,972 Payable for Fund shares redeemed.............................. (28,805) Administration fee payable.................................... (262) Shareholder servicing and distribution fees payable........... (112) Accrued Trustees' fees and expenses........................... (72) Accrued expenses and other liabilities........................ (349) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... (24,628) ---------- NET ASSETS.......................................... 100.0% $1,658,780 ========== NET ASSETS CONSIST OF: Undistributed net investment income........................... $ 3,349 Accumulated net realized loss on investments.................. (600,029) Net unrealized depreciation of investments.................... (243,267) Paid-in capital............................................... 2,498,727 ---------- NET ASSETS.................................................... $1,658,780 ==========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($1,393,259,754 / 158,712,469 shares outstanding)........... $8.78 ========== INVESTOR A SHARES: Net asset value and redemption price per share ($213,690,768 / 24,406,302 shares outstanding).............. $8.76 ========== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $9.29 INVESTOR B SHARES: Net asset value and offering price per share& ($38,972,484 / 4,566,151 shares outstanding)................ $8.54 ========== INVESTOR C SHARES: Net asset value and offering price per share& ($12,856,891 / 1,505,464 shares outstanding)................ $8.54 ==========
- --------------- * The financial statements of the Strategic Growth Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the Strategic Growth 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. 116 NATIONS FUNDS Nations Capital Growth Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------- COMMON STOCKS -- 96.1% AEROSPACE AND DEFENSE -- 0.7% 24,697 United Technologies Corporation............................... $ 1,427 --------- BEVERAGES -- 4.5% 23,514 Anheuser-Busch Companies, Inc. ............................... 1,096 116,170 Coca-Cola Company............................................. 4,702 89,893 PepsiCo, Inc. ................................................ 3,596 --------- 9,394 --------- BROADCASTING AND CABLE -- 4.6% 100,150 AOL Time Warner Inc.!!........................................ 1,088 54,258 Clear Channel Communications, Inc.!!.......................... 1,840 127,050 Cox Communications, Inc., Class A!!(a)........................ 3,952 78,028 Viacom Inc., Class B!!........................................ 2,850 --------- 9,730 --------- COMMERCIAL BANKING -- 3.3% 139,450 Citigroup Inc. ............................................... 4,805 19,750 Fifth Third Bancorp........................................... 990 25,150 Wells Fargo & Company......................................... 1,131 --------- 6,926 --------- COMPUTERS AND OFFICE EQUIPMENT -- 4.0% 139,600 Dell Computer Corporation!!................................... 3,813 44,400 International Business Machines Corporation................... 3,482 18,125 Lexmark International, Inc.!!................................. 1,213 --------- 8,508 --------- CONSUMER CREDIT AND MORTGAGES -- 3.0% 36,000 American Express Company...................................... 1,196 79,925 Fannie Mae.................................................... 5,223 --------- 6,419 --------- DEPARTMENT AND DISCOUNT STORES -- 6.5% 85,450 Kohl's Corporation!!.......................................... 4,835 46,175 Target Corporation............................................ 1,351 142,632 Wal-Mart Stores, Inc. ........................................ 7,421 --------- 13,607 --------- DIVERSIFIED MANUFACTURING -- 6.4% 13,675 3M Company.................................................... 1,778 461,000 General Electric Company...................................... 11,756 --------- 13,534 --------- FINANCE -- MISCELLANEOUS -- 1.6% 993 Berkshire Hathaway Inc., Class B!!............................ 2,122 10,837 SLM Corporation............................................... 1,202 --------- 3,324 --------- FOOD AND DRUG STORES -- 2.0% 145,475 Walgreen Company.............................................. 4,289 --------- HEALTH SERVICES -- 5.1% 75,200 HCA Inc. ..................................................... 3,110 35,300 Quest Diagnostics Inc.!!...................................... 2,107 60,075 UnitedHealth Group Inc. ...................................... 5,507 --------- 10,724 ---------
VALUE SHARES (000) - ------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 3.8% 61,900 Colgate-Palmolive Company..................................... $ 3,370 52,550 Procter & Gamble Company...................................... 4,679 --------- 8,049 --------- INSURANCE -- 3.0% 19,750 Ambac Financial Group, Inc. .................................. 998 44,325 American International Group, Inc. ........................... 2,192 44,800 XL Capital Ltd., Class A...................................... 3,171 --------- 6,361 --------- INTEGRATED OIL -- 1.8% 111,131 Exxon Mobil Corporation....................................... 3,884 --------- INVESTMENT SERVICES -- 1.2% 38,100 Goldman Sachs Group, Inc. .................................... 2,594 --------- LODGING AND RECREATION -- 1.0% 24,075 Harley-Davidson, Inc. ........................................ 956 46,500 Starwood Hotels & Resorts Worldwide, Inc. .................... 1,106 --------- 2,062 --------- MEDICAL DEVICES AND SUPPLIES -- 8.7% 84,625 Abbott Laboratories........................................... 3,183 23,825 Cardinal Health, Inc. ........................................ 1,357 149,597 Johnson & Johnson............................................. 8,657 62,151 Medtronic, Inc. .............................................. 2,804 50,125 St. Jude Medical, Inc.!!...................................... 2,444 --------- 18,445 --------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 4.1% 553,600 Cisco Systems, Inc.!!......................................... 7,186 40,000 QUALCOMM Inc. ................................................ 1,442 --------- 8,628 --------- PHARMACEUTICALS -- 14.1% 82,525 Amgen Inc.!!.................................................. $ 4,750 43,975 Eli Lilly and Company......................................... 2,513 56,325 Genentech, Inc.!!............................................. 1,972 62,850 Merck & Company, Inc. ........................................ 3,443 310,019 Pfizer Inc. .................................................. 9,661 62,769 Pharmacia Corporation......................................... 2,718 79,975 Teva Pharmaceutical Industries Ltd., ADR@..................... 3,331 33,725 Wyeth......................................................... 1,275 --------- 29,663 --------- RAILROADS, TRUCKING AND SHIPPING -- 1.8% 42,450 Union Pacific Corporation..................................... 2,334 25,325 United Parcel Service, Inc., Class B.......................... 1,444 --------- 3,778 --------- SEMICONDUCTORS -- 3.5% 370,907 Intel Corporation............................................. 6,039 85,917 Texas Instruments Inc. ....................................... 1,406 --------- 7,445 --------- SOFTWARE -- 7.5% 24,875 Affiliated Computer Services, Inc., Class A!!................. 1,101 41,400 Electronic Arts Inc.!!........................................ 2,428
SEE NOTES TO FINANCIAL STATEMENTS. 117 NATIONS FUNDS Nations Capital Growth Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------- SOFTWARE -- (CONTINUED) 377,287 Microsoft Corporation......................................... $ 9,135 204,375 Oracle Corporation!!.......................................... 2,217 55,325 PeopleSoft, Inc.!!............................................ 846 --------- 15,727 --------- SPECIALTY STORES -- 1.9% 88,825 Home Depot, Inc. ............................................. 2,163 43,425 Lowe's Companies, Inc. ....................................... 1,773 --------- 3,936 --------- TOBACCO -- 1.0% 72,138 Altria Group, Inc. ........................................... 2,161 --------- UNIT INVESTMENT TRUST -- 1.0% 24,250 Standard & Poor's Depositary Receipts(a)...................... 2,055 --------- TOTAL COMMON STOCKS (Cost $184,760)............................................. 202,670 --------- SHARES (000) - ------- INVESTMENT COMPANIES -- 5.8% 60 iShares Russell 1000 Growth(a)................................ 2,151 10,018 Nations Cash Reserves, Capital Class Shares#.................. 10,018 --------- TOTAL INVESTMENT COMPANIES (Cost $12,267).............................................. 12,169 --------- TOTAL INVESTMENTS (Cost $197,027*).................................. 101.9% 214,839 --------- OTHER ASSETS AND LIABILITIES (NET).................. (1.9)% Cash.......................................................... $ 1 Receivable for Fund shares sold............................... 401 Dividends receivable.......................................... 265 Collateral on securities loaned............................... (3,729) Payable for Fund shares redeemed.............................. (475) Investment advisory fee payable............................... (116) Administration fee payable.................................... (41) Shareholder servicing and distribution fees payable........... (27) Accrued Trustees' fees and expenses........................... (119) Accrued expenses and other liabilities........................ (154) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... (3,994) --------- NET ASSETS.......................................... 100.0% $ 210,845 ========= NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold............. $ (99,739) Net unrealized appreciation of investments.................... 17,812 Paid-in capital............................................... 292,772 --------- NET ASSETS.................................................... $ 210,845 =========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($158,017,317 / 28,172,270 shares outstanding).............. $5.61 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($28,895,531 / 5,265,628 shares outstanding)................ $5.49 ========= Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $5.82 INVESTOR B SHARES: Net asset value and offering price per share& ($21,125,096 / 4,255,398 shares outstanding)................ $4.96 ========= INVESTOR C SHARES: Net asset value and offering price per share& ($2,806,561 / 559,361 shares outstanding)................... $5.02 =========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. @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 advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $3,729. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $3,627 and $3,539, respectively. ABBREVIATIONS: ADR -- American Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. 118 NATIONS FUNDS Nations Marsico Focused Equities Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE (000) - ------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 100.0% Investment in Nations Master Investment Trust, Marsico Focused Equities Master Portfolio*.................................. $1,559,122 ---------- TOTAL INVESTMENTS................................... 100.0% 1,559,122 ---------- OTHER ASSETS AND LIABLITIES (NET)................... 0.0%+ Receivable for investment securities sold..................... $ 4,555 Payable for Fund shares redeemed.............................. (2,451) Administration fee payable.................................... (169) Shareholder servicing and distribution fees payable........... (651) Accrued Trustees' fees and expenses........................... (44) Accrued expenses and other liabilities........................ (584) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... 656 ---------- NET ASSETS.......................................... 100.0% $1,559,778 ========== NET ASSETS CONSIST OF: Accumulated net realized loss on investments.................. $ (666,624) Net unrealized appreciation of investments.................... 49,133 Paid-in capital............................................... 2,177,269 ---------- NET ASSETS.................................................... $1,559,778 ==========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($384,705,890 / 30,035,971 shares outstanding).............. $12.81 ========== INVESTOR A SHARES: Net asset value and redemption price per share ($537,957,626 / 42,372,501 shares outstanding).............. $12.70 ========== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $13.47 INVESTOR B SHARES: Net asset value and offering price per share& ($462,082,129 / 37,716,601 shares outstanding).............. $12.25 ========== INVESTOR C SHARES: Net asset value and offering price per share& ($175,032,174 / 14,243,675 shares outstanding).............. $12.29 ==========
- --------------- * The financial statements of the Marsico Focused Equities Master Portfolio, including its portfolio of investments, are included elsewhere within this report and should be read in conjunction with the Marsico Focused Equities Fund's financial statements +Amount represents less than 0.1%. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 119 NATIONS FUNDS Nations MidCap Growth Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- COMMON STOCKS -- 93.2% AEROSPACE AND DEFENSE -- 0.5% 126,275 Rockwell Collins, Inc. ..................................... $ 2,320 --------- AUTOMOTIVE -- 1.3% 142,767 Carmax Inc.!!............................................... 2,080 100,025 Lear Corporation!!.......................................... 3,536 --------- 5,616 --------- BEVERAGES -- 0.9% 210,850 Pepsi Bottling Group, Inc. ................................. 3,781 --------- BROADCASTING AND CABLE -- 2.4% 83,375 Cox Radio, Inc.!!........................................... 1,723 436,067 Radio One, Inc., Class D!!.................................. 5,773 132,859 Univision Communications, Inc., Class A!!(a)................ 3,256 --------- 10,752 --------- BUILDING MATERIALS -- 1.1% 71,600 American Standard Companies Inc.!!.......................... 4,924 --------- CHEMICALS -- BASIC -- 2.5% 90,500 Air Products and Chemicals, Inc. ........................... 3,749 48,800 Avery Dennison Corporation.................................. 2,863 93,537 Ecolab, Inc. ............................................... 4,615 --------- 11,227 --------- COMMERCIAL BANKING -- 2.4% 212,205 Charter One Financial, Inc. ................................ 5,870 123,025 Commerce Bancorp, Inc. ..................................... 4,889 --------- 10,759 --------- COMMERCIAL SERVICES -- 0.9% 134,804 Manpower Inc. .............................................. 4,028 --------- COMPUTER SERVICES -- 2.4% 366,912 Convergys Corporation!!..................................... 4,843 453,094 CSG Systems International, Inc.!!........................... 3,928 172,575 Internet Security Systems, Inc.!!(a)........................ 1,714 --------- 10,485 --------- CONGLOMERATES -- 1.4% 170,566 Pentair, Inc. .............................................. 6,030 --------- CONSTRUCTION -- 1.6% 164,625 Jacobs Engineering Group Inc.!!............................. 6,916 --------- CONSUMER SERVICES -- 0.8% 94,175 Harrah's Entertainment, Inc.!!.............................. 3,362 --------- DEPARTMENT AND DISCOUNT STORES -- 0.8% 61,525 Kohl's Corporation!!........................................ 3,481 ---------
VALUE SHARES (000) - ----------------------------------------------------------------------------------- DIVERSIFIED ELECTRONICS -- 3.5% 164,081 Amphenol Corporation, Class A!!(a).......................... $ 6,686 107,619 Harris Corporation.......................................... 2,989 690,505 Symbol Technologies, Inc. .................................. 5,945 --------- 15,620 --------- DIVERSIFIED MANUFACTURING -- 1.2% 33,875 Danaher Corporation......................................... 2,228 117,775 Kennametal Inc. ............................................ 3,313 --------- 5,541 --------- EDUCATION -- 0.7% 61,050 Career Education Corporation!!.............................. 2,987 --------- ELECTRIC POWER -- NUCLEAR -- 0.3% 19,725 FPL Group, Inc. ............................................ 1,162 --------- ELECTRICAL EQUIPMENT -- 0.3% 101,625 Celestica Inc.!!............................................ 1,162 --------- EXPLORATION AND PRODUCTION -- 0.9% 101,479 EOG Resources, Inc. ........................................ 4,015 --------- FINANCE -- MISCELLANEOUS -- 1.8% 84,825 Affiliated Managers Group, Inc.!!........................... 3,526 104,550 H & R Block, Inc. .......................................... 4,463 --------- 7,989 --------- FOOD PRODUCTS -- 0.8% 151,050 McCormick and Company, Inc. ................................ 3,646 --------- HEALTH SERVICES -- 9.4% 208,750 Community Health Systems!!.................................. 4,277 118,257 Express Scripts, Inc.!!(a).................................. 6,585 214,400 First Health Group Corporation!!............................ 5,454 345,169 Health Management Associates, Inc., Class A................. 6,558 187,550 Health Net Inc.!!........................................... 5,021 164,975 Lincare Holdings Inc.!!(a).................................. 5,063 94,100 Quest Diagnostics Inc.!!.................................... 5,617 45,425 Wellpoint Health Networks Inc.!!............................ 3,486 --------- 42,061 --------- HOUSEHOLD PRODUCTS -- 0.6% 81,600 Church & Dwight Company, Inc. .............................. 2,477 --------- HOUSING AND FURNISHING -- 0.5% 49,200 Mohawk Industries Inc.!!.................................... 2,359 --------- INSURANCE -- 4.6% 142,425 ACE Ltd. ................................................... 4,123 180,050 Ambac Financial Group, Inc. ................................ 9,096 174,650 Arthur J. Gallagher & Company............................... 4,288 109,525 PMI Group, Inc. ............................................ 2,798 --------- 20,305 ---------
SEE NOTES TO FINANCIAL STATEMENTS. 120 NATIONS FUNDS Nations MidCap Growth Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------- INTEGRATED OIL -- 1.8% 91,796 Apache Corporation.......................................... $ 5,667 52,025 Murphy Oil Corporation...................................... 2,298 --------- 7,965 --------- INVESTMENT SERVICES -- 1.0% 93,641 Legg Mason, Inc.(a)......................................... 4,564 --------- LODGING AND RECREATION -- 2.5% 77,675 Harley-Davidson, Inc. ...................................... 3,084 473,835 Park Place Entertainment Corporation!!...................... 3,374 186,831 Starwood Hotels & Resorts Worldwide, Inc. .................. 4,445 --------- 10,903 --------- MEDICAL DEVICES AND SUPPLIES -- 3.0% 181,375 Biomet, Inc. ............................................... 5,560 116,875 DENTSPLY International Inc. ................................ 4,066 76,525 Zimmer Holdings, Inc.!!..................................... 3,721 --------- 13,347 --------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.1% 554,750 Tekelec!!................................................... 4,815 --------- OIL REFINING AND MARKETING -- 0.7% 100,800 Noble Corporation!!......................................... 3,167 --------- OILFIELD SERVICES -- 6.3% 118,675 BJ Services Company!!....................................... 4,081 162,617 ENSCO International Inc. ................................... 4,148 174,936 GlobalSantaFe Corporation................................... 3,612 185,825 Grant Prideco Inc.!!........................................ 2,241 100,471 Nabors Industries, Ltd.!!................................... 4,006 201,700 National-Oilwell, Inc.!!.................................... 4,516 164,142 Smith International, Inc.!!(a).............................. 5,784 --------- 28,388 --------- PHARMACEUTICALS -- 9.4% 59,450 Allergan, Inc. ............................................. 4,055 123,862 Barr Laboratories, Inc.!!................................... 7,061 92,924 Biovail Corporation!!....................................... 3,705 137,875 Gilead Sciences, Inc.!!..................................... 5,789 106,725 IDEC Pharmaceuticals Corporation!!(a)....................... 3,673 101,825 MedImmune, Inc.!!........................................... 3,343 477,286 Millennium Pharmaceuticals, Inc.!!.......................... 3,751 256,403 Shire Pharmaceuticals Group plc, ADR!!(a)................... 4,751 156,800 Taro Pharmaceutical Industries Ltd.!!....................... 6,003 --------- 42,131 --------- PUBLISHING AND ADVERTISING -- 1.5% 148,535 Lamar Advertising Company!!................................. 4,360 45,625 Scholastic Corporation!!(a)................................. 1,227 17,635 The McClatchy Company....................................... 945 --------- 6,532 ---------
VALUE SHARES (000) - ----------------------------------------------------------------------------------- RAILROADS, TRUCKING AND SHIPPING -- 1.0% 126,270 Expeditors International of Washington, Inc. ............... $ 4,539 --------- RESTAURANTS -- 1.0% 236,800 Darden Restaurants, Inc. ................................... 4,227 --------- SEMICONDUCTORS -- 5.5% 120,000 Analog Devices, Inc.!!...................................... 3,300 135,563 Linear Technology Corporation............................... 4,185 116,598 Maxim Integrated Products, Inc. ............................ 4,212 111,250 Microchip Technology Inc. .................................. 2,214 152,047 MKS Instruments Inc.!!(a)................................... 1,901 159,711 Novellus Systems, Inc.!!(a)................................. 4,354 195,575 Teradyne, Inc.!!............................................ 2,276 87,259 Xilinx, Inc.!!.............................................. 2,043 --------- 24,485 --------- SOFTWARE -- 7.6% 195,350 Affiliated Computer Services, Inc., Class A!!............... 8,645 212,442 BEA Systems, Inc.!!......................................... 2,165 391,946 Citrix Systems, Inc.!!...................................... 5,158 112,500 Electronic Arts Inc.!!...................................... 6,597 85,148 Intuit Inc.!!............................................... 3,168 155,775 Network Associates, Inc.!!.................................. 2,151 88,400 PeopleSoft, Inc.!!.......................................... 1,353 537,753 Quest Software, Inc.!!(a)................................... 4,840 --------- 34,077 --------- SPECIALTY STORES -- 6.1% 202,933 Bed Bath & Beyond Inc.!!.................................... 7,008 514,968 Circuit City Stores - Circuit City Group.................... 2,678 320,900 Limited Brands.............................................. 4,130 101,325 Ross Stores, Inc. .......................................... 3,663 219,075 Staples, Inc.!!............................................. 4,016 244,986 Tiffany & Company........................................... 6,125 --------- 27,620 --------- TELECOMMUNICATIONS SERVICES -- 0.6% 189,350 Nextel Communications, Inc., Class A!!...................... 2,535 --------- TOBACCO -- 0.5% 75,425 R.J. Reynolds Tobacco Holdings, Inc. ....................... 2,433 --------- TOTAL COMMON STOCKS (Cost $447,849)........................................... 414,733 ---------
SEE NOTES TO FINANCIAL STATEMENTS. 121 NATIONS FUNDS Nations MidCap Growth Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
SHARES VALUE (000) (000) - ----------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 12.2% 83 iShares Nasdaq Biotechnology Index(a)....................... $ 4,233 49,870 Nations Cash Reserves, Capital Class Shares#................ 49,870 --------- TOTAL INVESTMENT COMPANIES (Cost $54,064)............................................ 54,103 --------- TOTAL INVESTMENTS (Cost $501,913*)................................ 105.4% 468,836 --------- OTHER ASSETS AND LIABILITIES (NET)................ (5.4)% Cash........................................................ $ 1 Receivable for investment securities sold................... 2,444 Receivable for Fund shares sold............................. 411 Dividends receivable........................................ 243 Collateral on securities loaned............................. (23,653) Payable for Fund shares redeemed............................ (1,696) Investment advisory fee payable............................. (248) Administration fee payable.................................. (88) Shareholder servicing and distribution fees payable......... (24) Payable for investment securities purchased................. (1,183) Accrued Trustees' fees and expenses......................... (57) Accrued expenses and other liabilities...................... (180) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (24,030) --------- NET ASSETS........................................ 100.0% $ 444,806 ========= NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold........... $(232,276) Net unrealized depreciation of investments.................. (33,077) Paid-in capital............................................. 710,159 --------- NET ASSETS.................................................. $ 444,806 =========
VALUE - ----------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($402,987,500 / 46,547,242 shares outstanding)............ $8.66 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($18,119,872 / 2,175,841 shares outstanding).............. $8.33 ========= Maximum sales charge........................................ 5.75% Maximum offering price per share............................ $8.84 INVESTOR B SHARES: Net asset value and offering price per share& ($21,990,171 / 2,945,785 shares outstanding).............. $7.46 ========= INVESTOR C SHARES: Net asset value and offering price per share& ($1,708,909 / 227,577 shares outstanding)................. $7.51 =========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $23,653. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $27,871 and $22,446, respectively. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 122 NATIONS FUNDS Nations Marsico 21st Century Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------- COMMON STOCKS -- 98.1% AIRLINES -- 6.7% 47,004 JetBlue Airways Corporation!! (a)............................. $ 1,302 44,766 Ryanair Holdings plc, ADR!! (a)............................... 1,857 -------- 3,159 -------- AUTOMOTIVE -- 6.6% 10,758 AutoZone, Inc.!!.............................................. 739 85,926 Bayerische Motoren Werke (BMW) AG............................. 2,382 -------- 3,121 -------- BROADCASTING AND CABLE -- 6.5% 53,884 Clear Channel Communications, Inc.!!.......................... 1,828 34,194 Viacom Inc., Class B!!........................................ 1,249 -------- 3,077 -------- COMMERCIAL BANKING -- 3.5% 48,108 Citigroup Inc. ............................................... 1,657 -------- COMMERCIAL SERVICES -- 3.8% 12,800 eBay Inc.!!................................................... 1,092 25,240 Heineken Holding NV 'A'....................................... 716 -------- 1,808 -------- COMPUTER SERVICES -- 1.6% 14,644 Fair, Isaac and Company Inc. ................................. 744 -------- COMPUTERS AND OFFICE EQUIPMENT -- 4.5% 78,684 Dell Computer Corporation!!................................... 2,149 -------- CONSUMER CREDIT AND MORTGAGES -- 0.5% 3,314 Fannie Mae.................................................... 217 -------- FINANCE -- MISCELLANEOUS -- 7.8% 17,680 SLM Corporation............................................... 1,961 39,534 UCBH Holdings Inc. ........................................... 1,739 -------- 3,700 -------- HEALTH SERVICES -- 4.0% 20,592 UnitedHealth Group Inc. ...................................... 1,888 -------- INVESTMENT SERVICES -- 1.4% 18,862 Jefferies Group, Inc. ........................................ 678 -------- LODGING AND RECREATION -- 6.5% 30,165 Four Seasons Hotels Inc.(a)................................... 820 29,724 Harley-Davidson, Inc. ........................................ 1,180 70,546 Wynn Resorts, Ltd.!!.......................................... 1,089 -------- 3,089 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 4.2% 68,362 Cisco Systems, Inc.!!......................................... 887 30,870 QUALCOMM Inc. ................................................ 1,114 -------- 2,001 --------
VALUE SHARES (000) - ------------------------------------------------------------------------------------- PHARMACEUTICALS -- 8.5% 19,240 Amgen Inc.!!.................................................. $ 1,107 36,858 Genentech, Inc.!!............................................. 1,290 23,998 IDEC Pharmaceuticals Corporation!!(a)......................... 826 50,718 Inspire Pharmaceuticals Inc.!!................................ 795 -------- 4,018 -------- PUBLISHING AND ADVERTISING -- 4.3% 147,566 Marvel Enterprises, Inc.!!(a)................................. 2,039 -------- RAILROADS, TRUCKING AND SHIPPING -- 3.6% 31,028 FedEx Corporation............................................. 1,709 -------- RESTAURANTS -- 2.3% 42,032 Starbucks Corporation!!....................................... 1,083 -------- SOFTWARE -- 6.5% 35,952 Intuit Inc.!!................................................. 1,338 28,508 Mercury Interactive Corporation!!............................. 846 52,344 VERITAS Software Corporation!!................................ 920 -------- 3,104 -------- SPECIALTY STORES -- 5.2% 50,124 Gart Sports Company!!(a)...................................... 956 36,748 Lowe's Companies, Inc. ....................................... 1,500 -------- 2,456 -------- TELECOMMUNICATIONS SERVICES -- 10.1% 52,050 Amdocs Ltd.!!................................................. 691 76,409 Echostar Communications Corporation!!......................... 2,206 145,718 Nextel Communications, Inc., Class A!!........................ 1,951 -------- 4,848 -------- TOTAL COMMON STOCKS (Cost $44,547).............................................. 46,545 -------- PREFERRED STOCKS -- 0.9% (Cost $464) AUTOMOTIVE -- 0.9% 1,522 Porsche AG.................................................... 428 -------- PRINCIPAL AMOUNT (000) - --------- SHORT TERM INVESTMENTS -- 1.9% FEDERAL HOME LOAN BANK (FHLB) -- 1.9% (Cost $900) $ 900 1.140%*** 04/01/03............................................ 900 --------
SEE NOTES TO FINANCIAL STATEMENTS. 123 NATIONS FUNDS Nations Marsico 21st Century Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
SHARES VALUE (000) (000) - ------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 13.1% (Cost $6,226) 6,226 Nations Cash Reserves, Capital Class Shares#.................. $ 6,226 -------- TOTAL INVESTMENTS (Cost $52,137*)................................... 114.0% 54,099 -------- OTHER ASSETS AND LIABLITIES (NET).................................. (14.0)% Receivable for investment securities sold..................... $ 758 Receivable for Fund shares sold............................... 26 Dividends receivable.......................................... 5 Collateral on securities loaned............................... (6,131) Payable for Fund shares redeemed.............................. (25) Investment advisory fee payable............................... (30) Administration fee payable.................................... (9) Shareholder servicing and distribution fees payable........... (30) Due to custodian.............................................. (3) Payable for investment securities purchased................... (1,053) Accrued Trustees' fees and expenses........................... (25) Accrued expenses and other liabilities........................ (107) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................................... (6,624) -------- NET ASSETS.......................................... 100.0% $ 47,475 ======== NET ASSETS CONSIST OF: Accumulated net realized loss on investments.................. $(39,466) Net unrealized appreciation of investments.................... 1,962 Paid-in capital............................................... 84,979 -------- NET ASSETS.................................................... $ 47,475 ========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($3,542,593 / 567,794 shares outstanding)................... $6.24 ======== INVESTOR A SHARES: Net asset value and redemption price per share ($10,853,129 / 1,753,140 shares outstanding)................ $6.19 ======== Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $6.57 INVESTOR B SHARES: Net asset value and offering price per share& ($29,561,954 / 4,884,044 shares outstanding)................ $6.05 ======== INVESTOR C SHARES: Net asset value and offering price per share& ($3,517,479 / 581,215 shares outstanding)................... $6.05 ========
- --------------- *Federal income tax information (see Note 11). *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2003. !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $6,131. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $6,322 and $5,867, respectively. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 124 NATIONS FUNDS Nations Small Company Fund STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------- COMMON STOCKS -- 88.1% AEROSPACE AND DEFENSE -- 0.9% 215,793 Triumph Group, Inc.!!......................................... $ 4,845 --------- AIRLINES -- 0.8% 425,724 SkyWest, Inc. ................................................ 4,389 --------- APPAREL AND TEXTILES -- 1.0% 152,184 Columbia Sportswear Company!!................................. 5,657 --------- BEVERAGES -- 0.9% 232,115 Constellation Brands, Inc.!!(a)............................... 5,269 --------- BROADCASTING AND CABLE -- 1.3% 162,541 Entercom Communications Corporation!!......................... 7,137 --------- CHEMICALS -- BASIC -- 2.5% 569,766 Agrium Inc. .................................................. 6,125 342,868 Delta and Pine Land Company................................... 7,752 --------- 13,877 --------- COMMERCIAL BANKING -- 5.8% 362,684 City National Corporation..................................... 15,937 293,274 F.N.B. Corporation............................................ 8,399 329,117 National Commerce Financial Corporation....................... 7,800 --------- 32,136 --------- COMMERCIAL SERVICES -- 1.7% 172,110 Iron Mountain Inc.!!(a)....................................... 6,583 341,487 Trammell Crow Company!!....................................... 2,718 --------- 9,301 --------- COMPUTER SERVICES -- 2.3% 316,300 Pegasus Solutions Inc.!!...................................... 3,543 104,862 Syntel, Inc.!!................................................ 2,010 422,651 Tier Technologies, Inc., Class B!!............................ 4,277 441,429 Virage Logic Corporation!!.................................... 2,759 --------- 12,589 --------- COMPUTERS AND OFFICE EQUIPMENT -- 1.6% 269,361 Avocent Corporation!!......................................... 6,287 298,082 Plexus Corporation!!.......................................... 2,727 --------- 9,014 --------- CONSUMER SERVICES -- 1.6% 105,028 Rent-A-Center, Inc.!!......................................... 5,746 309,000 ValueVision Media, Inc., Class A!!............................ 3,112 --------- 8,858 --------- DIVERSIFIED ELECTRONICS -- 3.5% 822,682 Aeroflex, Inc.!!.............................................. 4,656 506,713 Anaren Microwave, Inc.!!...................................... 4,383 210,785 Dionex Corporation!!.......................................... 6,962 435,478 Sypris Solutions, Inc. ....................................... 3,432 --------- 19,433 --------- DIVERSIFIED MANUFACTURING -- 1.4% 109,821 Actuant Corporation, Class A!!................................ 3,860 153,537 Mueller Industries, Inc.!!.................................... 3,834 --------- 7,694 ---------
VALUE SHARES (000) - ------------------------------------------------------------------------------------- EDUCATION -- 3.3% 241,056 Career Education Corporation!!................................ $ 11,793 158,890 Education Management Corporation!!............................ 6,319 --------- 18,112 --------- FINANCE -- MISCELLANEOUS -- 3.5% 272,991 Affiliated Managers Group, Inc.!!(a).......................... 11,348 369,138 Boston Private Financial Holdings, Inc. ...................... 5,522 168,707 Investment Technology Group, Inc.!!........................... 2,357 --------- 19,227 --------- FOOD PRODUCTS -- 0.9% 180,327 Corn Products International, Inc. ............................ 5,258 --------- HEALTH SERVICES -- 7.1% 131,603 Centene Corporation!!(a)...................................... 3,844 465,976 Orthodontic Centers of America, Inc.!!(a)..................... 2,428 602,838 Province Healthcare Company!!(a).............................. 5,335 140,075 Stericycle, Inc.!!............................................ 5,265 362,681 Triad Hospitals, Inc.!!....................................... 9,757 773,256 US Oncology, Inc.!!........................................... 5,490 472,728 VCA Antech, Inc.!!............................................ 7,313 20,817 WellChoice Inc.!!............................................. 439 --------- 39,871 --------- HOUSING AND FURNISHING -- 0.7% 141,306 Ethan Allen Interiors Inc. ................................... 4,159 --------- INSURANCE -- 3.7% 181,969 Delphi Financial Group, Inc., Class A......................... 7,130 150,566 Endurance Specialty Holdings Ltd.!!(a)........................ 3,642 130,848 IPC Holdings, Ltd. ........................................... 3,937 235,388 The Phoenix Companies, Inc.(a)................................ 1,704 118,565 Triad Guaranty Inc.!!......................................... 4,074 --------- 20,487 --------- INTEGRATED OIL -- 1.7% 240,095 AGL Resources Inc. ........................................... 5,673 219,365 Remington Oil & Gas Corporation!!............................. 3,736 --------- 9,409 --------- LODGING AND RECREATION -- 2.1% 576,687 Shuffle Master, Inc.!!........................................ 11,621 --------- MEDICAL DEVICES AND SUPPLIES -- 4.5% 431,153 Cooper Companies, Inc.(a)..................................... 12,891 224,645 Exact Sciences Corporation!!.................................. 2,316 115,516 Vital Signs Inc. ............................................. 3,067 391,475 Wright Medical Group, Inc.!!.................................. 6,859 --------- 25,133 --------- NATURAL GAS DISTRIBUTION -- 1.2% 199,435 Energen Corporation........................................... 6,394 --------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 2.4% 502,640 AudioCodes Ltd.!!(a).......................................... 1,327 995,881 C-COR.Net Corporation!!....................................... 3,286 950,000 Hypercom Corporation!!........................................ 3,563
SEE NOTES TO FINANCIAL STATEMENTS. 125 NATIONS FUNDS Nations Small Company Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ------------------------------------------------------------------------------------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- (CONTINUED) 493,156 REMEC, Inc.!!................................................. $ 2,367 180,810 Tollgrade Communications, Inc.!!.............................. 2,595 --------- 13,138 --------- OILFIELD SERVICES -- 5.9% 113,031 Atwood Oceanics, Inc.!!....................................... 2,853 370,325 Cal Dive International, Inc.!!................................ 6,670 152,590 Patterson-UTI Energy, Inc.!!.................................. 4,938 114,716 Precision Drilling Corporation!!.............................. 3,828 533,344 Pride International, Inc.!!................................... 7,195 394,250 Varco International, Inc.!!................................... 7,218 --------- 32,702 --------- PHARMACEUTICALS -- 7.1% 560,100 Allos Therapeutics Inc.!!(a).................................. 2,240 263,537 Alpharma Inc., Class A(a)..................................... 4,725 346,249 Array BioPharma Inc.!!........................................ 1,478 289,750 AtheroGenics, Inc.!!.......................................... 2,712 242,100 Axcan Pharma Inc.!!(a)........................................ 2,508 284,750 BioMarin Pharmaceutical Inc.!!................................ 3,232 286,190 Martek Biosciences Corporation!!.............................. 8,162 163,602 Medicis Pharmaceutical Corporation, Class A!!(a).............. 9,096 325,856 Shire Pharmaceuticals Group plc, ADR!!(a)..................... 6,038 --------- 40,191 --------- PUBLISHING AND ADVERTISING -- 0.5% 87,500 R.H. Donnelley Corporation!!.................................. 2,597 --------- RAILROADS, TRUCKING AND SHIPPING -- 2.0% 100,958 Heartland Express, Inc.!!..................................... 1,936 160,090 Knight Transportation, Inc.!!................................. 3,153 278,517 RailAmerica, Inc. ............................................ 1,699 328,690 RailAmerica, Inc.!!........................................... 2,005 81,861 UTI Worldwide, Inc. .......................................... 2,292 --------- 11,085 ---------
VALUE SHARES (000) - ------------------------------------------------------------------------------------- RESTAURANTS -- 3.3% 259,551 CEC Entertainment Inc.!!...................................... 7,062 229,417 Jack in the Box Inc.!!........................................ 4,155 252,660 RARE Hospitality International, Inc.!!........................ 7,034 --------- 18,251 --------- SEMICONDUCTORS -- 2.8% 164,360 Cymer, Inc.!!(a).............................................. $ 3,887 354,812 LTX Corporation!!............................................. 1,774 249,075 MKS Instruments Inc.!!........................................ 3,113 633,687 Oak Technology, Inc.!!........................................ 2,237 694,584 TriQuint Semiconductor, Inc.!!................................ 1,959 113,550 Varian Semiconductor Equipment Associates, Inc.!!............. 2,310 --------- 15,280 --------- SOFTWARE -- 4.0% 535,650 Borland Software Corporation!!................................ 4,928 169,291 EPIQ Systems, Inc.!!.......................................... 3,250 282,836 Hyperion Solutions Corporation!!.............................. 6,859 342,549 Lawson Software, Inc.!!....................................... 1,589 277,800 Manhattan Associates, Inc.!!(a)............................... 4,870 176,513 TTI Team Telecom International Ltd.!!(a)...................... 883 --------- 22,379 --------- SPECIALTY STORES -- 3.9% 256,475 American Eagle Outfitters, Inc.!!............................. 3,724 682,039 Cato Corporation.............................................. 12,986 285,213 Too Inc.!!.................................................... 4,737 --------- 21,447 --------- TELECOMMUNICATIONS SERVICES -- 2.2% 313,534 Commonwealth Telephone Enterprises, Inc.!!.................... 12,171 --------- TOTAL COMMON STOCKS (Cost $532,219)............................................. 489,111 --------- WARRANTS -- 0.0%+ (Cost $0) 25,000 Martek Biosciences Corporation(a)(e).......................... 196 ---------
SEE NOTES TO FINANCIAL STATEMENTS. 126 NATIONS FUNDS Nations Small Company Fund STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
SHARES VALUE (000) (000) - ------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 25.8% 29 iShares Russell 2000 Growth Index Fund(a)..................... $ 1,121 300 iShares Russell 2000 Index Fund(a)............................ 21,600 120,399 Nations Cash Reserves, Capital Class Shares#.................. 120,399 --------- TOTAL INVESTMENT COMPANIES (Cost $143,622)............................................. 143,120 --------- TOTAL INVESTMENTS (Cost $675,841*).................................. 113.9% 632,427 --------- OTHER ASSETS AND LIABILITIES (NET).................. (13.9)% Receivable for investment securities sold..................... $ 4,288 Receivable for Fund shares sold............................... 1,227 Dividends receivable.......................................... 137 Collateral on securities loaned............................... (76,764) Payable for Fund shares redeemed.............................. (5,149) Investment advisory fee payable............................... (403) Administration fee payable.................................... (107) Shareholder servicing and distribution fees payable........... (41) Due to custodian.............................................. (16) Payable for investment securities purchased................... (348) Accrued Trustees' fees and expenses........................... (41) Accrued expenses and other liabilities........................ (181) --------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................................... (77,398) --------- NET ASSETS.......................................... 100.0% $ 555,029 ========= NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold............. $(139,376) Net unrealized depreciation of investments.................... (43,414) Paid-in capital............................................... 737,819 --------- NET ASSETS.................................................... $ 555,029 =========
VALUE - ------------------------------------------------------------------------------------- PRIMARY A SHARES: Net asset value, offering and redemption price per share ($410,197,675 / 40,447,849 shares outstanding).............. $10.14 ========= INVESTOR A SHARES: Net asset value and redemption price per share ($128,619,808 / 12,912,308 shares outstanding).............. $9.96 ========= Maximum sales charge.......................................... 5.75% Maximum offering price per share.............................. $10.57 INVESTOR B SHARES: Net asset value and offering price per share& ($12,567,556 / 1,324,051 shares outstanding)................ $9.49 ========= INVESTOR C SHARES: Net asset value and offering price per share& ($3,643,770 / 378,598 shares outstanding)................... $9.62 =========
- --------------- *Federal income tax information (see Note 11). !! Non-income producing security. &The redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. +Amount represents less than 0.1%. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 10). The portion that represents cash collateral is $76,764. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $83,938 and $72,188, respectively. (e) Fair valued security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 127 NATIONS FUNDS STATEMENTS OF OPERATIONS For the period ended March 31, 2003
CONVERTIBLE ASSET SECURITIES ALLOCATION --------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Interest.................................................... $ 19,344 $ 5,196 Dividends (Net of foreign withholding taxes of $2, $5, $0, $5, $49, $0, $0 and $0, respectively)..................... 17,202 2,768 Dividend income from affiliated funds....................... 509 701 Securities lending.......................................... 138 17 Allocated from Portfolio: Interest+................................................... -- -- Dividends (Net of foreign withholding taxes of $0, $0, $0, $0, $0, $0, $0 and $107, respectively)+................... -- -- Dividend income from affiliated funds+...................... -- -- Securities lending+......................................... -- -- Expenses+................................................... -- -- -------------- -------------- Total investment income/(loss).......................... 37,193 8,682 -------------- -------------- EXPENSES: Investment advisory fee..................................... 5,358 1,944 Administration fee.......................................... 1,896 688 Transfer agent fees......................................... 275 100 Custodian fees.............................................. 58 31 Legal and audit fees........................................ 92 84 Registration and filing fees................................ 73 60 Trustees' fees and expenses................................. 17 16 Interest expense............................................ 1 --* Printing expense............................................ 155 178 Other....................................................... 48 15 -------------- -------------- Subtotal................................................ 7,973 3,116 Shareholder servicing and distribution fees: Investor A Shares......................................... 751 419 Investor B Shares......................................... 1,116 929 Investor C Shares......................................... 256 24 -------------- -------------- Total expenses.......................................... 10,096 4,488 Fees waived by investment advisor and/or administrator...... -- -- Fees reduced by credits allowed by the custodian............ (4) (1) -------------- -------------- Net expenses............................................ 10,092 4,487 -------------- -------------- NET INVESTMENT INCOME/(LOSS)................................ 27,101 4,195 -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... (64,748) (42,136) Written options........................................... -- (20) Futures contracts......................................... -- 1,910 Swap contracts............................................ -- -- Foreign currency transactions............................. -- -- Allocated from Portfolio: Security transactions+.................................... -- -- Foreign currency transactions+............................ -- -- -------------- -------------- Net realized gain/(loss) on investments..................... (64,748) (40,246) -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities (Note 12)...................................... (49,899) (24,332) Written options........................................... -- 2 Futures contracts......................................... -- 528 Swap contracts............................................ -- (11) Securities allocated from Portfolio (Note 12)+............ -- -- -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (49,899) (23,813) -------------- -------------- Net realized and unrealized gain/(loss) on investments...... (114,647) (64,059) -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ (87,546) $ (59,864) ============== ==============
- --------------- * Amount represents less than $500. + Allocated from Growth Master Portfolio. (a)SmallCap Value commenced operations on May 1, 2002. SEE NOTES TO FINANCIAL STATEMENTS. 128 NATIONS FUNDS STATEMENTS OF OPERATIONS (CONTINUED)
CLASSIC LARGECAP MIDCAP SMALLCAP VALUE VALUE VALUE VALUE VALUE(A) GROWTH - ------------------------------------------------------------------------------------------------------- $ -- $ 1 $ 124 $ 60 $ 1 $ -- 8,581 1,112 12,718 4,441 712 -- 153 30 287 154 41 -- 63 -- 62 -- 4 -- -- -- -- -- -- 599 -- -- -- -- -- 3,548 -- -- -- -- -- 2 -- -- -- -- -- 73 -- -- -- -- -- (4,472) -------------- -------------- -------------- -------------- -------------- -------------- 8,797 1,143 13,191 4,655 758 (250) -------------- -------------- -------------- -------------- -------------- -------------- 2,421 292 3,592 1,537 390 -- 857 103 1,271 565 100 668 146 14 172 60 12 513 26 16 38 25 15 -- 81 65 105 76 65 72 55 40 66 41 25 67 17 17 17 14 17 17 2 --* -- -- -- -- 62 50 76 54 54 199 16 4 22 10 3 21 -------------- -------------- -------------- -------------- -------------- -------------- 3,683 601 5,359 2,382 681 1,557 44 46 120 5 1 613 342 9 542 16 2 1,649 397 1 55 3 --* 398 -------------- -------------- -------------- -------------- -------------- -------------- 4,466 657 6,076 2,406 684 4,217 -- (123) -- -- (118) -- (1) --* --* (1) --* -- -------------- -------------- -------------- -------------- -------------- -------------- 4,465 534 6,076 2,405 566 4,217 -------------- -------------- -------------- -------------- -------------- -------------- 4,332 609 7,115 2,250 192 (4,467) -------------- -------------- -------------- -------------- -------------- -------------- (469) (4,976) (54,900) (20,984) (5,890) -- -- -- 111 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (55,285) -- -- -- -- -- (5) -------------- -------------- -------------- -------------- -------------- -------------- (469) (4,976) (54,789) (20,984) (5,890) (55,290) -------------- -------------- -------------- -------------- -------------- -------------- (163,167) (5,648) (132,951) (25,133) (3,247) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (54,489) -------------- -------------- -------------- -------------- -------------- -------------- (163,167) (5,648) (132,951) (25,133) (3,247) (54,489) -------------- -------------- -------------- -------------- -------------- -------------- (163,636) (10,624) (187,740) (46,117) (9,137) (109,779) -------------- -------------- -------------- -------------- -------------- -------------- $ (159,304) $ (10,015) $ (180,625) $ (43,867) $ (8,945) $ (114,246) ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 129 NATIONS FUNDS STATEMENTS OF OPERATIONS (CONTINUED) For the period ended March 31, 2003
STRATEGIC CAPITAL GROWTH(A) GROWTH --------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Interest.................................................... $ 2# $ -- Dividends (Net of foreign withholding taxes of $0, $0, $0, $0, $13 and $8, respectively)............................. 1,628# 3,038 Dividend income from affiliated funds....................... 82# 168 Securities lending.......................................... 27# 14 Allocated from Portfolio: Interest+................................................... 50 -- Dividends (Net of foreign withholding taxes of $64, $0, $434, $0, $0 and $0, respectively)+....................... 26,936 -- Dividend income from affiliated funds+...................... 519 -- Securities lending+......................................... 40 -- Expenses+................................................... (11,758) -- -------------- -------------- Total investment income/(loss).......................... 17,526 3,220 -------------- -------------- EXPENSES: Investment advisory fee..................................... 912# 1,838 Administration fee.......................................... 3,300 650 Transfer agent fees......................................... 561 89 Custodian fees.............................................. 9# 25 Legal and audit fees........................................ 98 84 Registration and filing fees................................ 77 69 Trustees' fees and expenses................................. 17 17 Interest expense............................................ -- 1 Printing expense............................................ 119 70 Other....................................................... 82 11 -------------- -------------- Subtotal................................................ 5,175 2,854 Shareholder servicing and distribution fees: Investor A Shares......................................... 791 76 Investor B Shares......................................... 445 292 Investor C Shares......................................... 133 35 -------------- -------------- Total expenses.......................................... 6,544 3,257 Fees waived by investment advisor and/or administrator...... -- -- Fees reduced by credits allowed by the custodian............ -- (1) -------------- -------------- Net expenses............................................ 6,544 3,256 -------------- -------------- NET INVESTMENT INCOME/(LOSS)................................ 10,982 (36) -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... (25,186)# (45,359) Written options........................................... -- -- Futures contracts......................................... -- -- Foreign currency transactions............................. -- -- Allocated from Portfolio: Security transactions+.................................... (305,564) -- Written options+.......................................... 454 -- Foreign currency transactions+............................ -- -- -------------- -------------- Net realized gain/(loss) on investments..................... (330,296) (45,359) -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities (Note 12)...................................... (100,620)# (61,387) Written options (Note 12)................................. (113)# -- Futures contracts......................................... -- -- Securities allocated from Portfolio (Note 12)+............ (262,781) -- Written options allocated from Portfolio (Note 12)+....... 113 -- -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments............................................... (363,401) (61,387) -------------- -------------- Net realized and unrealized gain/(loss) on investments...... (693,697) (106,746) -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ (682,715) $ (106,782) ============== ==============
- --------------- * Amount represents less than $500. + Allocated from Strategic Growth Master Portfolio and Focused Equities Master Portfolio, respectively. # Amount represents results from operations prior to conversion to master-feeder structure on May 13, 2002. (a)As of May 13, 2002, Strategic Growth Fund converted to a master-feeder structure. SEE NOTES TO FINANCIAL STATEMENTS. 130 NATIONS FUNDS STATEMENTS OF OPERATIONS (CONTINUED)
FOCUSED MIDCAP 21ST SMALL EQUITIES GROWTH CENTURY COMPANY - --------------------------------------------------------------------------- $ -- $ --* $ 18 $ -- -- 2,316 326 2,555 -- 344 1 519 -- 120 11 205 771 -- -- -- 11,382 -- -- -- 1 -- -- -- 258 -- -- -- (13,737) -- -- -- -------------- -------------- -------------- -------------- (1,325) 2,780 356 3,279 -------------- -------------- -------------- -------------- -- 3,443 412 5,487 2,068 1,218 126 1,402 1,414 170 32 204 -- 37 15 46 80 87 68 106 79 72 64 88 17 17 17 17 -- 8 --* 1 419 77 60 84 62 21 4 24 -------------- -------------- -------------- -------------- 4,139 5,150 798 7,459 1,310 67 32 334 5,519 300 352 150 1,736 22 38 37 -------------- -------------- -------------- -------------- 12,704 5,539 1,220 7,980 -- -- -- (448) -- (2) (1) --* -------------- -------------- -------------- -------------- 12,704 5,537 1,219 7,532 -------------- -------------- -------------- -------------- (14,029) (2,757) (863) (4,253) -------------- -------------- -------------- -------------- -- (184,402) (1,605) (98,329) -- 56 -- -- -- -- -- -- -- -- 6 -- -- -- -- -- (142,643) -- -- -- (62) -- -- -- -------------- -------------- -------------- -------------- (142,705) (184,346) (1,599) (98,329) -------------- -------------- -------------- -------------- -- (33,365) (5,523) (142,917) -- -- -- -- -- -- -- -- (197,263) -- -- -- -- -- -- -- -------------- -------------- -------------- -------------- (197,263) (33,365) (5,523) (142,917) -------------- -------------- -------------- -------------- (339,968) (217,711) (7,122) (241,246) -------------- -------------- -------------- -------------- $ (353,997) $ (220,468) $ (7,985) $ (245,499) ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 131 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
CONVERTIBLE SECURITIES ASSET ALLOCATION --------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/03 3/31/02 3/31/03 3/31/02 ----------------------------------------------------------------------- (IN THOUSANDS) Net investment income/(loss)....................... $ 27,101 $ 19,147 $ 4,195 $ 6,727 Net realized gain/(loss) on investments............ (64,748) (32,879) (40,246) (10,376) Net realized gain/(loss) on investments allocated from Portfolio................................... -- -- -- -- Net change in unrealized appreciation/(depreciation) of investments....... (49,899) 34,804 (23,813) (2,301) Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio......................... -- -- -- -- -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations.................................. (87,546) 21,072 (59,864) (5,950) Distributions to shareholders from net investment income: Primary A Shares................................. (15,142) (5,011) (713) (854) Investor A Shares................................ (9,699) (10,164) (2,680) (4,085) Investor B Shares................................ (2,968) (1,912) (918) (1,486) Investor C Shares................................ (700) (398) (27) (41) Distributions to shareholders from net realized gain on investments: Primary A Shares................................. -- (282) -- (21) Investor A Shares................................ -- (956) -- (365) Investor B Shares................................ -- (176) -- (166) Investor C Shares................................ -- (34) -- (4) Net increase/(decrease) in net assets from Fund share transactions............................... 404,871 215,625 (130,006) 53,397 -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets.............. 288,816 217,764 (194,208) 40,425 NET ASSETS: Beginning of period................................ 668,838 451,074 392,069 351,644 -------------- -------------- -------------- -------------- End of period...................................... $ 957,654 $ 668,838 $ 197,861 $ 392,069 ============== ============== ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of period.............. $ 152 $ 1,659 $ 352 $ 494 ============== ============== ============== ==============
- --------------- * Amount represents less than $500. (a)Classic Value commenced operations on April 16, 2001. (b)LargeCap Value commenced operations on November 20, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 132 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
CLASSIC VALUE LARGECAP VALUE VALUE ------------------------------- ------------------------------- ------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED 3/31/03 3/31/02(A) 3/31/03 3/31/02(B) 3/31/03 3/31/02 - ------------------------------------------------------------------------------------------------------- $ 4,332 $ 1,194 $ 609 $ 23 $ 7,115 $ 7,979 (469) 12,986 (4,976) 29 (54,789) 42,471 -- -- -- -- -- -- (163,167) 20,237 (5,648) 416 (132,951) (10,147) -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- (159,304) 34,417 (10,015) 468 (180,625) 40,303 (3,408) (663) (294) (16) (6,087) (6,690) (171) (26) (212) --* (521) (413) (61) (4) (3) --* (236) (187) (102) (5) --* --* (26) (18) (14,265) (1,106) (31) -- (7,879) (69,242) (875) (59) (1) -- (885) (5,561) (1,782) (144) (1) -- (1,224) (7,789) (2,024) (193) --* -- (116) (734) 129,187 336,999 70,250 17,996 75,863 (302,611) -------------- -------------- -------------- -------------- -------------- -------------- (52,805) 369,216 59,693 18,448 (121,736) (352,942) 369,216 -- 18,448 -- 659,008 1,011,950 -------------- -------------- -------------- -------------- -------------- -------------- $ 316,411 $ 369,216 $ 78,141 $ 18,448 $ 537,272 $ 659,008 ============== ============== ============== ============== ============== ============== $ 1,087 $ 496 $ 100 $ 7 $ 643 $ 521 ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 133 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MIDCAP VALUE SMALLCAP VALUE --------------------------------- -------------- YEAR ENDED PERIOD ENDED PERIOD ENDED 3/31/03 3/31/02(C) 3/31/03(A) ---------------------------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ 2,250 $ 75 $ 192 Net realized gain/(loss) on investments..................... (20,984) 417 (5,890) Net realized gain/(loss) on investments allocated from Portfolio+................................................ -- -- -- Net change in unrealized appreciation/(depreciation) of investments............................................... (25,133) 6,099 (3,247) Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio+..................... -- -- -- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ (43,867) 6,591 (8,945) Distributions to shareholders from net investment income: Primary A Shares.......................................... (1,835) (279) (147) Investor A Shares......................................... (16) (1) (2) Investor B Shares......................................... (4) (1) --* Investor C Shares......................................... (1) -- --* Distributions to shareholders from net realized gain on investments: Primary A Shares.......................................... (214) -- -- Investor A Shares......................................... (2) -- -- Investor B Shares......................................... (2) -- -- Investor C Shares......................................... --* -- -- Net increase/(decrease) in net assets from Fund share transactions.............................................. 245,543 93,768 80,781 -------------- -------------- -------------- Net increase/(decrease) in net assets....................... 199,602 100,078 71,687 NET ASSETS: Beginning of period......................................... 100,078 -- -- -------------- -------------- -------------- End of period............................................... $ 299,680 $ 100,078 $ 71,687 ============== ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of period......... $ 290 $ -- $ 23 ============== ============== ==============
- --------------- * Amount represents less than $500. + Allocated from Growth Master Portfolio and Strategic Growth Portfolio, respectively. # Amount represents results from operations prior to conversion to master-feeder structure. (a)SmallCap Value commenced operations on May 1, 2002. (b)As of May 13, 2002, Strategic Growth Fund converted to a master-feeder structure. (c)MidCap Value commenced operations on November 20, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 134 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
GROWTH STRATEGIC GROWTH CAPITAL GROWTH ------------------------------- ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/03 3/31/02 3/31/03(B) 3/31/02 3/31/03 3/31/02 - ------------------------------------------------------------------------------------------------------- $ (4,467) $ (4,842) $ 10,982 $ 2,246 $ (36) $ (1,132) -- -- (25,186)# (112,990) (45,359) (3,694) (55,290) (77,363) (305,110) -- -- -- -- -- (100,733)# 109,777 (61,387) (2,066) (54,489) 75,622 (262,668) -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- (114,246) (6,583) (682,715) (967) (106,782) (6,892) -- -- (7,224) (1,543) -- -- -- -- (1,070) (23) -- -- -- -- (19) --* -- -- -- -- -- --* -- -- -- -- -- -- -- (15,951) -- -- -- -- -- (1,040) -- -- -- -- -- (1,528) -- -- -- -- -- (110) 175,763 8,144 1,082,033 67,490 (56,515) (213,683) -------------- -------------- -------------- -------------- -------------- -------------- 61,517 1,561 391,005 64,957 (163,297) (239,204) 518,104 516,543 1,267,775 1,202,818 374,142 613,346 -------------- -------------- -------------- -------------- -------------- -------------- $ 579,621 $ 518,104 $ 1,658,780 $ 1,267,775 $ 210,845 $ 374,142 ============== ============== ============== ============== ============== ============== $ -- $ (8) $ 3,349 $ 680 $ -- $ -- ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 135 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOCUSED EQUITIES --------------------------------- YEAR ENDED YEAR ENDED 3/31/03 3/31/02 --------------------------------- (IN THOUSANDS) Net investment income/(loss)................................ $ (14,029) $ (15,787) Net realized gain/(loss) on investments..................... -- -- Net realized gain/(loss) on investments allocated from Portfolio+................................................ (142,705) (257,297) Net change in unrealized appreciation/(depreciation) of investments............................................... -- -- Net change in unrealized appreciation/(depreciation) of investments allocated from Portfolio+..................... (197,263) 309,781 -------------- -------------- Net increase/(decrease) in net assets resulting from operations................................................ (353,997) 36,697 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Primary A Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN ON INVESTMENTS: Primary A Shares.......................................... -- -- Investor A Shares......................................... -- -- Investor B Shares......................................... -- -- Investor C Shares......................................... -- -- Net increase/(decrease) in net assets from Fund share transactions.............................................. 191,220 (105,304) -------------- -------------- Net increase/(decrease) in net assets....................... (162,777) (68,607) NET ASSETS: Beginning of period......................................... 1,722,555 1,791,162 -------------- -------------- End of period............................................... $ 1,559,778 $ 1,722,555 ============== ============== Undistributed net investment income/(loss)/(distributions in excess of net investment income) at end of period......... $ -- $ -- ============== ==============
- --------------- *Amount represents less than $500. + Allocated from Focused Equities Master Portfolio. SEE NOTES TO FINANCIAL STATEMENTS. 136 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MIDCAP GROWTH 21ST CENTURY SMALL COMPANY ------------------------------- ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 3/31/03 3/31/02 3/31/03 3/31/02 3/31/03 3/31/02 - ------------------------------------------------------------------------------------------------------- $ (2,757) $ (3,105) $ (863) $ (1,101) $ (4,253) $ (4,092) (184,346) (43,669) (1,599) (10,019) (98,329) (10,588) -- -- -- -- -- -- (33,365) (40,763) (5,523) 10,766 (142,917) 83,151 -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- (220,468) (87,537) (7,985) (354) (245,499) 68,471 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 37,230 263,384 (10,484) (15,993) 48,594 45,203 -------------- -------------- -------------- -------------- -------------- -------------- (183,238) 175,847 (18,469) (16,347) (196,905) 113,674 628,044 452,197 65,944 82,291 751,934 638,260 -------------- -------------- -------------- -------------- -------------- -------------- $ 444,806 $ 628,044 $ 47,475 $ 65,944 $ 555,029 $ 751,934 ============== ============== ============== ============== ============== ============== $ -- $ -- $ -- $ -- $ -- $ -- ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 137 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY
CONVERTIBLE SECURITIES YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 45,660 $ 649,083 26,494 $ 418,389 Issued in exchange for net assets of: Bank of America Equity Income Fund (Note 12)............ 846 11,664 -- -- Bank of America Equity & Convertible Fund (Note 12)..... 5,772 79,598 -- -- Issued in exchange for Primary A Shares of Nations Equity Income Fund (Note 12)................................... 3,257 51,793 -- -- Issued as reinvestment of dividends....................... 94 1,306 36 579 Redeemed.................................................. (32,359) (460,920) (16,504) (261,491) ------- --------- ------- --------- Net increase/(decrease)................................... 23,270 $ 332,524 10,026 $ 157,477 ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 6,393 $ 93,580 3,821 $ 60,434 Issued in exchange for Investor A Shares of Nations Equity Income Fund (Note 12)................................... 1,267 20,137 -- -- Shares issued upon conversion from Investor B shares...... 484 6,905 -- -- Issued as reinvestment of dividends....................... 621 8,710 640 10,143 Redeemed.................................................. (7,611) (110,347) (4,057) (63,947) ------- --------- ------- --------- Net increase/(decrease)................................... 1,154 $ 18,985 404 $ 6,630 ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 2,854 $ 41,083 3,260 $ 51,688 Issued in exchange for Investor B Shares of Nations Equity Income Fund (Note 12)................................... 1,998 31,448 -- -- Issued as reinvestment of dividends....................... 183 2,534 114 1,791 Shares redeemed upon conversion to Investor A shares...... (488) (6,905) -- -- Redeemed.................................................. (2,067) (28,531) (806) (12,510) ------- --------- ------- --------- Net increase/(decrease)................................... 2,480 $ 39,629 2,568 $ 40,969 ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 1,144 $ 16,527 847 $ 13,519 Issued in exchange for Investor C Shares of Nations Equity Income Fund (Note 12)................................... 137 2,170 -- -- Issued as reinvestment of dividends....................... 33 467 19 307 Redeemed.................................................. (384) (5,431) (208) (3,277) ------- --------- ------- --------- Net increase/(decrease)................................... 930 $ 13,733 658 $ 10,549 ======= ========= ======= ========= Total net increase/(decrease)............................. 27,834 $ 404,871 13,656 $ 215,625 ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 138 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
ASSET ALLOCATION YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------- ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 287 $ 5,107 74 $ 1,500 Issued in exchange for Primary A Shares of Nations Balanced Assets Fund (Note 12).......................... -- -- 1,518 32,586 Issued as reinvestment of dividends....................... 28 476 10 195 Redeemed.................................................. (174) (3,070) (213) (4,256) ------ --------- ------ -------- Net increase/(decrease)................................... 141 $ 2,513 1,389 $ 30,025 ====== ========= ====== ======== INVESTOR A SHARES: Sold...................................................... 3,000 $ 50,561 570 $ 11,588 Issued in exchange for Investor A Shares of Nations Balanced Assets Fund (Note 12).......................... -- -- 701 15,029 Issued as reinvestment of dividends....................... 151 2,604 218 4,346 Redeemed.................................................. (9,023) (152,551) (1,661) (33,660) ------ --------- ------ -------- Net increase/(decrease)................................... (5,872) $ (99,386) (172) $ (2,697) ====== ========= ====== ======== INVESTOR B SHARES: Sold...................................................... 175 $ 3,121 424 $ 8,536 Issued in exchange for Investor B Shares of Nations Balanced Assets Fund (Note 12).......................... -- -- 1,944 41,435 Issued as reinvestment of dividends....................... 48 819 74 1,475 Redeemed.................................................. (2,096) (36,392) (1,314) (26,259) ------ --------- ------ -------- Net increase/(decrease)................................... (1,873) $ (32,452) 1,128 $ 25,187 ====== ========= ====== ======== INVESTOR C SHARES: Sold...................................................... 36 $ 627 45 $ 921 Issued in exchange for Investor C Shares of Nations Balanced Assets Fund (Note 12).......................... -- -- 90 1,912 Issued as reinvestment of dividends....................... 1 24 2 41 Redeemed.................................................. (77) (1,332) (100) (1,992) ------ --------- ------ -------- Net increase/(decrease)................................... (40) $ (681) 37 $ 882 ====== ========= ====== ======== Total net increase/(decrease)............................. (7,644) $(130,006) 2,382 $ 53,397 ====== ========= ====== ========
SEE NOTES TO FINANCIAL STATEMENTS. 139 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
CLASSIC VALUE YEAR ENDED PERIOD ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- ------------------- SHARES DOLLARS SHARES DOLLARS --------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 23,551 $ 223,106 24,229 $267,418 Issued as reinvestment of dividends....................... 216 2,214 18 197 Redeemed.................................................. (14,649) (124,449) (1,497) (16,863) ------- --------- ------- -------- Net increase/(decrease)................................... 9,118 $ 100,871 22,750 $250,752 ======= ========= ======= ======== INVESTOR A SHARES:+ Sold...................................................... 1,487 $ 14,760 1,678 $ 18,594 Shares issued upon conversion of Investor B shares........ 50 406 -- -- Issued as reinvestment of dividends....................... 85 820 6 67 Redeemed.................................................. (998) (9,034) (264) (2,886) ------- --------- ------- -------- Net increase/(decrease)................................... 624 $ 6,952 1,420 $ 15,775 ======= ========= ======= ======== INVESTOR B SHARES:+ Sold...................................................... 1,714 $ 17,757 3,198 $ 35,160 Issued as reinvestment of dividends....................... 156 1,571 12 126 Shares redeemed upon conversion to Investor A shares...... (51) (406) -- -- Redeemed.................................................. (1,196) (10,544) (166) (1,816) ------- --------- ------- -------- Net increase/(decrease)................................... 623 $ 8,378 3,044 $ 33,470 ======= ========= ======= ======== INVESTOR C SHARES:+ Sold...................................................... 1,884 $ 18,940 3,500 $ 37,993 Issued as reinvestment of dividends....................... 118 1,202 14 147 Redeemed.................................................. (830) (7,156) (104) (1,138) ------- --------- ------- -------- Net increase/(decrease)................................... 1,172 $ 12,986 3,410 $ 37,002 ======= ========= ======= ======== Total net increase/(decrease)............................. 11,537 $ 129,187 30,624 $336,999 ======= ========= ======= ========
- --------------- + Classic Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on April 16, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 140 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
LARGECAP VALUE YEAR ENDED PERIOD ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------ ----------------- SHARES DOLLARS SHARES DOLLARS ----------------------------------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 3,993 $ 34,352 1,672 $17,450 Issued as reinvestment of dividends....................... 3 31 1 8 Redeemed.................................................. (1,676) (13,677) (7) (68) ------ -------- ------ ------- Net increase/(decrease)................................... 2,320 $ 20,706 1,666 $17,390 ====== ======== ====== ======= INVESTOR A SHARES:+ Sold...................................................... 6,340 $ 51,100 30 $ 304 Shares issued upon conversion from Investor B shares...... --* 1 -- -- Issued as reinvestment of dividends....................... 26 208 --* --* Redeemed.................................................. (404) (3,203) -- -- ------ -------- ------ ------- Net increase/(decrease)................................... 5,962 $ 48,106 30 $ 304 ====== ======== ====== ======= INVESTOR B SHARES:+ Sold...................................................... 171 $ 1,462 27 $ 282 Issued as reinvestment of dividends....................... 1 3 --* --* Shares redeemed upon conversion to Investor A shares...... --* (1) -- -- Redeemed.................................................. (17) (136) --* --* ------ -------- ------ ------- Net increase/(decrease)................................... 155 $ 1,328 27 $ 282 ====== ======== ====== ======= INVESTOR C SHARES:+ Sold...................................................... 16 $ 135 2 $ 20 Issued as reinvestment of dividends....................... --* --* --* --* Redeemed.................................................. (3) (25) -- -- ------ -------- ------ ------- Net increase/(decrease)................................... 13 $ 110 2 $ 20 ====== ======== ====== ======= Total net increase/(decrease)............................. 8,450 $ 70,250 1,725 $17,996 ====== ======== ====== =======
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. + LargeCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on November 20, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 141 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
VALUE YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------- -------------------- SHARES DOLLARS SHARES DOLLARS --------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 19,199 $177,319 14,640 $ 161,844 Issued in exchange for net assets of Bank of America Equity Value Fund (Note 12)............................. 501 4,521 -- -- Issued as reinvestment of dividends....................... 708 7,272 4,255 51,786 Redeemed.................................................. (10,015) (93,977) (44,169) (502,697) ------- -------- ------- --------- Net increase/(decrease)................................... 10,393 $ 95,135 (25,274) $(289,067) ======= ======== ======= ========= INVESTOR A SHARES: Sold...................................................... 790 $ 7,750 1,256 $ 14,612 Shares issued upon conversion from Investor B shares...... 909 8,034 -- -- Issued as reinvestment of dividends....................... 122 1,260 422 5,137 Redeemed.................................................. (1,566) (14,806) (2,140) (24,523) ------- -------- ------- --------- Net increase/(decrease)................................... 255 $ 2,238 (462) $ (4,774) ======= ======== ======= ========= INVESTOR B SHARES: Sold...................................................... 311 $ 3,028 583 $ 6,590 Issued as reinvestment of dividends....................... 129 1,367 624 7,463 Shares redeemed upon conversion to Investor A shares...... (932) (8,034) -- -- Redeemed.................................................. (1,851) (17,146) (2,000) (22,285) ------- -------- ------- --------- Net increase/(decrease)................................... (2,343) $(20,785) (793) $ (8,232) ======= ======== ======= ========= INVESTOR C SHARES: Sold...................................................... 127 $ 1,205 118 $ 1,343 Issued as reinvestment of dividends....................... 12 131 60 719 Redeemed.................................................. (213) (2,061) (234) (2,600) ------- -------- ------- --------- Net increase/(decrease)................................... (74) $ (725) (56) $ (538) ======= ======== ======= ========= Total net increase/(decrease)............................. 8,231 $ 75,863 (26,585) $(302,611) ======= ======== ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 142 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
MIDCAP VALUE YEAR ENDED PERIOD ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------ ----------------- SHARES DOLLARS SHARES DOLLARS ----------------------------------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 30,784 $294,623 8,827 $93,588 Issued as reinvestment of dividends....................... 26 240 8 85 Redeemed.................................................. (5,829) (54,609) (95) (1,040) ------ -------- ----- ------- Net increase/(decrease)................................... 24,981 $240,254 8,740 $92,633 ====== ======== ===== ======= INVESTOR A SHARES:+ Sold...................................................... 471 $ 4,507 50 $ 540 Shares issued upon conversion from Investor B shares...... 1 11 -- -- Issued as reinvestment of dividends....................... 2 17 --* 1 Redeemed.................................................. (149) (1,387) --* --* ------ -------- ----- ------- Net increase/(decrease)................................... 325 $ 3,148 50 $ 541 ====== ======== ===== ======= INVESTOR B SHARES:+ Sold...................................................... 228 $ 2,254 47 $ 507 Issued as reinvestment of dividends....................... 1 5 --* 1 Shares redeemed upon conversion to Investor A shares...... (1) (11) -- -- Redeemed.................................................. (48) (439) --* (5) ------ -------- ----- ------- Net increase/(decrease)................................... 180 $ 1,809 47 $ 503 ====== ======== ===== ======= INVESTOR C SHARES:+ Sold...................................................... 38 $ 376 8 $ 91 Issued as reinvestment of dividends....................... --* 1 -- -- Redeemed.................................................. (5) (45) -- -- ------ -------- ----- ------- Net increase/(decrease)................................... 33 $ 332 8 $ 91 ====== ======== ===== ======= Total net increase/(decrease)............................. 25,519 $245,543 8,845 $93,768 ====== ======== ===== =======
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. + MidCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on November 20, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 143 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
SMALLCAP VALUE PERIOD ENDED MARCH 31, 2003 -------------------- SHARES DOLLARS -------------------- (IN THOUSANDS) PRIMARY A SHARES:+ Sold...................................................... 10,899 $ 94,051 Issued as reinvestment of dividends....................... 4 39 Redeemed.................................................. (1,824) (14,973) ------ -------- Net increase/(decrease)................................... 9,079 $ 79,117 ====== ======== INVESTOR A SHARES:+ Sold...................................................... 158 $ 1,334 Shares issued upon conversion from Investor B shares...... 1 7 Issued as reinvestment of dividends....................... --* 2 Redeemed.................................................. (13) (110) ------ -------- Net increase/(decrease)................................... 146 $ 1,233 ====== ======== INVESTOR B SHARES:+ Sold...................................................... 49 $ 410 Issued as reinvestment of dividends....................... -- -- Shares redeemed upon conversion to Investor A shares...... (1) (7) Redeemed.................................................. (4) (31) ------ -------- Net increase/(decrease)................................... 44 $ 372 ====== ======== INVESTOR C SHARES:+ Sold...................................................... 7 $ 60 Issued as reinvestment of dividends....................... --* --* Redeemed.................................................. --* (1) ------ -------- Net increase/(decrease)................................... 7 $ 59 ====== ======== Total net increase/(decrease)............................. 9,276 $ 80,781 ====== ========
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. + SmallCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on May 1, 2002. SEE NOTES TO FINANCIAL STATEMENTS. 144 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
GROWTH YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 6,469 $ 79,443 1,241 $ 18,532 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (1,533) (19,386) (2,670) (38,838) ------ -------- ------ -------- Net increase/(decrease)................................... 4,936 $ 60,057 (1,429) $(20,306) ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 16,562 $213,974 8,784 $124,273 Shares issued upon conversion from Investor B shares...... 167 2,166 -- -- Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (7,941) (99,836) (5,006) (71,687) ------ -------- ------ -------- Net increase/(decrease)................................... 8,788 $116,304 3,778 $ 52,586 ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 1,346 $ 16,576 1,606 $ 22,575 Issued as reinvestment of dividends....................... -- -- --* --* Shares redeemed upon conversion to Investor A shares...... (173) (2,166) -- -- Redeemed.................................................. (3,809) (47,127) (3,416) (46,801) ------ -------- ------ -------- Net increase/(decrease)................................... (2,636) $(32,717) (1,810) $(24,226) ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 3,301 $ 39,984 666 $ 9,283 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (643) (7,865) (659) (9,193) ------ -------- ------ -------- Net increase/(decrease)................................... 2,658 $ 32,119 7 $ 90 ====== ======== ====== ======== Total net increase/(decrease)............................. 13,746 $175,763 546 $ 8,144 ====== ======== ====== ========
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 145 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
STRATEGIC GROWTH YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 --------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ----------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 36,386 $ 479,952 37,365 $ 460,120 Issued in exchange for net assets of: Bank of America Equity Fund (Note 12)................... 47,950 429,632 -- -- Bank of America Charitable Equity Fund (Note 12)........ 17,441 156,270 -- -- Issued in exchange for Primary A Shares Nations Blue Chip Fund (Note 12).......................................... 3,963 44,151 -- -- Issued as reinvestment of dividends....................... 26 235 2 19 Redeemed.................................................. (46,621) (439,345) (32,601) (411,062) ------- ---------- ------- --------- Net increase/(decrease)................................... 59,145 $ 670,895 4,766 $ 49,077 ======= ========== ======= ========= INVESTOR A SHARES: Sold...................................................... 13,780 $ 182,558 2,960 $ 37,687 Issued in exchange for Investor A Shares Nations Blue Chip Fund (Note 12).......................................... 41,355 459,035 -- -- Shares issued upon conversion from Investor B shares...... 33 308 -- -- Issued as reinvestment of dividends....................... 110 1,018 1 12 Redeemed.................................................. (33,045) (301,025) (1,744) (21,580) ------- ---------- ------- --------- Net increase/(decrease)................................... 22,233 $ 341,894 1,217 $ 16,119 ======= ========== ======= ========= INVESTOR B SHARES: Sold...................................................... 253 $ 10,151 257 $ 3,119 Issued in exchange for Investor B Shares Nations Blue Chip Fund (Note 12).......................................... 5,502 59,864 -- -- Issued as reinvestment of dividends....................... 2 17 --* --* Shares redeemed upon conversion to Investor A shares...... (33) (308) -- -- Redeemed.................................................. (1,850) (17,093) (115) (1,387) ------- ---------- ------- --------- Net increase/(decrease)................................... 3,874 $ 52,631 142 $ 1,732 ======= ========== ======= ========= INVESTOR C SHARES: Sold...................................................... 1,493 $ 18,072 73 $ 900 Issued in exchange for Investor C Shares Nations Blue Chip Fund (Note 12).......................................... 309 3,360 -- -- Issued as reinvestment of dividends....................... -- -- --* --* Redeemed.................................................. (515) (4,819) (28) (338) ------- ---------- ------- --------- Net increase/(decrease)................................... 1,287 $ 16,613 45 $ 562 ======= ========== ======= ========= Total net increase/(decrease)............................. 86,539 $1,082,033 6,170 $ 67,490 ======= ========== ======= =========
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 146 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
CAPITAL GROWTH YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 5,436 $ 32,609 9,641 $ 75,399 Issued in exchange for net assets of Bank of America Equity Growth Fund (Note 12)............................ 1,400 7,660 -- -- Issued in exchange for Primary A Shares of Nations Aggressive Growth Fund (Note 12)........................ 1,184 8,150 -- -- Issued as reinvestment of dividends....................... -- -- 628 5,857 Redeemed.................................................. (18,640) (109,864) (35,516) (290,110) ------- --------- ------- --------- Net increase/(decrease)................................... (10,620) $ (61,445) (25,247) $(208,854) ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 1,900 $ 11,614 1,741 $ 13,680 Issued in exchange for Investor A Shares of Nations Aggressive Growth Fund (Note 12)........................ 1,762 11,877 -- -- Shares issued upon conversion from Investor B shares...... 874 5,084 -- -- Issued as reinvestment of dividends....................... -- -- 99 906 Redeemed.................................................. (3,058) (18,297) (2,036) (16,042) ------- --------- ------- --------- Net increase/(decrease)................................... 1,478 $ 10,278 (196) $ (1,456) ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 272 $ 1,584 369 $ 2,634 Issued in exchange for Investor B Shares of Nations Aggressive Growth Fund (Note 12)........................ 1,483 9,111 -- -- Issued as reinvestment of dividends....................... -- -- 174 1,460 Shares redeemed upon conversion to Investor A shares...... (960) (5,084) -- -- Redeemed.................................................. (1,955) (10,591) (1,229) (8,913) ------- --------- ------- --------- Net increase/(decrease)................................... (1,160) $ (4,980) (686) $ (4,819) ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 103 $ 586 294 $ 2,086 Issued in exchange for Investor C Shares of Nations Aggressive Growth Fund (Note 12)........................ 64 396 -- -- Issued as reinvestment of dividends....................... -- -- 12 100 Redeemed.................................................. (251) (1,350) (102) (740) ------- --------- ------- --------- Net increase/(decrease)................................... (84) $ (368) 204 $ 1,446 ======= ========= ======= ========= Total net increase/(decrease)............................. (10,386) $ (56,515) (25,925) $(213,683) ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 147 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
FOCUSED EQUITIES YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 15,666 $ 210,049 5,380 $ 81,909 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (7,463) (99,670) (6,627) (100,672) ------- --------- ------- --------- Net increase/(decrease)................................... 8,203 $ 110,379 (1,247) $ (18,763) ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 24,366 $ 334,389 10,257 $ 156,397 Shares issued upon conversion from Investor B shares...... 285 3,978 -- -- Issued as reinvestment of dividends....................... -- -- --* --* Redeemed.................................................. (14,475) (196,344) (10,156) (152,458) ------- --------- ------- --------- Net increase/(decrease)................................... 10,176 $ 142,023 101 $ 3,939 ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 3,627 $ 49,131 3,687 $ 55,115 Issued as reinvestment of dividends....................... -- -- --* --* Shares redeemed upon conversion to Investor A shares...... (294) (3,978) -- -- Redeemed.................................................. (9,958) (131,893) (8,766) (127,689) ------- --------- ------- --------- Net increase/(decrease)................................... (6,625) $ (86,740) (5,079) $ (72,574) ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 5,064 $ 67,084 2,082 $ 31,291 Issued as reinvestment of dividends....................... -- -- -- -- Redeemed.................................................. (3,103) (41,526) (3,336) (49,197) ------- --------- ------- --------- Net increase/(decrease)................................... 1,961 $ 25,558 (1,254) $ (17,906) ======= ========= ======= ========= Total net increase/(decrease)............................. 13,715 $ 191,220 (7,479) $(105,304) ======= ========= ======= =========
- --------------- *Amount represents less than 500 shares and/or $500, as applicable. SEE NOTES TO FINANCIAL STATEMENTS. 148 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
MIDCAP GROWTH YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 19,336 $ 185,307 44,038 $ 629,113 Issued in exchange for net assets of Bank of America Equity Midcap Fund (Note 12)............................ 15,827 139,116 -- -- Redeemed.................................................. (30,050) (279,180) (29,130) (390,347) ------- --------- ------- --------- Net increase/(decrease)................................... 5,113 $ 45,243 14,908 $ 238,766 ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 6,533 $ 63,914 5,425 $ 69,948 Shares issued upon conversion from Investor B shares...... 380 3,258 -- -- Redeemed.................................................. (7,261) (67,696) (4,071) (52,029) ------- --------- ------- --------- Net increase/(decrease)................................... (348) $ (524) 1,354 $ 17,919 ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 528 $ 4,989 1,419 $ 17,481 Shares redeemed upon conversion to Investor A shares...... (422) (3,258) -- -- Redeemed.................................................. (1,103) (9,042) (915) (10,940) ------- --------- ------- --------- Net increase/(decrease)................................... (997) $ (7,311) 504 $ 6,541 ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 96 $ 866 177 $ 2,163 Redeemed.................................................. (130) (1,044) (167) (2,005) ------- --------- ------- --------- Net increase/(decrease)................................... (34) $ (178) 10 $ 158 ======= ========= ======= ========= Total net increase/(decrease)............................. 3,734 $ 37,230 16,776 $ 263,384 ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 149 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
21ST CENTURY YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 ------------------ ------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------ (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 338 $ 2,250 246 $ 1,719 Redeemed.................................................. (242) (1,662) (588) (3,831) ------ -------- ------ -------- Net increase/(decrease)................................... 96 $ 588 (342) $ (2,112) ====== ======== ====== ======== INVESTOR A SHARES: Sold...................................................... 539 $ 3,557 126 $ 877 Shares issued upon conversion from Investor B shares...... 33 220 -- -- Redeemed.................................................. (906) (5,789) (859) (5,730) ------ -------- ------ -------- Net increase/(decrease)................................... (334) $ (2,012) (733) $ (4,853) ====== ======== ====== ======== INVESTOR B SHARES: Sold...................................................... 347 $ 2,223 391 $ 2,683 Shares redeemed upon conversion to Investor A shares...... (34) (220) -- -- Redeemed.................................................. (1,634) (10,458) (1,473) (9,834) ------ -------- ------ -------- Net increase/(decrease)................................... (1,321) $ (8,455) (1,082) $ (7,151) ====== ======== ====== ======== INVESTOR C SHARES: Sold...................................................... 120 $ 763 41 $ 282 Redeemed.................................................. (208) (1,368) (319) (2,159) ------ -------- ------ -------- Net increase/(decrease)................................... (88) $ (605) (278) $ (1,877) ====== ======== ====== ======== Total net increase/(decrease)............................. (1,647) $(10,484) (2,435) $(15,993) ====== ======== ====== ========
SEE NOTES TO FINANCIAL STATEMENTS. 150 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
SMALL COMPANY YEAR ENDED YEAR ENDED MARCH 31, 2003 MARCH 31, 2002 -------------------- -------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------- (IN THOUSANDS) PRIMARY A SHARES: Sold...................................................... 83,950 $ 977,579 65,130 $ 926,484 Issued in exchange for net assets of Bank of America SmallCap Equity Fund (Note 12).......................... 2,522 27,839 -- -- Redeemed.................................................. (84,033) (983,775) (61,974) (883,993) ------- --------- ------- --------- Net increase/(decrease)................................... 2,439 $ 21,643 3,156 $ 42,491 ======= ========= ======= ========= INVESTOR A SHARES: Sold...................................................... 8,542 $ 94,375 5,848 $ 82,756 Shares issued upon conversion from Investor B shares...... 17 182 -- -- Redeemed.................................................. (6,278) (70,693) (6,051) (85,378) ------- --------- ------- --------- Net increase/(decrease)................................... 2,281 $ 23,864 (203) $ (2,622) ======= ========= ======= ========= INVESTOR B SHARES: Sold...................................................... 514 $ 6,156 533 $ 7,276 Shares redeemed upon conversion to Investor A shares...... (18) (182) -- -- Redeemed.................................................. (399) (4,248) (204) (2,714) ------- --------- ------- --------- Net increase/(decrease)................................... 97 $ 1,726 329 $ 4,562 ======= ========= ======= ========= INVESTOR C SHARES: Sold...................................................... 191 $ 2,254 200 $ 2,775 Redeemed.................................................. (81) (893) (144) (2,003) ------- --------- ------- --------- Net increase/(decrease)................................... 110 $ 1,361 56 $ 772 ======= ========= ======= ========= Total net increase/(decrease)............................. 4,927 $ 48,594 3,338 $ 45,203 ======= ========= ======= =========
SEE NOTES TO FINANCIAL STATEMENTS. 151 NATIONS FUNDS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- CONVERTIBLE SECURITIES PRIMARY A SHARES Year ended 3/31/2003#......... $16.03 $0.51 $(2.27) $(1.76) $(0.50) $ -- Year ended 3/31/2002#......... 16.05 0.59 -- 0.59 (0.56) (0.05) Year ended 3/31/2001.......... 22.18 0.51 (2.00) (1.49) (0.60) (4.04) Period ended 3/31/2000**#..... 18.15 0.42 5.52 5.94 (0.50) (1.41) INVESTOR A SHARES* Year ended 3/31/2003#......... $16.02 $0.47 $(2.25) $(1.78) $(0.47) $ -- Year ended 3/31/2002#......... 16.04 0.59 (0.04) 0.55 (0.52) (0.05) Year ended 3/31/2001.......... 22.17 0.51 (2.05) (1.54) (0.55) (4.04) Period ended 3/31/2000#....... 18.31 0.46 5.26 5.72 (0.45) (1.41) Period ended 5/14/1999........ 17.34 0.12 0.96 1.08 (0.11) -- Year ended 2/28/1999.......... 17.28 0.51 0.25 0.76 (0.52) (0.18) INVESTOR B SHARES* Year ended 3/31/2003#......... $15.88 $0.36 $(2.24) $(1.88) $(0.36) $ -- Year ended 3/31/2002#......... 15.92 0.45 (0.03) 0.42 (0.41) (0.05) Year ended 3/31/2001.......... 22.06 0.35 (2.00) (1.65) (0.45) (4.04) Period ended 3/31/2000#....... 18.27 0.44 5.12 5.56 (0.36) (1.41) Period ended 5/14/1999........ 17.30 0.09 0.96 1.05 (0.27) -- Period ended 2/28/1999**...... 17.67 0.22 (0.17) 0.05 (0.24) (0.18) INVESTOR C SHARES* Year ended 3/31/2003#......... $16.04 $0.36 $(2.26) $(1.90) $(0.37) $ -- Year ended 3/31/2002#......... 16.08 0.45 (0.03) 0.42 (0.41) (0.05) Year ended 3/31/2001.......... 22.23 0.35 (2.02) (1.67) (0.44) (4.04) Period ended 3/31/2000#....... 18.35 0.38 5.22 5.60 (0.31) (1.41) Period ended 5/14/1999........ 17.37 0.10 0.97 1.07 (0.09) -- Year ended 2/28/1999.......... 17.24 0.40 0.31 0.71 (0.40) (0.18)
- --------------- + 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 Capital Income Fund A, B and K Shares, which were reorganized into the Convertible Securities Investor A, Investor B 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. **Convertible Securities Primary A, and Investor B Shares commenced operations on May 21, 1999 and July 15, 1998, respectively. # Per share net investment income (loss) has been calculated using the monthly average shares method. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 152 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - --------------------------------------------------------------------------------------------------------------------------- $(0.50) $13.77 (11.01)% $523,271 0.97%(a)(b) 3.59% 57% 0.97%(a) (0.61) 16.03 3.74 236,202 1.00(a)(b) 3.78 50 1.00(a) (4.64) 16.05 (7.59) 75,627 0.99(a)(b) 3.08 73 1.00(a) (1.91) 22.18 35.21 13,688 0.97+(b) 2.21+ 65 0.98+ $(0.47) $13.77 (11.18)% $292,622 1.22%(a)(b) 3.34% 57% 1.22%(a) (0.57) 16.02 3.48 321,858 1.25(a)(b) 3.53 50 1.25(a) (4.59) 16.04 (7.88) 315,857 1.24(a)(b) 2.86 73 1.25(a) (1.86) 22.17 33.68 369,488 1.22+(b) 1.96+ 65 1.23+ (0.11) 18.31 6.25 352,000 1.30+ 3.07+ 16 1.32+ (0.70) 17.34 4.64 356,000 1.15(a) 2.97 66 1.16(a) $(0.36) $13.64 (11.83)% $111,468 1.97%(a)(b) 2.59% 57% 1.97%(a) (0.46) 15.88 2.68 90,408 2.00(a)(b) 2.78 50 2.00(a) (4.49) 15.92 (8.49) 49,763 1.99(a)(b) 2.08 73 2.00(a) (1.77) 22.06 32.76 11,175 1.97+(b) 1.21+ 65 1.98+ (0.08) 18.27 6.10 4,000 2.06+ 2.34+ 16 2.08+ (0.42) 17.30 0.44 3,000 1.96+(a) 2.14+ 66 1.97(a)+ $(0.37) $13.77 (11.89)% $ 30,293 1.97%(a)(b) 2.59% 57% 1.97%(a) (0.46) 16.04 2.66 20,370 2.00(a)(b) 2.78 50 2.00(a) (4.48) 16.08 (8.50) 9,827 1.99(a)(b) 2.08 73 2.00(a) (1.72) 22.23 32.81 3,033 1.97+(b) 1.21+ 65 1.98+ (0.09) 18.35 6.17 4,000 1.80+ 2.56+ 16 2.07+ (0.58) 17.37 4.29 4,000 1.65(a) 2.45 66 1.91(a)
SEE NOTES TO FINANCIAL STATEMENTS. 153 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- ASSET ALLOCATION PRIMARY A SHARES Year ended 3/31/2003#.......... $19.93 $0.32 $(3.49) $(3.17) $(0.34) $ -- Year ended 3/31/2002#.......... 20.32 0.44 (0.39) 0.05 (0.41) (0.03) Year ended 3/31/2001#.......... 24.35 0.57 (2.84) (2.27) (0.55) (1.21) Period ended 3/31/2000***#..... 23.06 0.49 1.93 2.42 (0.41) (0.72) INVESTOR A SHARES* Year ended 3/31/2003#.......... $19.92 $0.29 $(3.48) $(3.19) $(0.29) $ -- Year ended 3/31/2002#.......... 20.32 0.39 (0.40) (0.01) (0.36) (0.03) Year ended 3/31/2001#.......... 24.35 0.50 (2.82) (2.32) (0.50) (1.21) Period ended 3/31/2000#........ 23.40 0.43 1.59 2.02 (0.35) (0.72) Period ended 5/14/1999......... 22.50 0.10 0.91 1.01 (0.11) -- Year ended 2/28/1999........... 21.41 0.55 2.48 3.03 (0.45) (1.49) INVESTOR B SHARES* Year ended 3/31/2003#.......... $19.81 $0.15 $(3.47) $(3.32) $(0.18) $ -- Year ended 3/31/2002#.......... 20.22 0.23 (0.39) (0.16) (0.22) (0.03) Year ended 3/31/2001#.......... 24.24 0.33 (2.81) (2.48) (0.33) (1.21) Period ended 3/31/2000#........ 23.32 0.47 1.39 1.86 (0.22) (0.72) Period ended 5/14/1999......... 22.45 0.06 0.89 0.95 (0.08) -- Period ended 2/28/1999***...... 23.17 0.22 0.75 0.97 (0.20) (1.49) INVESTOR C SHARES* Year ended 3/31/2003#.......... $19.84 $0.15 $(3.48) $(3.33) $(0.20) $ -- Year ended 3/31/2002#.......... 20.22 0.24 (0.38) (0.14) (0.21) (0.03) Year ended 3/31/2001#.......... 24.27 0.33 (2.82) (2.49) (0.33) (1.21) Period ended 3/31/2000#........ 23.33 0.42 1.43 1.85 (0.19) (0.72) Period ended 5/14/1999......... 22.45 0.05 0.92 0.97 (0.09) -- Year ended 2/28/1999........... 21.36 0.44 2.49 2.93 (0.35) (1.49)
- --------------- + 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 Asset Allocation Fund A, B, and K Shares, which were reorganized into the Asset Allocation Investor A, Investor B, 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. ***Asset Allocation Primary A, Investor B, and Investor C Shares commenced operations on May 21, 1999, July 15, 1998, and November 11, 1996, respectively. # Per share net investment income (loss) has been calculated using the monthly average shares method. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 154 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE NET DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE ASSETS - ---------------------------------------------------------------------------------------------------------------------------- $(0.34) $16.42 (15.96)% $ 35,514 1.04%(a)(b) 1.85% 315% 1.04%(a) (0.44) 19.93 0.26 40,287 1.03(a) 2.10 226 1.03(a) (1.76) 20.32 (9.83) 12,847 0.98(a)(b) 2.45 88 1.00(a) (1.13) 24.35 10.88 15,532 0.95+(a)(b) 1.85+ 84 1.02+(a) $(0.29) $16.44 (16.05)% $ 88,011 1.29%(a)(b) 1.60% 315% 1.29%(a) (0.39) 19.92 (0.05) 223,579 1.28(a) 1.85 226 1.28(a) (1.71) 20.32 (10.05) 231,520 1.23(a)(b) 2.20 88 1.25(a) (1.07) 24.35 8.99 83,412 1.20+(a)(b) 1.60+ 84 1.27+(a) (0.11) 23.40 4.50 72,000 1.18+ 2.01+ 20 1.20+ (1.94) 22.50 14.72 72,000 0.94 2.64 114 0.94 $(0.18) $16.31 (16.80)% $ 72,344 2.04%(a)(b) 0.85% 315% 2.04%(a) (0.25) 19.81 (0.77) 124,983 2.03(a) 1.10 226 2.03(a) (1.54) 20.22 (10.73) 104,745 1.98(a)(b) 1.45 88 2.00(a) (0.94) 24.24 8.31 121,644 1.95+(a)(b) 0.85+ 84 2.02+(a) (0.08) 23.32 4.26 10,000 1.95+ 1.26+ 20 1.97+ (1.69) 22.45 4.59 6,000 1.74+ 1.92+ 114 1.74 $(0.20) $16.31 (16.80)% $ 1,992 2.04%(a)(b) 0.85% 315% 2.04%(a) (0.24) 19.84 (0.78) 3,220 2.03(a) 1.10 226 2.03(a) (1.54) 20.24 (10.74) 2,532 1.98(a)(b) 1.45 88 2.00(a) (0.91) 24.27 8.24 2,305 1.95+(a)(b) 0.85+ 84 2.02+(a) (0.09) 23.33 4.31 2,000 1.67+ 1.52+ 20 1.96+ (1.84) 22.45 14.23 2,000 1.44 2.14 114 1.69
SEE NOTES TO FINANCIAL STATEMENTS. 155 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- CLASSIC VALUE PRIMARY A SHARES* Year ended 3/31/2003#.......... $12.07 $ 0.13 $(4.10) $(3.97) $(0.10) $(0.49) Period ended 3/31/2002#........ 10.00 0.11 2.10 2.21 (0.04) (0.10) INVESTOR A SHARES* Year ended 3/31/2003#.......... $12.06 $ 0.10 $(4.08) $(3.98) $(0.08) $(0.49) Period ended 3/31/2002#........ 10.00 0.10 2.09 2.19 (0.03) (0.10) INVESTOR B SHARES* Year ended 3/31/2003#.......... $12.00 $ 0.03 $(4.05) $(4.02) $(0.02) $(0.49) Period ended 3/31/2002#........ 10.00 (0.00)## 2.10 2.10 (0.00)## (0.10) INVESTOR C SHARES* Year ended 3/31/2003#.......... $12.00 $ 0.03 $(4.05) $(4.02) $(0.02) $(0.49) Period ended 3/31/2002#........ 10.00 0.01 2.09 2.10 (0.00)## (0.10)
- --------------- * Classic Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 156 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - --------------------------------------------------------------------------------------------------------------------------- $(0.59) $ 7.51 (33.96)% $239,488 0.99%(a)(b) 1.38% 38% 0.99%(a) (0.14) 12.07 22.21 274,661 1.04+(a) 1.06+ 42 1.04+(a) $(0.57) $ 7.51 (34.05)% $ 15,341 1.24%(a)(b) 1.13% 38% 1.24%(a) (0.13) 12.06 22.00 17,128 1.29+(a) 0.81+ 42 1.29+(a) $(0.51) $ 7.47 (34.59)% $ 27,384 1.99%(a)(b) 0.38% 38% 1.99%(a) (0.10) 12.00 21.08 36,511 2.04+(a) 0.06+ 42 2.04+(a) $(0.51) $ 7.47 (34.54)% $ 34,198 1.99%(a)(b) 0.38% 38% 1.99%(a) (0.10) 12.00 21.08 40,916 2.04+(a) 0.06+ 42 2.04+(a)
SEE NOTES TO FINANCIAL STATEMENTS. 157 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- LARGECAP VALUE PRIMARY A SHARES* Year ended 3/31/2003#.......... $10.69 $0.12 $(3.02) $(2.90) $(0.09) $(0.02) Period ended 3/31/2002#........ 10.00 0.08 0.63 0.71 (0.02) -- INVESTOR A SHARES* Year ended 3/31/2003#.......... $10.69 $0.10 $(3.02) $(2.92) $(0.07) $(0.02) Period ended 3/31/2002#........ 10.00 0.07 0.63 0.70 (0.01) -- INVESTOR B SHARES* Year ended 3/31/2003#.......... $10.67 $0.04 $(3.02) $(2.98) $(0.02) $(0.02) Period ended 3/31/2002#........ 10.00 0.00## 0.67 0.67 (0.00)## -- INVESTOR C SHARES* Year ended 3/31/2003#.......... $10.67 $0.04 $(3.02) $(2.98) $(0.02) $(0.02) Period ended 3/31/2002#........ 10.00 0.00## 0.67 0.67 (0.00)## --
- --------------- * LargeCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 158 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS VALUE END EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND END OF TOTAL OF PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - ---------------------------------------------------------------------------------------------------------------------------- $(0.11) $ 7.68 (27.25)% $30,628 1.07%(a)(b) 1.36% 69% 1.34%(a) (0.02) 10.69 7.08 17,822 1.07+(a) 0.88+ 24 6.31+(a) $(0.09) $ 7.68 (27.41)% $46,006 1.32%(a)(b) 1.11% 69% 1.59%(a) (0.01) 10.69 7.03 315 1.32+(a) 0.63+ 24 6.56+(a) $(0.04) $ 7.65 (27.98)% $ 1,394 2.07%(a)(b) 0.36% 69% 2.34%(a) (0.00)## 10.67 6.74 290 2.07+(a) (0.12)+ 24 7.31+(a) $(0.04) $ 7.65 (27.99)% $ 113 2.07%(a)(b) 0.36% 69% 2.34%(a) (0.00)## 10.67 6.74 21 2.07+(a) (0.12)+ 24 7.31+(a)
SEE NOTES TO FINANCIAL STATEMENTS. 159 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- VALUE PRIMARY A SHARES Year ended 3/31/2003#.......... $11.96 $ 0.14 $(3.31) $(3.17) $(0.13) $(0.18) Year ended 3/31/2002#.......... 12.39 0.12 0.58 0.70 (0.10) (1.03) Year ended 3/31/2001........... 16.24 0.17 (0.42) (0.25) (0.18) (3.42) Year ended 3/31/2000#.......... 18.16 0.11 (0.06) 0.05 (0.11) (1.86) Year ended 3/31/1999#.......... 19.92 0.13 0.64 0.77 (0.14) (2.39) INVESTOR A SHARES Year ended 3/31/2003#.......... $11.94 $ 0.11 $(3.31) $(3.20) $(0.10) $(0.18) Year ended 3/31/2002#.......... 12.38 0.09 0.58 0.67 (0.08) (1.03) Year ended 3/31/2001........... 16.24 0.14 (0.43) (0.29) (0.15) (3.42) Year ended 3/31/2000#.......... 18.16 0.07 (0.07) 0.00 (0.06) (1.86) Year ended 3/31/1999#.......... 19.92 0.09 0.63 0.72 (0.09) (2.39) INVESTOR B SHARES Year ended 3/31/2003#.......... $11.66 $ 0.03 $(3.22) $(3.19) $(0.04) $(0.18) Year ended 3/31/2002#.......... 12.13 0.00## 0.59 0.59 (0.03) (1.03) Year ended 3/31/2001........... 16.00 0.04 (0.43) (0.39) (0.06) (3.42) Year ended 3/31/2000#.......... 18.00 (0.06) (0.08) (0.14) (0.00)## (1.86) Year ended 3/31/1999#.......... 19.81 (0.05) 0.63 0.58 -- (2.39) INVESTOR C SHARES Year ended 3/31/2003#.......... $11.65 $ 0.04 $(3.22) $(3.18) $(0.05) $(0.18) Year ended 3/31/2002#.......... 12.13 0.00## 0.58 0.58 (0.03) (1.03) Year ended 3/31/2001........... 15.99 0.04 (0.42) (0.38) (0.06) (3.42) Year ended 3/31/2000#.......... 17.98 (0.06) (0.07) (0.13) (0.00)## (1.86) Year ended 3/31/1999#.......... 19.75 (0.02) 0.65 0.63 (0.01) (2.39)
- --------------- ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 160 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------ $(0.31) $ 8.48 (26.95)% $ 451,815 0.97%(a) 1.43% 75% 0.97%(a) (1.13) 11.96 5.64 513,206 0.95(a)(b) 1.02 135 0.95(a) (3.60) 12.39 (1.97) 844,432 0.94(a)(b) 1.28 181 0.94(a) (1.97) 16.24 (0.16) 1,290,572 0.93(a)(b) 0.65 95 0.93(a) (2.53) 18.16 4.15 1,939,704 0.94(a)(b) 0.76 38 0.94(a) $(0.28) $ 8.46 (27.17)% $ 43,364 1.22%(a) 1.18% 75% 1.22%(a) (1.11) 11.94 5.33 58,144 1.20(a)(b) 0.77 135 1.20(a) (3.57) 12.38 (2.29) 65,975 1.19(a)(b) 1.03 181 1.19(a) (1.92) 16.24 (0.47) 94,256 1.18(a)(b) 0.40 95 1.18(a) (2.48) 18.16 3.96 136,691 1.19(a)(b) 0.51 38 1.19(a) $(0.22) $ 8.25 (27.72)% $ 37,399 1.97%(a) 0.43% 75% 1.97%(a) (1.06) 11.66 4.66 80,162 1.95(a)(b) 0.02 135 1.95(a) (3.48) 12.13 (3.05) 93,064 1.94(a)(b) 0.28 181 1.94(a) (1.86) 16.00 (1.24) 124,000 1.93(a)(b) (0.35) 95 1.93(a) (2.39) 18.00 3.11 154,025 1.94(a)(b) (0.24) 38 1.94(a) $(0.23) $ 8.24 (27.72)% $ 4,694 1.97%(a) 0.43% 75% 1.97%(a) (1.06) 11.65 4.58 7,496 1.95(a)(b) 0.02 135 1.95(a) (3.48) 12.13 (2.98) 8,479 1.94(a)(b) 0.28 181 1.94(a) (1.86) 15.99 (1.18) 10,042 1.93(a)(b) (0.32) 95 1.93(a) (2.40) 17.98 3.39 12,106 1.70(a)(b) 0.00 38 1.94(a)
SEE NOTES TO FINANCIAL STATEMENTS. 161 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- MIDCAP VALUE PRIMARY A SHARES* Year ended 3/31/2003#.......... $11.32 $0.10 $(2.61) $(2.51) $(0.07) $(0.02) Period ended 3/31/2002#........ 10.00 0.06 1.30 1.36 (0.04) -- INVESTOR A SHARES* Year ended 3/31/2003#.......... $11.30 $0.08 $(2.60) $(2.52) $(0.05) $(0.02) Period ended 3/31/2002#........ 10.00 0.04 1.30 1.34 (0.04) -- INVESTOR B SHARES* Year ended 3/31/2003#.......... $11.29 $0.01 $(2.59) $(2.58) $(0.02) $(0.02) Period ended 3/31/2002#........ 10.00 (0.04) 1.35 1.31 (0.02) -- INVESTOR C SHARES* Year ended 3/31/2003#.......... $11.31 $0.01 $(2.59) $(2.58) $(0.02) $(0.02) Period ended 3/31/2002#........ 10.00 (0.05) 1.36 1.31 (0.00)## --
- --------------- * MidCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 162 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE NET DISTRIBUTIONS END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE ASSETS - ------------------------------------------------------------------------------------------------------------------------ $(0.09) $ 8.72 (22.27)% $294,087 1.16%(a) 1.11% 98% 1.16%(a) (0.04) 11.32 13.63 98,888 1.25+(a) 0.64+ 19 2.03+(a) $(0.07) $ 8.71 (22.36)% $ 3,270 1.41%(a) 0.86% 98% 1.41%(a) (0.04) 11.30 13.37 573 1.50+(a) 0.39+ 19 2.28+(a) $(0.04) $ 8.67 (22.93)% $ 1,961 2.16%(a) 0.11% 98% 2.16%(a) (0.02) 11.29 13.14 524 2.25+(a) (0.36)+ 19 3.03+(a) $(0.04) $ 8.69 (22.89)% $ 362 2.16%(a) 0.11% 98% 2.16%(a) (0.00)## 11.31 13.10 93 2.25+(a) (0.36)+ 19 3.03+(a)
SEE NOTES TO FINANCIAL STATEMENTS. 163 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 ----------------------------------------------------------------------------- SMALLCAP VALUE PRIMARY A SHARES* Period ended 3/31/2003#...................... $10.00 $ 0.03 $(2.28) $(2.25) $(0.02) INVESTOR A SHARES* Period ended 3/31/2003#...................... $10.00 $ 0.01 $(2.28) $(2.27) $(0.02) INVESTOR B SHARES* Period ended 3/31/2003#...................... $10.00 $(0.04) $(2.28) $(2.32) $(0.00)## INVESTOR C SHARES* Period ended 3/31/2003#...................... $10.00 $(0.04) $(2.29) $(2.33) $(0.00)##
- --------------- * SmallCap Value Primary A, Investor A, Investor B and Investor C Shares commenced operations on May 1, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 164 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSETS OPERATING NET INVESTMENT OPERATING NET ASSET END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO VALUE TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE END OF PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------------- $7.73 (22.50)% $70,168 1.30%+(a) 0.45%+ 89% 1.57%+(a) $7.71 (22.75)% $ 1,122 1.55%+(a) 0.20%+ 89% 1.82%+(a) $7.68 (23.20)% $ 341 2.30%+(a) (0.55)%+ 89% 2.57%+(a) $7.67 (23.29)% $ 56 2.30%+(a) (0.55)%+ 89% 2.57%+(a)
SEE NOTES TO FINANCIAL STATEMENTS. 165 NATIONS FUNDS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS GAINS ---------------------------------------------------------------------------- GROWTH* PRIMARY A SHARES Year ended 3/31/2003#..................... $14.79 $(0.05) $(2.79) $(2.84) $ -- Year ended 3/31/2002#..................... 14.91 (0.06) (0.06) (0.12) -- Year ended 3/31/2001...................... 21.61 (0.01) (6.53) (6.54) (0.16) Year ended 3/31/2000...................... 14.91 (0.07) 6.81 6.74 (0.04) Year ended 3/31/1999#..................... 12.03 0.00## 2.89 2.89 (0.01) INVESTOR A SHARES Year ended 3/31/2003#..................... $14.72 $(0.08) $(2.78) $(2.86) $ -- Year ended 3/31/2002#..................... 14.87 (0.09) (0.06) (0.15) -- Year ended 3/31/2001...................... 21.62 (0.05) (6.54) (6.59) (0.16) Year ended 3/31/2000...................... 14.95 (0.11) 6.82 6.71 (0.04) Year ended 3/31/1999#..................... 12.02 (0.03) 2.97 2.94 (0.01) INVESTOR B SHARES Year ended 3/31/2003#..................... $14.29 $(0.17) $(2.69) $(2.86) $ -- Year ended 3/31/2002#..................... 14.55 (0.20) (0.06) (0.26) -- Year ended 3/31/2001...................... 21.31 (0.18) (6.42) (6.60) (0.16) Year ended 3/31/2000...................... 14.85 (0.24) 6.74 6.50 (0.04) Year ended 3/31/1999#..................... 12.02 (0.12) 2.96 2.84 (0.01) INVESTOR C SHARES Year ended 3/31/2003#..................... $14.31 $(0.17) $(2.70) $(2.87) $ -- Year ended 3/31/2002#..................... 14.57 (0.20) (0.06) (0.26) -- Year ended 3/31/2001...................... 21.34 (0.17) (6.44) (6.61) (0.16) Year ended 3/31/2000...................... 14.86 (0.25) 6.77 6.52 (0.04) Year ended 3/31/1999#..................... 12.02 (0.12) 2.97 2.85 (0.01)
- --------------- ++ 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 per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of Growth Master Portfolio. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. ### Amount represents results prior to conversion to a master-feeder structure. (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. 166 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING VALUE END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - ------------------------------------------------------------------------------------------------ $11.95 (19.20)% $106,436 1.17% (0.37)% -- 1.17% 14.79 (0.80) 58,752 1.14 (0.39) -- 1.14 14.91 (30.42) 80,526 1.10 (0.03) -- 1.10 21.61 45.33 113,028 1.23(a) (0.37) 55%### 1.23(a) 14.91 24.05 52,229 1.25(a) 0.05 150 1.25(a) $11.86 (19.43)% $279,840 1.42% (0.62)% -- 1.42% 14.72 (1.01) 217,963 1.39 (0.64) -- 1.39 14.87 (30.63) 164,031 1.35 (0.28) -- 1.35 21.62 45.01 175,859 1.48(a) (0.62) 55%### 1.48(a) 14.95 24.38 43,392 1.50(a) (0.20) 150 1.50(a) $11.43 (20.01)% $137,432 2.17% (1.37)% -- 2.17% 14.29 (1.79) 209,503 2.14 (1.39) -- 2.14 14.55 (31.13) 239,621 2.10 (1.03) -- 2.10 21.31 43.90 305,607 2.23(a) (1.37) 55%### 2.23(a) 14.85 23.55 99,257 2.25(a) (0.95) 150 2.25(a) $11.44 (20.06)% $ 55,913 2.17% (1.37)% -- 2.17% 14.31 (1.78) 31,886 2.14 (1.39) -- 2.14 14.57 (31.10) 32,365 2.10 (1.03) -- 2.10 21.34 43.93 34,785 2.23(a) (1.37) 55%### 2.23(a) 14.86 23.63 3,233 2.25(a) (0.95) 150 2.25(a)
SEE NOTES TO FINANCIAL STATEMENTS. 167 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 ------------------------------------------------------------------------- STRATEGIC GROWTH*** PRIMARY A SHARES Year ended 3/31/2003#..................... $12.35 $ 0.07 $(3.59) $(3.52) $(0.05) Year ended 3/31/2002#..................... 12.47 0.02 (0.12) (0.10) (0.02) Year ended 3/31/2001...................... 17.03 (0.01) (4.51) (4.52) (0.01) Year ended 3/31/2000#..................... 13.86 (0.02) 3.39 3.37 -- Period ended 3/31/1999*#.................. 10.00 0.00## 3.87 3.87 -- INVESTOR A SHARES Year ended 3/31/2003#..................... $12.31 $ 0.04 $(3.56) $(3.52) $(0.03) Year ended 3/31/2002#..................... 12.44 (0.01) (0.11) (0.12) (0.01) Year ended 3/31/2001...................... 16.98 (0.04) (4.47) (4.51) -- Period ended 3/31/2000**#................. 13.88 (0.03) 3.19 3.16 -- INVESTOR B SHARES Year ended 3/31/2003#..................... $12.07 $(0.03) $(3.50) $(3.53) $(0.00)## Year ended 3/31/2002#..................... 12.29 (0.10) (0.12) (0.22) (0.00)## Year ended 3/31/2001...................... 16.90 (0.14) (4.44) (4.58) -- Period ended 3/31/2000**#................. 13.88 (0.10) 3.18 3.08 -- INVESTOR C SHARES Year ended 3/31/2003#..................... $12.08 $(0.03) $(3.51) $(3.54) $ -- Year ended 3/31/2002#..................... 12.30 (0.10) (0.12) (0.22) (0.00)## Year ended 3/31/2001...................... 16.92 (0.14) (4.45) (4.59) -- Period ended 3/31/2000**#................. 13.88 (0.10) 3.20 3.10 -- DISTRIBUTIONS FROM NET REALIZED GAINS ------------- STRATEGIC GROWTH*** PRIMARY A SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... -- Year ended 3/31/2001...................... (0.03) Year ended 3/31/2000#..................... (0.20) Period ended 3/31/1999*#.................. (0.01) INVESTOR A SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... -- Year ended 3/31/2001...................... (0.03) Period ended 3/31/2000**#................. (0.06) INVESTOR B SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... -- Year ended 3/31/2001...................... (0.03) Period ended 3/31/2000**#................. (0.06) INVESTOR C SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... -- Year ended 3/31/2001...................... (0.03) Period ended 3/31/2000**#................. (0.06)
- --------------- + 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. * Strategic Growth Primary A Shares commenced operations on October 2, 1998. ** Strategic Growth Investor A, Investor B and Investor C Shares commenced operations on August 2, 1999. ***The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of Strategic Growth Master Portfolio. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. ### Amount represents results prior to conversion to a master-feeder structure on May 13, 2002. (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. 168 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS RATIO OF NET --------------- RATIO OF INVESTMENT RATIO OF TOTAL NET ASSET NET ASSETS OPERATING INCOME/(LOSS) OPERATING DIVIDENDS VALUE END OF EXPENSES TO PORTFOLIO EXPENSES TO AND END OF TOTAL PERIOD TO AVERAGE AVERAGE TURNOVER AVERAGE DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------------------------- $(0.05) $ 8.78 (28.55)% $1,393,260 0.94% 0.69% 15%### 0.94% (0.02) 12.35 (0.83) 1,230,030 0.94(a) 0.20 71 0.94(a) (0.04) 12.47 (26.62) 1,182,028 0.94(a)(b) (0.09) 56 0.94(a) (0.20) 17.03 24.63 860,124 0.97 (0.10) 23 0.97 (0.01) 13.86 38.65 266,823 1.07+(a) (0.03)+ 34 1.07+(a) $(0.03) $ 8.76 (28.61)% $ 213,691 1.19% 0.44% 15%### 1.19% (0.01) 12.31 (0.97) 26,742 1.19(a) (0.05) 71 1.19(a) (0.03) 12.44 (26.62) 11,895 1.19(a)(b) (0.34) 56 1.19(a) (0.06) 16.98 22.86 5,503 1.22+ (0.35)+ 23 1.22+ $(0.00)## $ 8.54 (29.23)% $ 38,972 1.94% (0.31)% 15%### 1.94% (0.00)## 12.07 (1.78) 8,358 1.94(a) (0.80) 71 1.94(a) (0.03) 12.29 (27.16) 6,758 1.94(a)(b) (1.09) 56 1.94(a) (0.06) 16.90 22.29 4,934 1.97+ (1.10)+ 23 1.97+ $ -- $ 8.54 (29.30)% $ 12,857 1.94% (0.31)% 15%### 1.94% (0.00)## 12.08 (1.78) 2,645 1.94(a) (0.80) 71 1.94(a) (0.03) 12.30 (27.14) 2,137 1.94(a)(b) (1.09) 56 1.94(a) (0.06) 16.92 22.36 1,706 1.97+ (1.10)+ 23 1.97+
SEE NOTES TO FINANCIAL STATEMENTS. 169 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 ---------------------------------------------------------------------------- CAPITAL GROWTH PRIMARY A SHARES Year ended 3/31/2003#..................... $ 7.81 $ 0.01 $(2.21) $(2.20) $ -- Year ended 3/31/2002#..................... 8.30 (0.01) (0.22) (0.23) -- Year ended 3/31/2001...................... 14.59 (0.03) (3.90) (3.93) -- Year ended 3/31/2000...................... 12.05 (0.05) 3.47 3.42 -- Year ended 3/31/1999#..................... 13.30 0.00## 1.59 1.59 -- INVESTOR A SHARES Year ended 3/31/2003#..................... $ 7.65 $(0.01) $(2.15) $(2.16) $ -- Year ended 3/31/2002#..................... 8.16 (0.03) (0.22) (0.25) -- Year ended 3/31/2001...................... 14.43 (0.07) (3.84) (3.91) -- Year ended 3/31/2000...................... 11.97 (0.08) 3.42 3.34 -- Year ended 3/31/1999#..................... 13.26 (0.03) 1.58 1.55 -- INVESTOR B SHARES Year ended 3/31/2003#..................... $ 6.97 $(0.05) $(1.96) $(2.01) $ -- Year ended 3/31/2002#..................... 7.51 (0.08) (0.20) (0.28) -- Year ended 3/31/2001...................... 13.58 (0.14) (3.57) (3.71) -- Year ended 3/31/2000...................... 11.39 (0.17) 3.24 3.07 -- Year ended 3/31/1999#..................... 12.83 (0.11) 1.51 1.40 -- INVESTOR C SHARES Year ended 3/31/2003#..................... $ 7.05 $(0.05) $(1.98) $(2.03) $ -- Year ended 3/31/2002#..................... 7.59 (0.08) (0.20) (0.28) -- Year ended 3/31/2001...................... 13.70 (0.13) (3.62) (3.75) -- Year ended 3/31/2000...................... 11.48 (0.16) 3.26 3.10 -- Year ended 3/31/1999#..................... 12.92 (0.11) 1.51 1.40 -- DISTRIBUTIONS FROM NET REALIZED GAINS ------------- CAPITAL GROWTH PRIMARY A SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... (0.26) Year ended 3/31/2001...................... (2.36) Year ended 3/31/2000...................... (0.88) Year ended 3/31/1999#..................... (2.84) INVESTOR A SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... (0.26) Year ended 3/31/2001...................... (2.36) Year ended 3/31/2000...................... (0.88) Year ended 3/31/1999#..................... (2.84) INVESTOR B SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... (0.26) Year ended 3/31/2001...................... (2.36) Year ended 3/31/2000...................... (0.88) Year ended 3/31/1999#..................... (2.84) INVESTOR C SHARES Year ended 3/31/2003#..................... $ -- Year ended 3/31/2002#..................... (0.26) Year ended 3/31/2001...................... (2.36) Year ended 3/31/2000...................... (0.88) Year ended 3/31/1999#..................... (2.84)
- --------------- ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 170 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS VALUE END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO AND END OF TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER AVERAGE DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - ----------------------------------------------------------------------------------------------------------------- $ -- $ 5.61 (28.17)% $158,017 1.01%(a)(b) 0.13% 178% 1.01%(a) (0.26) 7.81 (3.31) 302,843 0.97(a)(b) (0.12) 65 0.97(a) (2.36) 8.30 (30.69) 531,657 0.95(a)(b) (0.28) 96 0.95(a) (0.88) 14.59 29.90 816,371 0.96(a)(b) (0.38) 39 0.96(a) (2.84) 12.05 14.99 737,620 0.96(a) (0.04) 39 0.96(a) $ -- $ 5.49 (28.24)% $ 28,896 1.26%(a)(b) (0.12)% 178% 1.26%(a) (0.26) 7.65 (3.62) 28,994 1.22(a)(b) (0.37) 65 1.22(a) (2.36) 8.16 (30.91) 32,519 1.20(a)(b) (0.53) 96 1.20(a) (0.88) 14.43 29.41 61,756 1.21(a)(b) (0.63) 39 1.21(a) (2.84) 11.97 14.70 52,987 1.21(a) (0.29) 39 1.21(a) $ -- $ 4.96 (28.84)% $ 21,125 2.01%(a)(b) (0.87)% 178% 2.01%(a) (0.26) 6.97 (4.35) 37,767 1.97(a)(b) (1.12) 65 1.97(a) (2.36) 7.51 (31.37) 45,832 1.95(a)(b) (1.28) 96 1.95(a) (0.88) 13.58 28.42 75,844 1.96(a)(b) (1.38) 39 1.96(a) (2.84) 11.39 13.86 66,338 1.96(a) (1.04) 39 1.96(a) $ -- $ 5.02 (28.79)% $ 2,807 2.01%(a)(b) (0.87)% 178% 2.01%(a) (0.26) 7.05 (4.31) 4,538 1.97(a)(b) (1.12) 65 1.97(a) (2.36) 7.59 (31.38) 3,338 1.95(a)(b) (1.28) 96 1.95(a) (0.88) 13.70 28.46 4,883 1.96(a)(b) (1.38) 39 1.96(a) (2.84) 11.48 13.76 3,862 1.96(a) (1.04) 39 1.96(a)
SEE NOTES TO FINANCIAL STATEMENTS. 171 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS GAINS -------------------------------------------------------------------------------- FOCUSED EQUITIES* PRIMARY A SHARES Year ended 3/31/2003#...................... $15.87 $(0.05) $(3.01) $(3.06) $ -- Year ended 3/31/2002#...................... 15.37 (0.05) 0.55 0.50 -- Year ended 3/31/2001....................... 22.59 (0.01) (7.13) (7.14) (0.08) Year ended 3/31/2000#...................... 16.69 (0.01) 6.14 6.13 (0.23) Year ended 3/31/1999#...................... 12.13 (0.01) 4.58 4.57 (0.01) INVESTOR A SHARES Year ended 3/31/2003#...................... $15.77 $(0.08) $(2.99) $(3.07) $ -- Year ended 3/31/2002#...................... 15.31 (0.09) 0.55 0.46 -- Year ended 3/31/2001....................... 22.56 (0.06) (7.11) (7.17) (0.08) Year ended 3/31/2000#...................... 16.73 (0.03) 6.09 6.06 (0.23) Year ended 3/31/1999#...................... 12.14 (0.04) 4.64 4.60 (0.01) INVESTOR B SHARES Year ended 3/31/2003#...................... $15.33 $(0.18) $(2.90) $(3.08) $ -- Year ended 3/31/2002#...................... 15.00 (0.20) 0.53 0.33 -- Year ended 3/31/2001....................... 22.26 (0.20) (6.98) (7.18) (0.08) Year ended 3/31/2000#...................... 16.62 (0.09) 5.96 5.87 (0.23) Year ended 3/31/1999#...................... 12.13 (0.12) 4.62 4.50 (0.01) INVESTOR C SHARES Year ended 3/31/2003#...................... $15.38 $(0.18) $(2.91) $(3.09) $ -- Year ended 3/31/2002#...................... 15.05 (0.20) 0.53 0.33 -- Year ended 3/31/2001....................... 22.33 (0.20) (7.00) (7.20) (0.08) Year ended 3/31/2000#...................... 16.67 (0.08) 5.97 5.89 (0.23) Year ended 3/31/1999#...................... 12.13 (0.14) 4.69 4.55 (0.01)
- --------------- ++ 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 per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of Focused Equities Master Portfolio. # Per share net investment income (loss) has been calculated using the monthly average shares method. ### Amount represents results prior to conversion to a master-feeder structure. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 172 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING VALUE END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO END OF TOTAL PERIOD AVERAGE NET AVERAGE TURNOVER AVERAGE NET PERIOD RETURN++ (000) ASSETS NET ASSETS RATE ASSETS - ------------------------------------------------------------------------------------------------ $12.81 (19.28)% $ 384,706 1.12% (0.35)% -- 1.12% 15.87 3.25 346,435 1.11 (0.33) -- 1.11 15.37 (31.67) 354,798 1.09 (0.05) -- 1.09 22.59 37.13 326,745 1.16(a) (0.35) 53%### 1.16(a) 16.69 37.73 105,458 1.06(a) 0.05 177 1.06(a) $12.70 (19.47)% $ 537,958 1.37% (0.60)% -- 1.37% 15.77 3.00 507,590 1.36 (0.58) -- 1.36 15.31 (31.80) 491,437 1.34 (0.30) -- 1.34 22.56 36.62 690,166 1.41(a) (0.60) 53%### 1.41(a) 16.73 37.94 238,137 1.31(a) (0.20) 177 1.31(a) $12.25 (20.09)% $ 462,082 2.12% (1.35)% -- 2.12% 15.33 2.20 679,688 2.11 (1.33) -- 2.11 15.00 (32.32) 741,285 2.09 (1.05) -- 2.09 22.26 35.71 1,003,840 2.16(a) (1.35) 53%### 2.16(a) 16.62 37.15 306,365 2.06(a) (0.95) 177 2.06(a) $12.29 (20.09)% $ 175,032 2.12% (1.35)% -- 2.12% 15.38 2.19 188,842 2.11 (1.33) -- 2.11 15.05 (32.31) 203,642 2.09 (1.05) -- 2.09 22.33 35.72 247,509 2.16(a) (1.35) 53%### 2.16(a) 16.67 37.56 13,682 2.06(a) (0.95) 177 2.06(a)
SEE NOTES TO FINANCIAL STATEMENTS. 173 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS GAINS -------------------------------------------------------------------------------- MIDCAP GROWTH PRIMARY A SHARES Year ended 3/31/2003#....................... $13.21 $(0.04) $(4.51) $(4.55) $ -- Year ended 3/31/2002#....................... 14.63 (0.05) (1.37) (1.42) -- Year ended 3/31/2001........................ 22.41 (0.03) (4.02) (4.05) (3.73) Year ended 3/31/2000#....................... 13.31 (0.07) 9.81 9.74 (0.64) Year ended 3/31/1999#....................... 16.56 (0.04) (0.94) (0.98) (2.27) INVESTOR A SHARES Year ended 3/31/2003#....................... $12.73 $(0.07) $(4.33) $(4.40) $ -- Year ended 3/31/2002#....................... 14.14 (0.09) (1.32) (1.41) -- Year ended 3/31/2001........................ 21.87 (0.09) (3.91) (4.00) (3.73) Year ended 3/31/2000#....................... 13.04 (0.12) 9.59 9.47 (0.64) Year ended 3/31/1999#....................... 16.30 (0.07) (0.92) (0.99) (2.27) INVESTOR B SHARES Year ended 3/31/2003#....................... $11.51 $(0.12) $(3.93) $(4.05) $ -- Year ended 3/31/2002#....................... 12.87 (0.17) (1.19) (1.36) -- Year ended 3/31/2001........................ 20.38 (0.19) (3.59) (3.78) (3.73) Year ended 3/31/2000#....................... 12.28 (0.22) 8.96 8.74 (0.64) Year ended 3/31/1999#....................... 15.58 (0.15) (0.88) (1.03) (2.27) INVESTOR C SHARES Year ended 3/31/2003#....................... $11.57 $(0.12) $(3.94) $(4.06) $ -- Year ended 3/31/2002#....................... 12.95 (0.17) (1.21) (1.38) -- Year ended 3/31/2001........................ 20.47 (0.17) (3.62) (3.79) (3.73) Year ended 3/31/2000#....................... 12.33 (0.22) 9.00 8.78 (0.64) Year ended 3/31/1999#....................... 15.63 (0.15) (0.88) (1.03) (2.27)
- --------------- + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income (loss) has been calculated using the monthly average 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. 174 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING VALUE END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - --------------------------------------------------------------------------------------------------- $ 8.66 (34.44)% $402,987 0.97%(a)(b) (0.45)% 58% 0.97%(a) 13.21 (9.71) 547,514 0.97(a)(b) (0.39) 39 0.97(a) 14.63 (20.67) 388,152 0.98(a) (0.27) 39 0.98(a) 22.41 75.34 281,951 1.00(a)(b) (0.45) 46 1.00(a) 13.31 (7.21) 177,861 0.98(a)(b) (0.29) 43 0.98(a) $ 8.33 (34.56)% $ 18,120 1.22%(a)(b) (0.70)% 58% 1.22%(a) 12.73 (9.97) 32,138 1.22(a)(b) (0.64) 39 1.22(a) 14.14 (20.98) 16,536 1.23(a) (0.52) 39 1.23(a) 21.87 74.82 22,741 1.25(a)(b) (0.70) 46 1.25(a) 13.04 (7.41) 18,042 1.23(a)(b) (0.54) 43 1.23(a) $ 7.46 (35.19)% $ 21,990 1.97%(a)(b) (1.45)% 58% 1.97%(a) 11.51 (10.57) 45,368 1.97(a)(b) (1.39) 39 1.97(a) 12.87 (21.51) 44,261 1.98(a) (1.27) 39 1.98(a) 20.38 73.47 49,606 2.00(a)(b) (1.45) 46 2.00(a) 12.28 (8.10) 33,245 1.98(a)(b) (1.29) 43 1.98(a) $ 7.51 (35.09)% $ 1,709 1.97%(a)(b) (1.45)% 58% 1.97%(a) 11.57 (10.66) 3,024 1.97(a)(b) (1.39) 39 1.97(a) 12.95 (21.46) 3,248 1.98(a) (1.27) 39 1.98(a) 20.47 73.50 2,628 2.00(a)(b) (1.45) 46 2.00(a) 12.33 (8.08) 1,383 1.98(a)(b) (1.29) 43 1.98(a)
SEE NOTES TO FINANCIAL STATEMENTS. 175 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ VALUE NET AND UNREALIZED (DECREASE) IN BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS --------------------------------------------------------------- 21ST CENTURY PRIMARY A SHARES Year ended 3/31/2003#.................................... $ 7.10 $(0.05) $(0.81) $(0.86) Year ended 3/31/2002#.................................... 6.99 (0.05) 0.16 0.11 Period ended 3/31/2001*.................................. 10.00 (0.03) (2.98) (3.01) INVESTOR A SHARES Year ended 3/31/2003#.................................... $ 7.06 $(0.07) $(0.80) $(0.87) Year ended 3/31/2002#.................................... 6.97 (0.07) 0.16 0.09 Period ended 3/31/2001*.................................. 10.00 (0.06) (2.97) (3.03) INVESTOR B SHARES Year ended 3/31/2003#.................................... $ 6.96 $(0.12) $(0.79) $(0.91) Year ended 3/31/2002#.................................... 6.92 (0.12) 0.16 0.04 Period ended 3/31/2001*.................................. 10.00 (0.11) (2.97) (3.08) INVESTOR C SHARES Year ended 3/31/2003#.................................... $ 6.96 $(0.12) $(0.79) $(0.91) Year ended 3/31/2002#.................................... 6.92 (0.12) 0.16 0.04 Period ended 3/31/2001*.................................. 10.00 (0.11) (2.97) (3.08)
- --------------- + 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. * 21st Century Primary A, Investor A, Investor B and Investor C Shares commenced operations on April 10, 2000. # Per share net investment income (loss) has been calculated using the monthly average shares method. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 176 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING VALUE END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE NET PERIOD RETURN++ (000) ASSETS ASSETS RATE ASSETS - ------------------------------------------------------------------------------------------------------ $6.24 (12.11)% $ 3,543 1.45%(a)(b) (0.81)% 308% 1.46%(a) 7.10 1.57 3,356 1.37(a) (0.72) 419 1.37(a) 6.99 (30.10) 5,686 1.35+ (0.41)+ 426 1.35+ $6.19 (12.32)% $10,853 1.70%(a)(b) (1.06)% 308% 1.71%(a) 7.06 1.29 14,741 1.62(a) (0.97) 419 1.62(a) 6.97 (30.30) 19,644 1.60+ (0.66)+ 426 1.60+ $6.05 (13.07)% $29,562 2.45%(a)(b) (1.81)% 308% 2.46%(a) 6.96 0.58 43,187 2.37(a) (1.72) 419 2.37(a) 6.92 (30.80) 50,404 2.35+ (1.41)+ 426 2.35+ $6.05 (13.07)% $ 3,517 2.45%(a)(b) (1.81)% 308% 2.46%(a) 6.96 0.58 4,660 2.37(a) (1.72) 419 2.37(a) 6.92 (30.80) 6,557 2.35+ (1.41)+ 426 2.35+
SEE NOTES TO FINANCIAL STATEMENTS. 177 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS DISTRIBUTIONS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT REALIZED OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME GAINS ---------------------------------------------------------------------------------------------- SMALL COMPANY PRIMARY A SHARES* Year ended 3/31/2003#......... $15.07 $(0.07) $(4.86) $(4.93) $ -- $ -- Year ended 3/31/2002#......... 13.69 (0.07) 1.45 1.38 -- -- Year ended 3/31/2001.......... 22.66 (0.10) (6.67) (6.77) -- (2.20) Year ended 3/31/2000#......... 11.50 (0.10) 11.29 11.19 -- (0.03) Year ended 3/31/1999#......... 15.79 (0.05) (3.11) (3.16) -- (1.13) INVESTOR A SHARES* Year ended 3/31/2003#......... $14.84 $(0.10) $(4.78) $(4.88) $ -- $ -- Year ended 3/31/2002#......... 13.52 (0.10) 1.42 1.32 -- -- Year ended 3/31/2001.......... 22.44 (0.14) (6.58) (6.72) -- (2.20) Year ended 3/31/2000#......... 11.43 (0.15) 11.19 11.04 -- (0.03) Year ended 3/31/1999#......... 15.74 (0.07) (3.11) (3.18) -- (1.13) INVESTOR B SHARES* Year ended 3/31/2003#......... $14.25 $(0.18) $(4.58) $(4.76) $ -- $ -- Year ended 3/31/2002#......... 13.08 (0.20) 1.37 1.17 -- -- Year ended 3/31/2001.......... 21.94 (0.23) (6.43) (6.66) -- (2.20) Year ended 3/31/2000#......... 11.23 (0.25) 10.99 10.74 -- (0.03) Year ended 3/31/1999#......... 15.59 (0.11) (3.12) (3.23) -- (1.13) INVESTOR C SHARES Year ended 3/31/2003#......... $14.45 $(0.18) $(4.65) $(4.83) $ -- $ -- Year ended 3/31/2002#......... 13.26 (0.20) 1.39 1.19 -- -- Year ended 3/31/2001.......... 22.21 (0.25) (6.50) (6.75) -- (2.20) Year ended 3/31/2000#......... 11.38 (0.23) 11.09 10.86 -- (0.03) Year ended 3/31/1999#......... 15.74 (0.12) (3.11) (3.23) -- (1.13)
- --------------- ++ 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 prior to May 23, 1997 reflects the financial information for the Pilot Small Capitalization Equity Fund Pilot, Class A and Class B Shares, which were reorganized into the Small Company Primary A, Investor A and Investor B Shares, respectively, as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment manager to Small Company was Boatmen's Trust Company. Effective May 23, 1997, the investment manager to Small Company became Banc of America Capital Management, LLC. # Per share net investment income (loss) has been calculated using the monthly average shares method. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 178 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING DIVIDENDS VALUE END OF EXPENSES TO INCOME/(LOSS) TO PORTFOLIO EXPENSES TO AND END OF TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER AVERAGE DISTRIBUTIONS PERIOD RETURN++ (000) ASSETS ASSETS RATE NET ASSETS - ------------------------------------------------------------------------------------------------------------------- $ -- $10.14 (32.71)% $410,198 1.15%(a)(b) (0.61)% 44% 1.23%(a) -- 15.07 10.08 572,820 1.15(a)(b) (0.48) 35 1.21(a) (2.20) 13.69 (31.86) 477,246 1.15(a)(b) (0.52) 48 1.20(a) (0.03) 22.66 97.46 647,825 1.13(a)(b) (0.65) 63 1.22(a) (1.13) 11.50 (21.05) 327,981 0.95(a) (0.42) 87 1.22(a) $ -- $ 9.96 (32.88)% $128,620 1.40%(a)(b) (0.86)% 44% 1.48%(a) -- 14.84 9.76 157,759 1.40(a)(b) (0.73) 35 1.46(a) (2.20) 13.52 (31.96) 146,457 1.40(a)(b) (0.77) 48 1.45(a) (0.03) 22.44 96.91 245,425 1.38(a)(b) (0.90) 63 1.47(a) (1.13) 11.43 (21.32) 16,143 1.20(a) (0.67) 87 1.47(a) $ -- $ 9.49 (33.40)% $ 12,567 2.15%(a)(b) (1.61)% 44% 2.23%(a) -- 14.25 8.94 17,484 2.15(a)(b) (1.48) 35 2.21(a) (2.20) 13.08 (32.45) 11,744 2.15(a)(b) (1.52) 48 2.20(a) (0.03) 21.94 95.79 13,839 2.13(a)(b) (1.65) 63 2.22(a) (1.13) 11.23 (21.86) 5,127 1.95(a) (1.42) 87 2.22(a) $ -- $ 9.62 (33.43)% $ 3,644 2.15%(a)(b) (1.61)% 44% 2.23%(a) -- 14.45 8.97 3,871 2.15(a)(b) (1.48) 35 2.21(a) (2.20) 13.26 (32.46) 2,813 2.15(a)(b) (1.52) 48 2.20(a) (0.03) 22.21 95.76 3,588 2.13(a)(b) (1.65) 63 2.22(a) (1.13) 11.38 (21.66) 1,951 1.70(a) (1.17) 87 2.22(a)
SEE NOTES TO FINANCIAL STATEMENTS. 179 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS Nations Funds Trust ("Funds Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment company. At March 31, 2003, Funds Trust offered fifty-nine separate portfolios. These financial statements pertain only to certain domestic stock portfolios of Funds Trust: Convertible Securities Fund, Asset Allocation Fund, Classic Value Fund, LargeCap Value Fund, Value Fund, MidCap Value Fund, SmallCap Value Fund, Growth Fund (formerly Growth and Income Fund), Strategic Growth Fund, Capital Growth Fund, Focused Equities Fund, MidCap Growth Fund, 21st Century Fund and Small Company Fund (each a "Fund" and collectively, the "Funds"). Financial statements for the other portfolios of Funds Trust are presented under separate cover. The Funds currently offer four classes of shares: Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares. Shareholders of a Fund have equal voting rights on matters affecting all shareholders of the Fund. In addition, each class of shares of a Fund has exclusive voting rights on matters that relate solely to that class and separate voting rights on matters in which the interests of one class differ from the interests of any other class. Growth Fund, Strategic Growth Fund and Focused Equities Fund (the "Feeder Funds") seek to achieve their investment objectives by investing substantially all of their assets in Growth Master Portfolio (formerly Growth & Income Master Portfolio), Strategic Growth Master Portfolio and Focused Equities 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 (98.0% for Growth Master Portfolio, 98.7% for Strategic Growth Master Portfolio and 98.6% for Focused Equities Master Portfolio at March 31, 2003). The financial statements of the Master Portfolios, including their schedules of investments, are included elsewhere within this report and should be read in conjunction with the Feeder Funds' financial statements. Other funds not registered under the 1940 Act managed by Banc of America Capital Management, LLC ("BACAP"), whose financial statements are not presented here, also invest in the Master Portfolios. SmallCap Value Fund and 21st Century Fund operate in a master-feeder structure. The Funds seek to achieve their investment objectives by investing substantially all of their assets in SmallCap Value Master Portfolio and 21st Century Master Portfolio, respectively. The Master Portfolios each have the same investment objective as their corresponding Feeder Fund. Because the value of each Funds' investment in its corresponding Master Portfolio as of and for the year ended March 31, 2003 represented substantially all of the beneficial interests in the SmallCap Value Master Portfolio and 21st Century Master Portfolio, the financial statements for the SmallCap Value Fund and 21st Century Fund reflect the consolidation of the SmallCap Value Master Portfolio and 21st Century Master Portfolio. Separate financial statements for the SmallCap Value Master Portfolio and 21st Century Master Portfolio have not been prepared and references in this report to SmallCap Value Fund and 21st Century Fund should be read to include references to the corresponding Master Portfolios. Certain Funds invest in securities of foreign issuers. There are certain risks involved in investing in foreign securities that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign government laws or restrictions. The ability of issuers of debt securities held by the Funds to meet their obligations may be affected by economic and political developments in a specific country, industry or region. 1. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. Securities valuation: Securities, including 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 traded only over-the-counter are valued at the last sale price, or if no sale occurred on such day, at the mean of the current bid and asked prices. Certain securities may be valued using broker quotations or on the basis of prices provided by pricing services. Restricted securities, securities for which market quotations are not readily available, and 180 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 as determined by the applicable Nations Funds' prospectus. The valuation of each Feeder Funds' investment in its corresponding Master Portfolio is based on the reported net asset value of that Master Portfolio. The Master Portfolios use valuation policies consistent with those described above. Futures contracts: All Funds may invest in futures contracts for the purposes of hedging against changes in values of the Fund's securities or changes in the prevailing levels of interest rates or currency exchange rates or to gain exposure to the equity market. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gain or loss by "marking-to-market" on a daily basis to reflect changes in the market value of the contract. When the contract is closed, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, 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 securities, futures and swap contracts ("swaptions"). 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 covered puts and 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. 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. 181 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Swaps: The Funds may engage in swap transactions such as interest rate, total return, index or currency swaps, consistent with their investment objective and policies to obtain a desired return at a lower cost than if the Funds had invested directly in the asset that yielded the desired return. Swaps involve the exchange by a 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 related amounts recognized in the Statements 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 is required to have segregated assets with a current value at least equal to the amount of its when-issued or delayed-delivery purchase commitments. Credit risks exist on these commitments to the extent of any unrealized losses on the underlying securities purchased and any unrealized gains on the underlying securities sold. Market risk exists on these commitments to the same extent as if the securities were owned on a settled basis and losses are recorded and reported in the same manner. 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 because the issuer or credit enhancer has defaulted on its obligation. Dollar Rolls: The Funds may enter into dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon, and maturity) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund's policy is to record the component of dollar rolls using "to be announced" mortgage-backed securities ("TBA Dollar Rolls") as purchase and sale transactions. Any difference between the purchase and sale price is recorded as a realized gain or loss on the trade date of the sale transaction. Asset Allocation Fund had dollar rolls outstanding as of March 31, 2003, which are included in Payable for investment securities purchased on its Statement of net assets. Each Fund maintains a segregated account of U.S. Government securities or other liquid assets, the dollar value of which is equal to its obligation with respect to dollar rolls. 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 (including dividend income from affiliated funds) 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. 182 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Feeder Funds record their share of the investment income and realized and unrealized gains and losses reported by the Master Portfolios on a daily basis. The investment income and realized and unrealized gains and losses are allocated daily to investors in the Master Portfolios based upon the relative value of their investments in the Master Portfolios. Dividends and distributions to shareholders: Distributions from net investment income, if any, are declared and paid each calendar quarter by the Convertible Securities, Asset Allocation, LargeCap Value, Value and MidCap Value Funds. Classic Value, SmallCap Value, Growth, Strategic Growth, Capital Growth, Focused Equities, MidCap Growth, 21st Century and Small Company Funds declare and pay distributions annually. The Funds may, however, declare and pay distributions from net investment income more frequently. Prior to August 1, 2002, distributions from net investment income, if any, were declared and paid each calendar quarter by the Convertible Securities, Asset Allocation, LargeCap Value, MidCap Value, Growth, Focused Equities, MidCap Growth and 21st Century Funds; Classic Value Fund declared and paid distributions annually; all other Funds declared and paid distributions 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. Dividends and distributions to shareholders are recorded on the ex-dividend date. 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 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 Funds Trust and Master Trust have entered into an investment advisory agreement (the "Investment Advisory Agreement") with BACAP, a wholly-owned subsidiary of Bank of America, N.A. ("Bank of America"), dated January 1, 2003, 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 BACAP provides investment advisory services to the Funds. Prior to January 1, 2003, Funds Trust and Master Trust had an investment advisory agreement with Banc of America Advisors, LLC ("BA Advisors"). All fees previously paid to BA Advisors for investment advisory services are now paid to BACAP and are unchanged. Under the terms of the Investment Advisory Agreement that BACAP assumed from BA Advisors, BACAP 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 and Master Portfolio:
ANNUAL RATE ------ Convertible Securities, Asset Allocation, Classic Value, LargeCap Value, Value, Capital Growth, MidCap Growth...... 0.65% Strategic Growth*........................................... 0.65% MidCap Value, 21st Century.................................. 0.75% SmallCap Value, Small Company............................... 0.90%
- --------------- *Prior to Master/Feeder conversion. The Marsico Growth, Strategic Growth and Focused Equities Feeder Funds indirectly pay for investment advisory and sub-advisory services through their investments in their corresponding Master Portfolios (See Note 2 of Notes to financial statements of the Master Portfolios). Effective January 1, 2003, BACAP serves as adviser to the Funds and Master Portfolios without a sub-advisor, excluding Marsico Growth, Focused Equities, 21st Century Funds and Classic Value Fund. Prior to January 1, 2003, Funds Trust, 183 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) excluding Marsico Growth, Focused Equities, 21st Century Funds and Classic Value Fund, had a sub-advisory agreement with BA Advisors and BACAP, pursuant to which BACAP was entitled to receive a sub-advisory fee from BA Advisors at the following maximum annual rate of each Fund's and Master Portfolio's average daily net assets:
ANNUAL RATE ------ Convertible Securities, Asset Allocation, LargeCap Value, Value, MidCap Value, Capital Growth, MidCap Growth, Small Company,.................................................. 0.25% SmallCap Value.............................................. 0.35% Strategic Growth*........................................... 0.25%
- --------------- *Prior to Master/Feeder conversion. Master Trust has, on behalf of the 21st Century Fund, entered into a sub-advisory agreement with BACAP and Marsico Capital Management, LLC ("Marsico"), a wholly-owned subsidiary of Bank of America, pursuant to which Marsico is entitled to receive a sub-advisory fee from BACAP at the maximum annual rate of 0.45% of the Fund's average daily net assets. Funds Trust has, on behalf of the Classic Value Fund, entered into a sub-advisory agreement with BACAP and Brandes Investment Partners, LLC ("Brandes") pursuant to which Brandes is entitled to receive a sub-advisory fee from BACAP Distributors at the maximum annual rate of 0.40% of the first $500 million of the Fund's average daily net assets and 0.35% over $500 million of the Fund's average daily net assets. Effective January 1, 2003, BACAP Distributors, LLC ("BACAP Distributors") (formerly BA Advisors) serves as sole administrator of Funds Trust. Prior to January 1, 2003, Stephens Inc. ("Stephens") and BA Advisors served as co- administrators of Funds Trust. The fees paid to BACAP Distributors as sole administrator are the aggregate fees previously paid to BA Advisors and Stephens as co-administrators. Under the administration agreement, BACAP Distributors is currently entitled to receive a fee, computed daily and paid monthly, at the maximum annual rate of 0.23% of the average daily net assets of all Funds except for Strategic Growth Fund, which pays a monthly fee at the maximum annual rate of 0.18% of its average daily net assets and Growth and Focused Equities Funds, which pay a monthly fee at the maximum annual rate of 0.13% of their average daily net assets. The Bank of New York ("BNY") serves as sub-administrator of Funds Trust pursuant to an agreement with BACAP Distributors. For the period from January 1, 2003 to March 31, 2003, BACAP Distributors earned 0.14% (annualized) of the Funds' average daily net assets for its administration services. For the period April 1, 2002 through December 31, 2002, Stephens and BA Advisors earned 0.07% and 0.07% (both annualized), respectively, of the Funds' average daily net assets for their co-administration services. BACAP and/or its affiliates may, from time to time, reduce its fees payable by each Fund. During the fiscal year ended March 31, 2003 and until July 31, 2003, BACAP (BA Advisors prior to January 1, 2003) has agreed to reimburse expenses and/or waive fees to the extent that total expenses (excluding interest expense, shareholder servicing and distribution fees), as a percentage of the respective Fund's average daily net assets, exceed the following annual rates:
ANNUAL FUND RATE - -------------------------------------------------------------------- Classic Value............................................... 1.13% LargeCap.................................................... 1.07% MidCap Value................................................ 1.25% SmallCap Value.............................................. 1.30% Small Company............................................... 1.15%
BACAP is entitled to recover from Classic Value Fund, LargeCap Value Fund, MidCap Value Fund, SmallCap Value Fund and Small Company Fund any fees waived or expenses reimbursed by BACAP during the three year period following the date of such waiver or reimbursement, to the extent that such recovery would not cause the affected fund to exceed the expense limitations in effect at the time of recovery. There is no guarantee that these expense limitations will continue. 184 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) At March 31, 2003, the amounts potentially recoverable by BACAP pursuant to this arrangement are as follows:
POTENTIAL AMOUNT TO POTENTIAL AMOUNT TO AMOUNT RECOVERED RECOVER WITHIN RECOVER WITHIN DURING YEAR 3 YEARS AS OF 3 YEARS AS OF ENDED 3/31/03 3/31/02 3/31/03 ------------------------------------------------------------ LargeCap Value.............................................. $122,685 $137,580 $ -- MidCap Value................................................ -- -- 94,844 SmallCap Value.............................................. 117,740 -- 10,151 Small Company............................................... 405,127 -- --
BNY serves as the custodian of Funds Trust's assets. For the year ended March 31, 2003, expenses of the Funds were reduced by $10,850 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 Shares of the Funds. Bank of America is entitled to receive from the transfer agent a fee equal to the costs incurred by Bank of America in providing services pursuant to its obligations as sub-transfer agent at the annual rate of up to 0.01% of the net assets attributable to the Primary A shares of the Funds. For the year ended March 31, 2003, Bank of America earned approximately $115,350 for providing such services and is included in "Transfer agent fees" in the Statements of operations. BACAP Distributors serves as distributor of the Funds' shares. Prior to January 1, 2003, Stephens served as distributor of the Funds' shares. For the year ended March 31, 2003, the Funds were informed that the distributors received the following:
FRONT END CONTINGENT DEFERRED SALES CHARGE SALES CHARGE (000) (000) ------------ -------------------------------------- FUND INVESTOR A INVESTOR A INVESTOR B INVESTOR C - ------------------------------------------------------------------------------------------------------------------- Convertible Securities...................................... $805 $ 2 $ 306 $ 7 Asset Allocation............................................ 40 2 174 --* Classic Value............................................... 189 2 108 18 LargeCap Value.............................................. 20 -- 1 -- Value....................................................... 56 --* 68 1 MidCap Value................................................ 35 -- 4 --* SmallCap Value.............................................. 14 -- --* -- Growth...................................................... 214 --* 563 4 Strategic Growth............................................ 96 --* 186 --* Capital Growth.............................................. 28 -- 40 2 Focused Equities............................................ 792 6 1,776 12 MidCap Growth............................................... 35 4 58 1 21st Century................................................ 29 1 138 --* Small Company............................................... 127 7 42 3
- --------------- *Amount represents less than $500. 185 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the year ended March 31, 2003, the following Funds paid commissions to certain affiliates of BACAP in connection with the execution of various portfolio transactions:
FUND COMMISSIONS - ------------------------------------------------------------------------- Convertible Securities...................................... $ 36,020 Asset Allocation............................................ 139,707 LargeCap Value.............................................. 19,405 Value....................................................... 89,630 MidCap Value................................................ 132,740 SmallCap Value.............................................. 34,042 Capital Growth.............................................. 50,899 MidCap Growth............................................... 59,311 21st Century................................................ 12,925 Small Company............................................... 50,146
No officer, director or employee of Bank of America, BACAP Distributors or BACAP, or any affiliate thereof, receives any compensation from Funds Trust for serving as Trustee or Officer of Funds Trust. Funds Trust's eligible Trustees may participate in a non-qualified deferred compensation plan which may be terminated at any time. All benefits provided under this plan are unfunded and any payments to plan participants are paid solely out of the Funds' assets. Income earned on the 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 Reserves, another portfolio of Funds Trust. The expense for the deferred compensation plan is included in "Trustees' fees and expenses" in the Statements of operations. The liability for the deferred compensation plan is included in "Accrued Trustees' fees and expenses" in the Statements of net assets. Funds Trust previously offered a retirement plan to the Trustees, which was terminated on January 1, 2002. 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 Nations Cash Reserves, another portfolio of Funds Trust, 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." Asset Allocation Fund has invested in the High Yield Portfolio, portfolio of the Master Investment Trust. The income earned by the Fund from such investments is 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 Funds Trust 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 Investor A Shares of each Fund. The shareholder servicing plans permit the Funds to compensate or reimburse servicing agents for shareholder services provided by the servicing agents. The distribution plans, adopted pursuant to Rule 12b-1 under the 1940 Act, permit the Funds to compensate or reimburse the distributor and/or selling agents for activities or expenses primarily intended to result in the sale of the classes' shares. Payments are made at an annual rate, as a percentage of average daily net assets, set from time to time by the Board of Trustees, and are charged as expenses of each Fund directly to the applicable share class. A substantial portion of the expenses incurred pursuant to these plans is paid to affiliates of Bank of America and BACAP Distributors. 186 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the year ended March 31, 2003, the annual rates in effect and plan limits, as a percentage of average daily net assets, were as follows:
CURRENT PLAN RATE LIMIT ---------------- Investor A Combined 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%
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, 2003 were as follows:
PURCHASES SALES (000) (000) -------------------- Convertible Securities...................................... $721,259 $451,373 Asset Allocation............................................ 306,032 379,885 Classic Value............................................... 256,744 139,133 LargeCap Value.............................................. 98,186 30,264 Value....................................................... 465,399 404,867 MidCap Value................................................ 430,042 193,020 SmallCap Value.............................................. 120,315 42,610 Strategic Growth*........................................... 248,635 176,277 Capital Growth.............................................. 486,022 566,447 MidCap Growth............................................... 296,808 403,302 21st Century................................................ 166,437 176,264 Small Company............................................... 279,644 255,620
- --------------- *Prior to conversion to a master-feeder structure. The aggregate cost of purchases and proceeds from sales of long-term U.S. government securities for the year ended March 31, 2003 were as follows:
PURCHASES SALES (000) (000) -------------------- Asset Allocation............................................ $612,992 $654,204
5. FUTURES CONTRACTS At March 31, 2003, the Asset Allocation Fund 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) - ------------------------------------------------------------------------------------------------------------------------------ 90 Day Euro Futures (long position) expiring June 2003(a)... 44 $ 10,866 $ 10,874 $ 8 90 Day Euro Futures (short position) expiring December 2003(a)................................................... (88) (21,661) (21,697) (36) 90 Day Euro Futures (long position) expiring September 2004(a)................................................... 44 10,716 10,739 23 U.S. 2 year Treasury Note Futures (long position) expiring June 2003(a).............................................. 14 3,015 3,017 2 U.S. 5 year Treasury Note Futures (long position) expiring June 2003(a).............................................. 28 3,171 3,178 7 U.S. 10 year Treasury Note Futures (short position) expiring June 2003(a).............................................. (5) (581) (574) 7 U.S. 20 year Treasury Bond Futures (long position) expiring June 2003(a).............................................. 31 3,509 3,495 (14) ---- Total net unrealized depreciation......................... $ (3) ====
- --------------- (a)Securities have been segregated as collateral for open futures contracts. 187 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. WRITTEN OPTIONS Written options for the Asset Allocation Fund for the year ended March 31, 2003 aggregated the following:
PREMIUM NUMBER OF RECEIVED SUMMARY OF WRITTEN OPTIONS CONTRACTS (000) - ---------------------------------------------------------------------------------- Outstanding at March 31, 2002............................... -- $ -- Contracts opened............................................ 1,442 445 Contracts closed............................................ (1,038) (258) Options expired............................................. (400) (160) ------ ----- Outstanding at March 31, 2003............................... 4 $ 27 ====== =====
7. SWAP CONTRACTS At March 31, 2003, Asset Allocation Fund had the following swap contracts outstanding:
UNREALIZED NOTIONAL PAYMENTS APPRECIATION/ AMOUNT PAYMENTS MADE RECEIVED BY (DEPRECIATION) DESCRIPTION (000) BY THE FUND THE FUND (000) - --------------------------------------------------------------------------------------------------------------------- Contract with Lehman Brothers, effective November 1, 2002, expiring November 1, 2003(a)................. $1,600 1-month LIBOR Lehman Baa Total Return Index $(12) Contract with Morgan Stanley, effective February 28, 2003, expiring May 30, 2003(a)..................... 1,650 CMBS Aaa Index CMBS Aaa Index Floating Total Fixed Total Return Return (1) Contract with Morgan Stanley, effective March 31, 2003, expiring June 30, 2003(a).................... 835 CMBS Aaa Index CMBS Aaa Index [current Spread + 0.30% 2 floating rate minus prior floating rate] X factor ---- Total unrealized depreciation........................ $(11) ====
- --------------- (a)Fair value. 8. SHARES OF BENEFICIAL INTEREST As of March 31, 2003, an unlimited number of shares of beneficial interest without par value were authorized for Funds Trust. Funds Trust's Declaration of Trust authorizes the Board of Trustees to classify or reclassify any authorized but unissued shares into one or more additional classes or series of shares. Investor B Shares generally convert to Investor A Shares based on the following conditions: 1. Investor B Shares purchased before August 1, 1997 automatically convert to Investor A Shares after nine years. 2. Investor B Shares purchased between August 1, 1997 and November 15, 1998 automatically convert to Investor A Shares as follows: a. $0 - $249,999 9 years b. $250,000 - 499,000 6 years c. $500,000 - 999,000 5 years
3. Investor B Shares purchased after November 15, 1998 automatically convert to Investor A after eight years. See Schedules of capital stock activity. 188 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. LINE OF CREDIT Funds 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"). The Agreement is renewable on an annual basis. Advances under the Agreement are taken primarily for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest on borrowings is payable at a specified Federal Funds rate plus 0.50% on an annualized basis. Each participating Fund maintains a ratio of net assets (not including amounts borrowed pursuant to the Agreement) to the aggregate amount of indebtedness pursuant to the Agreement of no less than 4 to 1. The Funds had no borrowings outstanding at March 31, 2003. During the year ended March 31, 2003, borrowings by the Funds under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING INTEREST FUND (000)* RATE - ------------------------------------------------------------------------------------ Convertible Securities...................................... $ 34 1.73% Asset Allocation............................................ 170 1.77 Classic Value............................................... 349 1.77 LargeCap Value.............................................. 37 2.32 Capital Growth.............................................. 56 1.79 MidCap Growth............................................... 414 1.89 21st Century................................................ 16 2.17 Small Company............................................... 106 2.27
- --------------- *The average amount outstanding was calculated based on daily balances during the period. 10. 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, 2003, the following Funds had securities on loan:
MARKET VALUE OF MARKET VALUE LOANED SECURITIES OF COLLATERAL FUND (000) (000) - ----------------------------------------------------------------------------------------------- Convertible Securities...................................... $123,128 $128,392 Asset Allocation............................................ 7,127 8,389 Classic Value............................................... 37,614 40,152 Value....................................................... 24,272 25,769 SmallCap Value.............................................. 3,071 3,241 Capital Growth.............................................. 3,539 3,729 MidCap Growth............................................... 22,446 23,653 21st Century................................................ 5,867 6,131 Small Company............................................... 72,188 76,764
189 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES Information on the tax components of capital as of March 31, 2003 is as follows:
NET TAX UNREALIZED APPRECIATION/ NET TAX (DEPRECIATION) ON COST OF UNREALIZED DERIVATIVES AND UNDISTRIBUTED INVESTMENTS GROSS TAX GROSS TAX APPRECIATION/ FOREIGN CURRENCY ORDINARY INCOME/ FOR TAX UNREALIZED UNREALIZED (DEPRECIATION) ON AND NET OTHER (ACCUMULATED PURPOSES APPRECIATION DEPRECIATION INVESTMENTS ASSETS ORDINARY LOSS) FUND (000) (000) (000) (000) (000) (000) - -------------------------------------------------------------------------------------------------------------------------------- Convertible Securities.... $1,097,116 $35,123 $ (57,241) $ (22,117) $ -- $ 152 Asset Allocation.......... 233,969 11,354 (12,691) (1,337) (11) 352 Classic Value............. 499,680 5,421 (148,351) (142,930) -- 1,087 LargeCap Value............ 83,689 910 (7,405) (6,495) -- 100 Value..................... 616,411 11,440 (68,654) (57,214) -- 643 MidCap Value.............. 321,623 4,410 (27,588) (23,178) -- 290 SmallCap Value............ 79,785 2,454 (6,178) (3,724) -- 23 Growth.................... N/A* N/A* N/A* 16,219 -- -- Strategic Growth.......... N/A* N/A* N/A* (280,413) -- 3,349 Capital Growth............ 200,493 23,193 (8,846) 14,347 -- -- Focused Equities.......... N/A* N/A* N/A* 42,388 -- -- MidCap Growth............. 501,913 59,367 (92,444) (33,077) -- -- 21st Century.............. 52,327 3,146 (1,374) 1,772 -- -- Small Company............. 677,354 51,930 (96,857) (44,927) -- -- UNDISTRIBUTED LONG-TERM GAINS/ (ACCUMULATED CAPITAL LOSS) FUND (000) - -------------------------- ---------------- Convertible Securities.... $(104,209) Asset Allocation.......... (54,694) Classic Value............. (8,241) LargeCap Value............ (3,712) Value..................... (51,773) MidCap Value.............. (16,745) SmallCap Value............ (5,393) Growth.................... (186,895) Strategic Growth.......... (562,883) Capital Growth............ (96,274) Focused Equities.......... (659,879) MidCap Growth............. (232,276) 21st Century.............. (39,276) Small Company............. (137,863)
- --------------- *See corresponding Master Portfolio for tax basis information. At March 31, 2003, the following Funds had available for federal income tax purposes unused capital losses as follows:
EXPIRING IN EXPIRING IN EXPIRING IN 2009 2010 2011 FUND (000) (000) (000) - ----------------------------------------------------------------------------------------------------- Convertible Securities...................................... $ -- $ 27,913 $ 76,296 Asset Allocation............................................ -- 16,103 18,585 LargeCap Value.............................................. -- -- 2,492 Value....................................................... -- -- 39,946 MidCap Value................................................ -- -- 13,202 SmallCap Value.............................................. -- -- 3,034 Growth...................................................... 32,076 81,928 61,904 Strategic Growth............................................ 110,198 117,796 227,643 Capital Growth.............................................. 10,196 40,838 41,478 Focused Equities............................................ 112,609 375,725 145,695 MidCap Growth............................................... -- 24,894 142,174 21st Century................................................ 12,772 24,223 1,800 Small Company............................................... -- 38,429 48,702
190 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Under the current tax law, capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended March 31, 2003, the following Funds elected to defer losses occurring between November 1, 2002 and March 31, 2003 under these rules, as follows:
CAPITAL LOSSES DEFERRED FUND (000) - ---------------------------------------------------------------------------- Convertible Securities...................................... $ -- Asset Allocation............................................ 20,006 Classic Value............................................... 8,241 LargeCap Value.............................................. 1,220 Value....................................................... 11,827 MidCap Value................................................ 3,543 SmallCap Value.............................................. 2,359 Growth...................................................... 10,987 Strategic Growth............................................ 107,246 Capital Growth.............................................. 3,762 Focused Equities............................................ 25,850 MidCap Growth............................................... 65,208 21st Century................................................ 481 Small Company............................................... 50,732
Such deferred losses will be treated as arising on the first day of the fiscal year ending March 31, 2004. The tax composition of dividends and distributions (other than return of capital dividends for the year) was as follows:
3/31/03 3/31/02 -------------------- -------------------- LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAINS INCOME GAINS FUND (000) (000) (000) (000) - --------------------------------------------------------------------------------------------------------- Convertible Securities...................................... $28,509 $ -- $17,484 $1,449 Asset Allocation............................................ 4,338 -- 6,466 556 Classic Value............................................... 22,688 -- 2,200 -- LargeCap Value.............................................. 542 -- 16 -- Value....................................................... 6,870 10,104 14,342 76,292 MidCap Value................................................ 2,074 -- 281 -- SmallCap Value.............................................. 149 -- -- -- Growth...................................................... -- -- -- -- Strategic Growth............................................ 8,313 -- 1,566 -- Capital Growth.............................................. -- -- -- 18,629 Focused Equities............................................ -- -- -- -- MidCap Growth............................................... -- -- -- -- 21st Century................................................ -- -- -- -- Small Company............................................... -- -- -- --
191 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Certain reclassifications are made to each of the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. These reclassifications as listed below are due primarily to net operating losses, dividend reclassifications, and foreign currency gains and losses.
ACCUMULATED NET UNDISTRIBUTED NET REALIZED INVESTMENT GAIN/(LOSS) ON INCOME INVESTMENTS SOLD PAID-IN CAPITAL FUND (000) (000) (000) - -------------------------------------------------------------------------------------------------------------------- Convertible Securities...................................... $ (99) $ (2,149) $ 2,248 Asset Allocation............................................ 1 -- (1) Classic Value............................................... (1) 1 -- LargeCap Value.............................................. (7) 7 -- Value....................................................... (122) 122 -- MidCap Value................................................ (104) 104 -- SmallCap Value.............................................. (20) 20 -- Growth...................................................... 4,475 127 (4,602) Strategic Growth............................................ -- (71,824) 71,824 Capital Growth.............................................. 36 (12,194) 12,158 Focused Equities............................................ 14,029 (222) (13,807) MidCap Growth............................................... 2,757 -- (2,757) 21st Century................................................ 863 (6) (857) Small Company............................................... 4,253 1,554 (5,807)
12. REORGANIZATIONS FUND REORGANIZATION On June 8, 2001, the Asset Allocation Fund (the "Acquiring Fund"), acquired the assets and assumed the liabilities of the Balanced Assets Fund (the "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in the Schedules of capital stock activity. Net assets and unrealized appreciation as of the reorganization date were as follows:
TOTAL NET ASSETS ACQUIRED FUND TOTAL NET ASSETS TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED OF ACQUIRED FUND OF ACQUIRING FUND AFTER ACQUISITION APPRECIATION (000) (000) (000) (000) - ------------------------------------------------------------------------ $90,962 $366,605 $457,567 $5,772
CHANGE IN REGISTERED INVESTMENT COMPANY On June 8, 2001, the Asset Allocation, Growth and Focused Equities Funds, newly established shell portfolios of Funds Trust (the "Successor Funds"), acquired the assets and liabilities of their predecessor funds, which were series of Nations Reserves, another registered investment company within the Nations Funds family, pursuant to a plan of reorganization approved by each predecessor fund's shareholders. The predecessor funds had the same name, investment objective and principal investment strategies as the Successor Funds. The acquisition was accomplished by a tax-free exchange of shares of the Successor Funds in an amount equal to the value of the outstanding shares of the predecessor funds. The financial statements of the Successor Funds reflect the historical financial results of the predecessor funds prior to the reorganizations. BANK PLAN REDEMPTION-IN-KIND On January 11, 2002, certain Separate Accounts, as listed in the left column below redeemed Primary A shares of certain Nations Funds as listed in the second column and received redemption proceeds in-kind. The number and value of shares 192 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) redeemed by each Nations Fund are included in the Schedules of capital stock activity. Shares redeemed, acquired net assets and realized gain/loss as of the conversion date were as follows:
SHARES TOTAL NET ASSETS REDEEMED/TRANSFERRED REDEEMED/TRANSFERRED REALIZED TO BANK PLAN TO BANK PLAN GAIN/LOSS BANK PLAN SEPARATE ACCOUNTS NATIONS FUND (000) (000) (000) - -------------------------------------------------------------------------------------------------------------------------- Value Separate Account Value 28,656 $324,384 $30,497 Capital Growth Separate Account Capital Growth 14,871 120,603 28,890 Aggressive Growth Separate Account Aggressive Growth 8,752 84,193 366 MidCap Growth Separate Account MidCap Growth 8,805 123,180 4,129 Small Company Separate Account Small Company 10,145 152,688 24,704
FUND REORGANIZATION On May 10, 2002, certain Funds, as listed below (each an "Acquiring Fund"), acquired the assets and assumed the liabilities of certain Nations Domestic Stock Funds, also listed below (each an "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/(depreciation) as of the reorganization date were as follows:
ACQUIRED FUND TOTAL NET ASSETS UNREALIZED TOTAL NET ASSETS OF TOTAL NET ASSETS OF OF ACQUIRING FUND APPRECIATION/ ACQUIRED FUND ACQUIRING FUND AFTER ACQUISITION (DEPRECIATION) ACQUIRING FUND ACQUIRED FUND (000) (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ Convertible Securities Equity Income $105,548 $ 679,809 $ 785,357 $ 1,440 Strategic Growth Blue Chip 566,410 1,174,477 1,740,887 37,555 Capital Growth Aggressive Growth 29,534 320,757 350,291 (583)
CHANGE OF REGISTERED INVESTMENT COMPANY On May 10, 2002, each Fund of Nations Fund Trust, except Convertible Securities of Nations Reserves listed in the left column below (each a "Fund") reorganized into a newly created successor fund of Nations Funds Trust listed in the right column below, that was substantially identical to the existing Fund. The acquisition was accomplished by a tax-free exchange of shares of each Fund for shares of equal value of the newly created successor fund. The financial statements of each successor fund reflects the historical financial results of each corresponding Fund prior to the reorganization.
FUND REORGANIZED INTO A NEWLY CREATED SUCCESSOR FUND - ---------------------------------------------------------------------------------------------------------------- Convertible Securities Convertible Securities Strategic Growth Strategic Growth Capital Growth Capital Growth MidCap Growth MidCap Growth
On May 17, 2002, Value, of Nations Fund Trust and Small Company, of Nations Fund, Inc. (each a "Fund") reorganized into a newly created successor fund of Nations Funds Trust, that was substantially identical to the existing Fund. The acquisition was accomplished by a tax-free exchange of shares of each Fund for shares of equal value of the newly created successor fund. The financial statements of each successor fund reflects the historical financial results of each corresponding Fund prior to the reorganization.
FUND REORGANIZED INTO A NEWLY CREATED SUCCESSOR FUND - ---------------------------------------------------------------------------------------------------------------- Value Value Small Company Small Company
193 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) CONVERSION OF COMMON TRUST FUNDS On July 19, 2002, certain Funds, as listed below (each an "Acquiring Fund"), acquired the net 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 Schedules of capital stock activity. Net assets and unrealized depreciation as of the conversion date were as follows:
TOTAL NET ASSETS OF TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND AFTER CONVERSION ACQUIRING FUND ACQUIRED FUND (000) (000) (000) - ----------------------------------------------------------------------------------------------------------------------- Convertible Securities Bank of America Equity $ 11,664 $ 714,493 $ 726,157 Income Fund Convertible Securities Bank of America Equity & 79,598 714,493 794,091 Convertible Fund Value Bank of America Equity 4,521 504,398 508,919 Value Fund Strategic Growth Bank of America Equity 429,632 1,400,063 1,829,695 Fund Strategic Growth Bank of America 156,270 1,400,063 1,556,333 Charitable Equity Fund Capital Growth Bank of America Equity 7,660 263,648 271,308 Growth Fund MidCap Growth Bank of America Equity 139,116 419,239 558,355 MidCap Fund Small Company Bank of America SmallCap 27,839 533,701 561,540 Equity Fund ACQUIRED FUND UNREALIZED DEPRECIATION ACQUIRING FUND (000) - ------------------------ ------------ Convertible Securities $ (705) Convertible Securities (6,595) Value (905) Strategic Growth (52,377) Strategic Growth (6,141) Capital Growth (645) MidCap Growth (15) Small Company (8,949)
13. SUBSEQUENT EVENT On February 28 and March 10, 2003, the Board of Trustees of Nations Funds approved an Agreement and Plan of Reorganization (the "Plan") pursuant to which Value Fund will acquire all of the assets of LargeCap Value Fund and Classic Value Fund in exchange for shares of equal value of Value Fund and the assumption by Value Fund of all liabilities of LargeCap Value Fund and Classic Value Fund. If this Plan is approved by shareholders of Classic Value Fund, the reorganization is expected to occur on or about July 18, 2003. No shareholder approval is required for the reorganization of LargeCap Value Fund into Value Fund. This reorganization is expected to occur on or about July 18, 2003. 194 NATIONS FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF 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 Convertible Securities Fund, Nations Asset Allocation Fund, Nations Classic Value Fund, Nations LargeCap Value Fund, Nations Value Fund, Nations MidCap Value Fund, Nations SmallCap Value Fund, Nations Marsico Growth Fund, Nations Strategic Growth Fund, Nations Capital Growth Fund, Nations Marsico Focused Equities Fund, Nations MidCap Growth Fund, Nations Marsico 21st Century Fund and Nations Small Company Fund, (constituting part of Nations Funds Trust, hereafter collectively referred to as the "Funds") at March 31, 2003, 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. As described in Note 13 to the financial statements, the Board of Trustees have approved a reorganization plan whereby the Nations LargeCap Value Fund and Nations Classic Value Fund would be merged into the Nations Value Fund, subject to the approval of the Nations Classic Value Fund's shareholders. PricewaterhouseCoopers LLP New York, New York May 16, 2003 195 NATIONS FUNDS TAX INFORMATION (UNAUDITED) For the fiscal year ended March 31, 2003, the amount of long-term capital gains designated by the Value Fund was $10,103,918. Of the ordinary income (including short-term capital gain) distributions made by Funds Trust during the fiscal year ended March 31, 2003, the following percentages qualify for the dividend received deduction available to corporate shareholders: Convertible Securities...................................... 54.61% Asset Allocation............................................ 57.53% Classic Value............................................... 44.11% LargeCap Value.............................................. 100.00% Value....................................................... 100.00% MidCap Value................................................ 100.00% SmallCap Value.............................................. 100.00% Strategic Growth............................................ 100.00%
196 NATIONS MASTER INVESTMENT TRUST Nations Marsico Growth Master Portfolio, Nations Strategic Growth Master Portfolio and Nations Marsico Focused Equities Master Portfolio Annual Report MARCH 31, 2003 The following pages should be read in conjunction with Nations Marsico Growth, Nations Strategic Growth and Nations Marsico Focused Equities Funds' Annual Report. 197 NATIONS MASTER INVESTMENT TRUST Nations Marsico Growth Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- COMMON STOCKS -- 87.9% AIRLINES -- 1.3% 188,480 Ryanair Holdings plc, ADR!!(a)................................ $ 7,816 -------- AUTOMOTIVE -- 2.1% 447,260 Bayerische Motoren Werke (BMW) AG(a).......................... 12,397 -------- BEVERAGES -- 1.4% 89,058 Anheuser-Busch Companies, Inc. ............................... 4,151 115,934 Heineken NV................................................... 4,300 -------- 8,451 -------- BROADCASTING AND CABLE -- 5.2% 263,958 Clear Channel Communications, Inc.!!.......................... 8,953 266,114 The Walt Disney Company....................................... 4,529 471,300 Viacom Inc., Class B!!........................................ 17,213 -------- 30,695 -------- COMMERCIAL BANKING -- 3.4% 579,788 Citigroup Inc. ............................................... 19,974 -------- COMMERCIAL SERVICES -- 1.5% 74,734 eBay Inc.!!................................................... 6,374 48,450 Expedia, Inc.!!(a)............................................ 2,503 -------- 8,877 -------- COMPUTERS AND OFFICE EQUIPMENT -- 2.9% 619,656 Dell Computer Corporation!!................................... 16,923 -------- CONSTRUCTION -- 0.2% 24,462 Jacobs Engineering Group Inc.!!............................... 1,028 -------- CONSUMER CREDIT AND MORTGAGES -- 2.8% 249,228 Fannie Mae.................................................... 16,287 -------- DEPARTMENT AND DISCOUNT STORES -- 2.5% 286,046 Wal-Mart Stores, Inc. ........................................ 14,883 -------- DIVERSIFIED MANUFACTURING -- 3.3% 753,906 General Electric Company...................................... 19,225 -------- ELECTRIC POWER -- NUCLEAR -- 0.3% 107,802 Duke Energy Corporation....................................... 1,567 -------- FINANCE -- MISCELLANEOUS -- 5.5% 292,744 SLM Corporation............................................... 32,471 --------
VALUE SHARES (000) - -------------------------------------------------------------------------------------- HEALTH SERVICES -- 10.8% 340,826 HCA Inc. ..................................................... $ 14,097 277,156 Quest Diagnostics Inc.!!...................................... 16,543 368,012 UnitedHealth Group Inc. ...................................... 33,735 -------- 64,375 -------- HOUSEHOLD PRODUCTS -- 3.7% 246,860 Procter & Gamble Company...................................... 21,983 -------- HOUSING AND FURNISHING -- 2.4% 173,086 Lennar Corporation............................................ 9,269 131,864 M.D.C. Holdings, Inc. ........................................ 5,061 -------- 14,330 -------- INVESTMENT SERVICES -- 1.6% 67,772 Goldman Sachs Group, Inc. .................................... 4,614 81,140 Lehman Brothers Holdings Inc. ................................ 4,686 -------- 9,300 -------- LODGING AND RECREATION -- 3.7% 168,505 Four Seasons Hotels Inc.(a)................................... 4,578 48,654 Harley-Davidson, Inc. ........................................ 1,932 191,534 MGM Mirage Inc.!!............................................. 5,602 613,952 Wynn Resorts, Ltd.!!.......................................... 9,480 -------- 21,592 -------- MEDICAL DEVICES AND SUPPLIES -- 3.2% 123,986 Johnson & Johnson............................................. 7,175 237,498 Zimmer Holdings, Inc.!!....................................... 11,550 -------- 18,725 -------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 4.5% 1,114,194 Cisco Systems, Inc.!!......................................... 14,463 337,808 QUALCOMM Inc. ................................................ 12,181 -------- 26,644 -------- PHARMACEUTICALS -- 7.3% 366,116 Amgen Inc.!!.................................................. 21,069 459,026 Genentech, Inc.!!............................................. 16,071 181,238 IDEC Pharmaceuticals Corporation!!(a)......................... 6,238 -------- 43,378 -------- RAILROADS, TRUCKING AND SHIPPING -- 2.2% 231,502 FedEx Corporation............................................. 12,749 -------- SOFTWARE -- 6.1% 163,524 Electronic Arts Inc.!!........................................ 9,589 184,688 Intuit Inc.!!................................................. 6,870 599,142 Microsoft Corporation......................................... 14,505 475,198 Oracle Corporation!!.......................................... 5,155 -------- 36,119 -------- SPECIALTY STORES -- 5.6% 144,540 Bed Bath & Beyond Inc.!!...................................... 4,992 423,000 Lowe's Companies, Inc. ....................................... 17,266 437,726 Tiffany & Company............................................. 10,943 -------- 33,201 --------
SEE NOTES TO FINANCIAL STATEMENTS. 198 NATIONS MASTER INVESTMENT TRUST Nations Marsico Growth Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - -------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- 4.4% 176,995 Echostar Communications Corporation!!(a)...................... $ 5,112 1,547,836 Nextel Communications, Inc., Class A!!........................ 20,725 -------- 25,837 -------- TOTAL COMMON STOCKS (Cost $499,531)............................................. 518,827 -------- PRINCIPAL AMOUNT (000) - --------- CORPORATE BONDS AND NOTES -- 0.1% HOUSING AND FURNISHING -- 0.1% (Cost $539) $ 550 M.D.C. Holdings, Inc., 8.375% 02/01/08(a).......................................... 573 -------- SHARES - --------- PREFERRED STOCKS -- 0.5% AUTOMOTIVE -- 0.5% (Cost $3,521) 9,843 Porsche AG.................................................... 2,771 -------- PRINCIPAL AMOUNT (000) - --------- SHORT TERM INVESTMENTS -- 11.9% FEDERAL HOME LOAN BANK (FHLB) -- 11.9% (Cost $70,200) $ 70,200 1.140%*** 04/01/03............................................ 70,198 -------- SHARES VALUE (000) (000) - -------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 4.1% (Cost $23,931) 23,931 Nations Cash Reserves, Capital Class Shares#.................. $ 23,931 -------- TOTAL INVESTMENTS (Cost $597,722*).................................. 104.5% 616,300 -------- OTHER ASSETS AND LIABILITIES (NET).................. (4.5)% Receivable for investment securities sold..................... $ 718 Dividends receivable.......................................... 67 Interest receivable........................................... 11 Collateral on securities loaned............................... (23,872) Investment advisory fee payable............................... (359) Administration fee payable.................................... (48) Payable for investment securities purchased................... (3,019) Accrued Trustees' fees and expenses........................... (27) Accrued expenses and other liabilities........................ (43) -------- TOTAL OTHER ASSETS AND LIABILITIES (NET)........................................... (26,572) -------- NET ASSETS.......................................... 100.0% $589,728 ========
- --------------- * Federal income tax information: Net unrealized appreciation of $16,587 on investment securities was comprised of gross appreciation of $43,582 and depreciation of $26,995 for federal income tax purposes. At March 31, 2003, the aggregate cost for federal income tax purposes was $599,713. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2003. !!Non-income producing security. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 6). The portion that represents cash collateral is $23,872. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $23,803 and $22,298, respectively. ABBREVIATIONS: ADR -- American Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. 199 NATIONS MASTER INVESTMENT TRUST Nations Strategic Growth Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 97.0% AEROSPACE AND DEFENSE -- 2.4% 250,050 General Dynamics Corporation.................................. $ 13,770 189,700 Lockheed Martin Corporation................................... 9,020 304,475 United Technologies Corporation............................... 17,593 ---------- 40,383 ---------- AUTOMOTIVE -- 1.1% 521,650 Lear Corporation!!............................................ 18,440 ---------- BEVERAGES -- 3.0% 569,600 Coca-Cola Company............................................. 23,057 696,695 PepsiCo, Inc. ................................................ 27,868 ---------- 50,925 ---------- BROADCASTING AND CABLE -- 5.5% 1,358,890 AOL Time Warner Inc.!!........................................ 14,758 364,025 Clear Channel Communications, Inc.!!.......................... 12,348 1,303,725 Comcast Corporation, Class A!!(a)............................. 35,838 458,275 The Walt Disney Company....................................... 7,800 623,700 Viacom Inc., Class B!!........................................ 22,778 ---------- 93,522 ---------- CHEMICALS -- BASIC -- 0.5% 235,950 E.I. duPont de Nemours and Company............................ 9,169 ---------- COMMERCIAL BANKING -- 4.6% 509,940 Charter One Financial, Inc. .................................. 14,105 1,350,012 Citigroup Inc. ............................................... 46,508 457,500 US Bancorp.................................................... 8,683 213,950 Wells Fargo & Company......................................... 9,626 ---------- 78,922 ---------- COMPUTERS AND OFFICE EQUIPMENT -- 3.2% 465,750 Dell Computer Corporation!!................................... 12,720 596,800 Hewlett-Packard Company....................................... 9,280 419,200 International Business Machines Corporation................... 32,878 ---------- 54,878 ---------- CONSUMER CREDIT AND MORTGAGES -- 3.4% 313,100 American Express Company...................................... 10,404 524,040 Fannie Mae.................................................... 34,246 922,099 MBNA Corporation.............................................. 13,878 ---------- 58,528 ---------- DEPARTMENT AND DISCOUNT STORES -- 5.5% 418,125 Kohl's Corporation!!.......................................... 23,658 645,237 Target Corporation............................................ 18,880 997,750 Wal-Mart Stores, Inc. ........................................ 51,912 ---------- 94,450 ---------- DIVERSIFIED MANUFACTURING -- 4.2% 2,301,250 General Electric Company...................................... 58,682 632,300 Honeywell International Inc. ................................. 13,506 ---------- 72,188 ----------
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- ELECTRIC POWER -- NUCLEAR -- 1.0% 301,950 FPL Group, Inc. .............................................. $ 17,794 ---------- FINANCE -- MISCELLANEOUS -- 1.2% 191,600 SLM Corporation............................................... 21,252 ---------- HEALTH SERVICES -- 3.9% 312,650 Quest Diagnostics Inc.!!...................................... 18,662 210,425 UnitedHealth Group Inc. ...................................... 19,290 381,025 Wellpoint Health Networks Inc.!!.............................. 29,243 ---------- 67,195 ---------- HOUSEHOLD PRODUCTS -- 2.7% 305,150 Colgate-Palmolive Company..................................... 16,612 336,075 Procter & Gamble Company...................................... 29,928 ---------- 46,540 ---------- INSURANCE -- 7.1% 1,235,675 ACE Ltd. ..................................................... 35,773 394,900 AFLAC, Inc. .................................................. 12,657 650,561 American International Group, Inc. ........................... 32,170 564,575 XL Capital Ltd., Class A...................................... 39,960 ---------- 120,560 ---------- INTEGRATED OIL -- 6.5% 278,925 Apache Corporation............................................ 17,221 428,300 BP Amoco plc, ADR............................................. 16,528 553,384 ChevronTexaco Corporation..................................... 35,776 1,170,415 Exxon Mobil Corporation....................................... 40,906 ---------- 110,431 ---------- INVESTMENT SERVICES -- 2.9% 129,925 Goldman Sachs Group, Inc. .................................... 8,845 829,386 Merrill Lynch & Company, Inc. ................................ 29,361 277,350 Morgan Stanley................................................ 10,636 ---------- 48,842 ---------- LODGING AND RECREATION -- 1.4% 1,022,838 Starwood Hotels & Resorts Worldwide, Inc. .................... 24,333 ---------- MEDICAL DEVICES AND SUPPLIES -- 5.1% 444,950 Abbott Laboratories........................................... 16,735 764,200 Johnson & Johnson............................................. 44,224 578,235 Medtronic, Inc. .............................................. 26,090 ---------- 87,049 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 2.4% 2,024,650 Cisco Systems, Inc.!!......................................... 26,280 410,400 QUALCOMM Inc. ................................................ 14,799 ---------- 41,079 ---------- OILFIELD SERVICES -- 1.1% 252,825 GlobalSantaFe Corporation..................................... 5,221 338,438 Nabors Industries, Ltd.!!..................................... 13,493 ---------- 18,714 ---------- PAPER AND FOREST PRODUCTS -- 0.5% 654,975 Smurfit-Stone Container Corporation........................... 8,750 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 200 NATIONS MASTER INVESTMENT TRUST Nations Strategic Growth Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
VALUE SHARES (000) - ---------------------------------------------------------------------------------------- PHARMACEUTICALS -- 8.6% 130,850 Allergan, Inc. ............................................... $ 8,925 544,425 Amgen Inc.!!.................................................. 31,332 141,075 Eli Lilly and Company......................................... 8,062 424,750 Merck & Company, Inc. ........................................ 23,268 696,225 Pfizer Inc. .................................................. 21,694 804,675 Pharmacia Corporation......................................... 34,843 419,575 Teva Pharmaceutical Industries Ltd., ADR@..................... 17,475 ---------- 145,599 ---------- RAILROADS, TRUCKING AND SHIPPING -- 0.5% 159,275 United Parcel Service, Inc., Class B.......................... 9,079 ---------- SEMICONDUCTORS -- 4.2% 2,948,725 Intel Corporation............................................. 48,005 388,625 KLA-Tencor Corporation!!...................................... 13,968 623,550 Texas Instruments Inc. ....................................... 10,208 ---------- 72,181 ---------- SOFTWARE -- 8.9% 176,800 Affiliated Computer Services, Inc., Class A!!................. 7,825 669,025 Electronic Arts Inc.!!........................................ 39,232 3,276,100 Microsoft Corporation......................................... 79,314 1,428,225 Oracle Corporation!!.......................................... 15,495 491,925 PeopleSoft, Inc.!!............................................ 7,526 ---------- 149,392 ---------- SPECIALTY STORES -- 2.1% 814,254 Home Depot, Inc. ............................................. 19,835 1,215,050 Limited Brands................................................ 15,638 ---------- 35,473 ---------- TELECOMMUNICATIONS SERVICES -- 1.9% 836,275 BellSouth Corporation......................................... 18,122 386,275 Verizon Communications Inc. .................................. 13,655 ---------- 31,777 ---------- TOBACCO -- 1.6% 902,300 Altria Group, Inc. ........................................... 27,033 ---------- TOTAL COMMON STOCKS (Cost $1,701,098)........................................... 1,654,478 ---------- SHARES VALUE (000) (000) - ---------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 1.3% (Cost $22,040) 22,040 Nations Cash Reserves, Capital Class Shares#.................. $ 22,040 ---------- TOTAL INVESTMENTS (Cost $1,723,138*)................................ 98.3% 1,676,518 ---------- OTHER ASSETS AND LIABILITIES (NET).................. 1.7% Receivable for investment securities sold..................... $ 34,286 Dividends receivable.......................................... 2,199 Cash.......................................................... 3 Collateral on securities loaned............................... (4,899) Investment advisory fee payable............................... (957) Administration fee payable.................................... (74) Payable for investment securities purchased................... (1,966) Accrued Trustees' fees and expenses........................... (28) Accrued expenses and other liabilities........................ (81) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... 28,483 ---------- NET ASSETS.......................................... 100.0% $1,705,001 ==========
- --------------- *Federal Income Tax Information: Net unrealized depreciation of $85,632 on investment securities was comprised of gross appreciation of $116,259 and gross depreciation of $201,891 for federal income tax purposes. At March 31, 2003, the aggregate cost of securities for federal income tax purposes was $1,762,150. !! 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. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 6). The portion that represents cash collateral is $4,899. (a) All or portion of security was on loan March 31, 2003. The aggregate cost and market value of securities on loan March 31, 2003 is $4,570 and $4,662, respectively. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 201 NATIONS MASTER INVESTMENT TRUST Nations Marsico Focused Equities Master Portfolio STATEMENT OF NET ASSETS MARCH 31, 2003
VALUE SHARES (000) - ----------------------------------------------------------------------------------------- COMMON STOCKS -- 98.3% AUTOMOTIVE -- 3.1% 1,763,095 Bayerische Motoren Werke (BMW) AG(a).......................... $ 48,867 ---------- BEVERAGES -- 1.5% 516,131 Anheuser-Busch Companies, Inc. ............................... 24,057 ---------- BROADCASTING AND CABLE -- 6.3% 737,320 Clear Channel Communications, Inc.!!.......................... 25,010 718,146 The Walt Disney Company....................................... 12,223 1,728,923 Viacom Inc., Class B!!........................................ 63,140 ---------- 100,373 ---------- COMMERCIAL BANKING -- 3.6% 1,638,408 Citigroup Inc. ............................................... 56,443 ---------- COMMERCIAL SERVICES -- 3.7% 610,516 eBay Inc.!!................................................... 52,071 135,364 Expedia, Inc.!!(a)............................................ 6,993 ---------- 59,064 ---------- COMPUTERS AND OFFICE EQUIPMENT -- 3.0% 1,722,434 Dell Computer Corporation!!................................... 47,040 ---------- CONSUMER CREDIT AND MORTGAGES -- 3.7% 901,958 Fannie Mae.................................................... 58,943 ---------- DEPARTMENT AND DISCOUNT STORES -- 2.7% 812,270 Wal-Mart Stores, Inc. ........................................ 42,262 ---------- DIVERSIFIED MANUFACTURING -- 3.3% 2,069,260 General Electric Company...................................... 52,766 ---------- FINANCE -- MISCELLANEOUS -- 7.6% 1,091,816 SLM Corporation............................................... 121,104 ---------- HEALTH SERVICES -- 16.6% 1,291,225 HCA Inc. ..................................................... 53,405 1,313,047 Quest Diagnostics Inc.!!...................................... 78,376 1,445,214 UnitedHealth Group Inc. ...................................... 132,482 ---------- 264,263 ---------- HOUSEHOLD PRODUCTS -- 3.1% 545,748 Procter & Gamble Company...................................... 48,599 ---------- HOUSING AND FURNISHING -- 0.8% 225,070 Lennar Corporation(a)......................................... 12,052 ----------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------- INVESTMENT SERVICES -- 2.1% 190,150 Goldman Sachs Group, Inc. .................................... $ 12,945 352,166 Lehman Brothers Holdings Inc. ................................ 20,338 ---------- 33,283 ---------- LODGING AND RECREATION -- 2.5% 740,564 Four Seasons Hotels Inc.(a)................................... 20,121 657,991 MGM Mirage Inc.!!............................................. 19,246 ---------- 39,367 ---------- MEDICAL DEVICES AND SUPPLIES -- 1.9% 513,860 Johnson & Johnson............................................. 29,737 ---------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 4.7% 3,058,150 Cisco Systems, Inc.!!......................................... 39,695 943,826 QUALCOMM Inc. ................................................ 34,034 ---------- 73,729 ---------- PHARMACEUTICALS -- 7.6% 1,044,672 Amgen Inc.!!.................................................. 60,120 1,292,169 Genentech, Inc.!!............................................. 45,239 463,482 IDEC Pharmaceuticals Corporation!!(a)......................... 15,953 ---------- 121,312 ---------- RAILROADS, TRUCKING AND SHIPPING -- 2.9% 821,746 FedEx Corporation............................................. 45,254 ---------- SOFTWARE -- 6.7% 816,420 Electronic Arts Inc.!!........................................ 47,875 497,054 Intuit Inc.!!................................................. 18,490 1,644,476 Microsoft Corporation......................................... 39,813 ---------- 106,178 ---------- SPECIALTY STORES -- 7.3% 1,179,664 Lowe's Companies, Inc. ....................................... 48,154 2,703,705 Tiffany & Company............................................. 67,593 ---------- 115,747 ---------- TELECOMMUNICATIONS SERVICES -- 3.6% 4,281,686 Nextel Communications, Inc., Class A!!........................ 57,332 ---------- TOTAL COMMON STOCKS (Cost $1,504,594)........................................... 1,557,772 ---------- PREFERRED STOCKS -- 0.8% AUTOMOTIVE -- 0.8% (Cost $15,478) 43,339 Porsche AG.................................................... 12,200 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 202 NATIONS MASTER INVESTMENT TRUST Nations Marsico Focused Equities Master Portfolio STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 2003
PRINCIPAL AMOUNT VALUE (000) (000) - ----------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 2.4% FEDERAL HOME LOAN BANK (FHLB) -- 2.4% (Cost $37,400) $ 37,400 1.140%*** 04/01/03............................................ $ 37,400 ---------- SHARES (000) - ---------- INVESTMENT COMPANIES -- 3.1% (Cost $49,931) 49,931 Nations Cash Reserves, Capital Class Shares#.................. 49,931 ---------- TOTAL INVESTMENTS (Cost $1,607,403*)................................ 104.6% 1,657,303 ---------- OTHER ASSETS AND LIABILITIES (NET).................. (4.6)% Cash.......................................................... $ 1 Receivable for investment securities sold..................... 37 Dividends receivable.......................................... 275 Collateral on securities loaned............................... (49,874) Investment advisory fee payable............................... (989) Administration fee payable.................................... (132) Payable for investment securities purchased................... (22,816) Accrued Trustees' fees and expenses........................... (28) Accrued expenses and other liabilities........................ (62) ---------- TOTAL OTHER ASSETS AND LIABILITIES (NET)...................... (73,588) ---------- NET ASSETS.......................................... 100.0% $1,583,715 ==========
- --------------- * Federal income tax information: Net unrealized appreciation of $43,128 on investment securities was comprised of gross appreciation of $117,019 and depreciation of $73,891 for federal income tax purposes. At March 31, 2003, the aggregate cost for federal income tax purposes was $1,614,175. *** Zero coupon security. The rate shown reflects the yield to maturity at March 31, 2003. !!Non-income producing security. # Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (see Note 6). The portion that represents cash collateral is $49,874. (a) All or portion of security was on loan at March 31, 2003. The aggregate cost and market value of securities on loan at March 31, 2003 is $65,420 and $46,767, respectively. SEE NOTES TO FINANCIAL STATEMENTS. 203 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF OPERATIONS For the period ended March 31, 2003
STRATEGIC FOCUSED GROWTH GROWTH EQUITIES MASTER MASTER MASTER PORTFOLIO PORTFOLIO(A) PORTFOLIO ---------------------------------------------------- (IN THOUSANDS) INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $109, $65 and $441, respectively)....................................... $ 3,621 $ 27,288 $ 11,552 Dividend income from affiliated funds....................... 2 526 1 Interest.................................................... 612 50 782 Securities lending.......................................... 74 41 262 -------------- -------------- -------------- Total investment income................................. 4,309 27,905 12,597 -------------- -------------- -------------- EXPENSES: Investment advisory fee..................................... 3,935 10,894 12,128 Administration fee.......................................... 525 838 1,617 Custodian fees.............................................. 49 114 139 Legal and audit fees........................................ 32 38 37 Trustees' fees and expenses................................. 16 14 16 Interest expense............................................ --* 6 --* Other....................................................... 8 11 9 -------------- -------------- -------------- Total expenses.............................................. 4,565 11,915 13,946 Fees reduced by credits allowed by the custodian............ --* --* --* -------------- -------------- -------------- Net expenses............................................ 4,565 11,915 13,946 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)................................ (256) 15,990 (1,349) -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions..................................... (56,051) (308,371) (144,431) Written options........................................... -- 459 -- Foreign currency transactions............................. (3) -- (62) -------------- -------------- -------------- Net realized gain/(loss) on investments..................... (56,054) (307,912) (144,493) Change in unrealized appreciation/(depreciation) of Securities (Note 7)....................................... (55,989) (66,021) (200,520) -------------- -------------- -------------- Net realized and unrealized gain/(loss) on investments...... (112,043) (373,933) (345,013) -------------- -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ (112,299) $ (357,943) $ (346,362) ============== ============== ==============
- --------------- * Amount represents less than $500. (a)Strategic Growth Master Portfolio commenced operations on May 13, 2002. SEE NOTES TO FINANCIAL STATEMENTS. 204 NATIONS MASTER INVESTMENT TRUST STATEMENTS OF CHANGES IN NET ASSETS
STRATEGIC GROWTH MASTER GROWTH PORTFOLIO FOCUSED EQUITIES MASTER PORTFOLIO -------------- MASTER PORTFOLIO --------------------------------- PERIOD --------------------------------- YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED 3/31/03 3/31/02 3/31/03(A) 3/31/03 3/31/02 ------------------------------------------------------------------------------------------ (IN THOUSANDS) Net investment income (loss)........ $ (256) $ (626) $ 15,990 $ (1,349) $ (1,429) Net realized gain/(loss) on investments....................... (56,054) (79,466) (307,912) (144,493) (260,711) Net change in unrealized appreciation/ (depreciation) of investments....................... (55,989) 77,647 (66,021) (200,520) 314,550 -------------- -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations........................ (112,299) (2,445) (357,943) (346,362) 52,410 Contributions....................... 355,744 185,042 2,787,500 671,900 389,119 Withdrawals......................... (179,554) (186,810) (724,556) (489,374) (506,240) -------------- -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets............................ 63,891 (4,213) 1,705,001 (163,836) (64,711) NET ASSETS: Beginning of period................. 525,837 530,050 -- 1,747,551 1,812,262 -------------- -------------- -------------- -------------- -------------- End of period....................... $ 589,728 $ 525,837 $ 1,705,001 $ 1,583,715 $ 1,747,551 ============== ============== ============== ============== ==============
- --------------- (a)Strategic Growth Master Portfolio commenced operations on May 13, 2002. SEE NOTES TO FINANCIAL STATEMENTS. 205 NATIONS MASTER INVESTMENT TRUST FINANCIAL HIGHLIGHTS
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF NET RATIO OF OPERATING INVESTMENT OPERATING EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES TO TOTAL AVERAGE NET TO AVERAGE TURNOVER AVERAGE RETURN ASSETS NET ASSETS RATE NET ASSETS --------------------------------------------------------------------------- GROWTH MASTER PORTFOLIO: Year ended 3/31/2003........................ (18.90)% 0.87%(d)(e) (0.05)% 107% 0.87%(d)(e) Year ended 3/31/2002........................ (0.53) 0.87(d)(e) (0.13) 114 0.87(d)(e) Year ended 3/31/2001........................ --@ 0.86(d) 0.20 113 0.86(d) Period ended 3/31/2000(a)................... --@ 0.86+(d) (0.04)+ 60 0.86+(d) STRATEGIC GROWTH MASTER PORTFOLIO: Period ended 3/31/2003(f)................... (22.08)% 0.71%+(d)(e) 0.96%+ 77% 0.71%+(d)(e) FOCUSED EQUITIES MASTER PORTFOLIO: Year ended 3/31/2003........................ (19.02)% 0.86%(d)(e) (0.08)% 115% 0.86%(d)(e) Year ended 3/31/2002........................ 3.50 0.86(d)(e) (0.08) 129 0.86(d)(e) Year ended 3/31/2001........................ --@ 0.86(d)(e) 0.17 134 0.86(d) Period ended 3/31/2000(c)................... --@ 0.84+(d) (0.07)+ 84 0.84+(d)
- --------------- + Annualized (a)Growth Master Portfolio commenced operations on October 8, 1999. (c)Focused Equities Master Portfolio commenced operations on October 8, 1999. (d)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%. (e)The effect of interest expense on the operating expense ratio was less than 0.01%. (f) Strategic Growth Master Portfolio commenced operations on May 13, 2002. @ Total return not required for periods indicated. SEE NOTES TO FINANCIAL STATEMENTS. 206 NATIONS FUNDS 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, 2003, the Master Trust offered eleven separate portfolios. These financial statements pertain only to Nations Marsico Growth Master Portfolio (formerly Nations Marsico Growth & Income Master Portfolio), Nations Strategic Growth Master Portfolio and Nations Marsico Focused Equities 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. Certain Funds invest in securities of foreign issuers. There are certain risks involved in investing in foreign securities that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign government laws or restrictions. The following investors were invested in the Master Portfolios at March 31, 2003: Growth Master Portfolio: Nations Marsico Growth Fund............................... 98.0% Nations Marsico Growth Fund (Offshore).................... 1.3% Banc of America Capital Management Funds I -- Growth Fund.................................................... 0.7% Strategic Growth Master Portfolio: Nations Strategic Growth Fund............................. 98.7% Nations Strategic Growth Fund (Offshore).................. 1.3% Focused Equities Master Portfolio: Nations Marsico Focused Equities Fund..................... 98.6% Nations Marsico Focused Equities Fund (Offshore).......... 1.2% Banc of America Capital Management Funds I -- Focused Equities Fund........................................... 0.2%
1. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Master Portfolios in the preparation of their financial statements. Securities valuation: Securities, 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 traded only over-the-counter are valued at the last sale price, or if no sale occurred on such day, at the mean of the current bid and asked prices. Certain securities may be valued using broker quotations or on the basis of prices provided by pricing services. 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 as determined by the applicable Nations Funds' prospectus. Futures contracts: All Master Portfolios may invest in futures contracts for the purposes of hedging against changes in values of the Portfolios' 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 207 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) of the contract may not correlate with a change in the value of the underlying securities, or that the counterparty to a contract may default on its obligation to perform. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of net assets. Options: The Funds may purchase and write call and put options on securities, futures and swap contracts ("swaptions"). 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 covered puts and 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. 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. 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 (including dividend income from affiliated funds) is recorded on ex-dividend date. Each investor in the Portfolio is treated as an owner of its proportionate share of the net assets, income, expenses, realized and unrealized gains and losses of the Portfolio. 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 relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to a Master Portfolio are charged to such Portfolio. 208 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 Capital Management, LLC ("BACAP"), 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 BACAP provides investment advisory services to the Master Portfolios. Prior to January 1, 2003, the Master Trust had an investment advisory agreement with Banc of America Advisors, LLC ("BA Advisors"). All fees previously paid to BA Advisors for investment advisory services are now paid to BACAP and are unchanged. Under the terms of the Investment Advisory Agreement that BACAP assumed from BA Advisors, BACAP 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 ------ Growth Master Portfolio..................................... 0.75% Strategic Growth Master Portfolio........................... 0.65% Focused Equities Master Portfolio........................... 0.75%
The Master Trust has, on behalf of the Growth and Focused Equities Master Portfolios, entered into a sub-advisory agreement with BACAP and Marsico Capital Management, LLC ("Marsico"), a wholly-owned subsidiary of Bank of America, pursuant to which Marsico is entitled to receive a sub-advisory fee from BACAP at the maximum annual rate of 0.45% of each Master Portfolio's average daily net assets. Prior to January 1, 2003, the Master Trust, on behalf of the Strategic Growth Master Portfolio, entered into a sub-advisory agreement with BACAP, pursuant to which BACAP was entitled to receive a sub-advisory fee at the maximum annual rate of 0.25% of the Master Portfolio's average daily net assets. BACAP Distributors, LLC ("BACAP Distributors") (formerly BA Advisors) serves as sole administrator of the Master Trust. Prior to January 1, 2003, Stephens Inc. ("Stephens") and BA Advisors served as co-administrators of the Master Trust. The fees paid to BACAP Distributors as sole administrator are the aggregate fees previously paid to BA Advisors and Stephens as co-administrators. Under the administration agreement, BACAP Distributors is currently entitled to receive a fee, computed daily and paid monthly, at the maximum annual rate of 0.05% of the Strategic Growth Master Portfolio's average daily net assets and 0.10% of the Growth and Focused Equities Master Portfolios' average daily net assets. The Bank of New York ("BNY") serves as sub-administrator of the Master Trust pursuant to an agreement with BACAP Distributors. For the period from January 1, 2003 to March 31, 2003, BACAP Distributors earned 0.10% (annualized) of the Growth and Focused Equities Master Portfolios' average daily net assets and 0.05% (annualized) of the Strategic Growth Master Portfolio's average daily net assets for its administration services. For the period April 1, 2002 through December 31, 2002, BA Advisors earned 0.10% (annualized) of the Growth and Focused Equities Master Portfolios' average daily net assets and 0.05% (annualized) of the Strategic Growth Master Portfolio's average daily net assets for its administration services. BNY serves as the custodian of the Master Trust's assets. For the year ended March 31, 2003, expenses of the Master Portfolios were reduced by $794 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. For the year ended March 31, 2003, Growth Master Portfolio, Strategic Growth Master Portfolio and Focused Equities Master Portfolio paid commissions of $32,661, $696,208 and $140,109, respectively, to certain affiliates of BACAP in connection with the execution of various portfolio transactions. No officer, director or employee of Bank of America 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 a non-qualified deferred compensation plan which may be terminated at any time. All benefits provided under this plan are unfunded and any payments to plan participants are paid solely out of the Master Portfolios' assets. Income earned on the plan participant's deferral account is based on the rate 209 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 Reserves, a portfolio of Nations Funds Trust, another registered investment company in the Nations Funds family. The expense for the deferred compensation plan is included in "Trustees' fees and expenses" in the Statements of operations. The liability for the deferred compensation plan is included in "Accrued Trustees' fees and expenses" in the Statement of net assets. The Master Trust previously offered a retirement plan to the Trustees, which was terminated on January 1, 2002. 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 Nations Cash Reserves, a portfolio of Nations Funds Trust, pursuant to an exemptive order received from the Securities and Exchange Commission. The income earned by each Master Portfolio from such investments is included in its Statement of operations as "Dividend income from affiliated funds". 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government securities and short-term investments, for the year ended March 31, 2003 were as follows:
PURCHASES SALES (000) (000) ----------------------- Growth Master Portfolio..................................... $ 648,624 $ 521,500 Strategic Growth Master Portfolio........................... 1,392,279 1,682,415 Focused Equities Master Portfolio........................... 1,983,637 1,797,046
4. WRITTEN OPTIONS Written options for the Strategic Growth Master Portfolio for the period ended March 31, 2003 aggregated the following:
PREMIUM NUMBER OF RECEIVED SUMMARY OF WRITTEN OPTIONS CONTRACTS (000) - ----------------------------------------------------------------------------------- Outstanding at March 31, 2002............................... -- $ -- Contracts opened............................................ 14,602 1,974 Contracts closed............................................ (10,102) (1,515) Options expired............................................. (4,500) (459) ------- ------- Outstanding at March 31, 2003............................... -- $ -- ======= =======
5. LINE 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"). The Agreement is renewable on an annual basis. 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. 210 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Master Portfolios had no borrowings outstanding at March 31, 2003. During the year ended March 31, 2003, borrowings by the Master Portfolios under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE OUTSTANDING* INTEREST PORTFOLIO (000) RATE - ------------------------------------------------------------------------------------- Growth Master Portfolio..................................... $ 14 1.66% Strategic Growth Master Portfolio........................... 1,577 1.65 Focused Equities Master Portfolio........................... 6 2.10
- --------------- *The average amount outstanding was calculated based on daily balances in the period. 6. SECURITIES LENDING Under an agreement with BNY, the Master Portfolios can lend their securities to approved brokers, dealers and other financial institutions. Loans are collateralized by cash, in an amount at least equal to the market value of the securities loaned. The cash collateral received is invested in Nations Cash Reserves. A portion of the income generated by the investment of the collateral, net of any rebates paid by BNY to borrowers, is remitted to BNY as lending agent, and the remainder is paid to the Master Portfolios. Generally, in the event of counterparty default, the Master Portfolio has the right to use the collateral to offset losses incurred. There would be a potential loss to the Master Portfolio in the event the Master Portfolio is delayed or prevented from exercising its right to dispose of the collateral. The Master Portfolio bears the risk of loss with respect to the investment of collateral. At March 31, 2003, the following Master Portfolios had securities on loan:
MARKET VALUE OF MARKET VALUE LOANED SECURITIES OF COLLATERAL (000) (000) --------------------------------- Growth Master Portfolio..................................... $22,298 $23,872 Strategic Growth Master Portfolio........................... 4,662 4,899 Focused Equities Master Portfolio........................... 46,767 49,874
7. REORGANIZATIONS FUND REORGANIZATION On May 10, 2002, the assets and liabilities of Nations Blue Chip Fund (the "Fund"), an investor in Nations Blue Chip Master Portfolio, were reorganized into Nations Strategic Growth Fund (the "Acquiring Fund"). Because the assets of Nations Blue Chip Fund were held at the master portfolio level, this transfer was accomplished through a reorganization of Nations Blue Chip Master Portfolio into Nations Strategic Growth Master Portfolio. Immediately afterward, the assets of the Acquiring Fund were contributed to Nations Strategic Growth Master Portfolio in exchange for interests in that Master Portfolio. Each transfer was in exchange for shares of equal value of the designated classes of the Acquiring Fund. The reorganization was tax-free whereby the Acquiring Fund assumed the market value and cost basis of the portfolio positions in Nations Blue Chip Master Portfolio. 211 NATIONS FUNDS 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 Marsico Growth Master Portfolio, Nations Strategic Growth Master Portfolio and Nations Marsico Focused Equities Master Portfolio (constituting part of Nations Master Investment Trust, hereafter referred to as the "Portfolios") at March 31, 2003, 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York May 16, 2003 212 NATIONS FUNDS FUND GOVERNANCE (UNAUDITED) The Board of Trustees (the "Board") of Nations Funds Trust (the "Trust") oversees the Trust's series ("Funds") to ensure that they are managed and operated in the interests of shareholders. A majority of the trustees ("Trustees") 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 Trustees have made in certain of the funds as private individuals. The Trustees bring distinguished backgrounds in government, business, academia and public service to their task of working with Trust officers ("Officers") to establish the policies and oversee the activities of the Funds. Although all Trustees are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Trust, the independent Trustees have particular responsibilities for assuring that the Trust's Funds are managed in the best interests of shareholders. The following table provides basic information about the Trustees and certain Officers of the Trust. The mailing address of each Trustee is c/o Nations Funds, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina 28255. Each Trustee and Officer serves an indefinite term.
TERM OF OFFICE NUMBER OF FUNDS IN POSITION HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING FUND COMPLEX NAME AND AGE WITH THE TRUST TIME SERVED THE PAST FIVE YEARS OVERSEEN BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES William P. Carmichael Trustee Indefinite term: Senior Managing Director of The 81 Age: 59 Trustee since Succession Fund (a company 1999 formed to advise and buy family owned companies) from 1998 through April 2001. William H. Grigg Trustee Indefinite term; Retired; Chairman Emeritus 85 Age: 70 Trustee since since July 1997, Chairman and 1991 Chief Executive Officer through July 1997 -- Duke Power Co. Thomas F. Keller Trustee Indefinite term; R.J. Reynolds Industries 85 Age: 71 Trustee since Professor of Business 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. Trustee Indefinite term; President and Chief Executive 81 Age: 67 Trustee since Officer -- USO from May 1996 to 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 Trustee Indefinite term; Retired; President, Association 81 Age: 74 Trustee since of American Universities 1999 through June 1998 A. Max Walker Trustee and Indefinite term; Independent Financial 85 Age: 80 Chairman of Trustee since Consultant the Board inception Charles B. Walker Trustee Indefinite term; Vice Chairman and Chief 81 Age: 64 Trustee since Financial Officer -- Albemarle 1985 Corporation (chemical manufacturing) NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------- ----------------------------------- INDEPENDENT TRUSTEES William P. Carmichael Director -- Cobra Electronics Age: 59 Corporation (electronic equipment manufacturer), Opta Food Ingredients, Inc. (food ingredients manufacturer) and Golden Rule Insurance Company since May, 1994; Trustee, Nations Funds Family (2 other registered investment companies). William H. Grigg Director, The Shaw Group, Inc.; and Age: 70 Director and Vice Chairman, Aegis Insurance Services, Ltd. (a mutual fund insurance company in Bermuda); Trustee, Nations Funds Family (6 other registered investment companies) Thomas F. Keller Director, Wendy's International, Age: 71 Inc. (restaurant operating and franchising); Director, Dimon, Inc. (tobacco); and Director, Biogen, Inc. (pharmaceutical biotechnology); Trustee, Nations Funds Family (6 other registered investment companies) Carl E. Mundy, Jr. Director -- Schering-Plough Age: 67 (pharmaceuticals and health care products); General Dynamics Corporation (defense systems); Trustee, Nations Funds Family (2 other registered investment companies) Dr. Cornelius J. Pings Director, Farmers Group, Inc. Age: 74 (insurance company); Trustee, Nations Funds Family (2 other registered investment companies) A. Max Walker Chairman and Trustee, Nations Funds Age: 80 Family (6 other registered investment companies) Charles B. Walker Director -- Ethyl Corporation Age: 64 (chemical manufacturing); Trustee, Nations Funds Family (2 other registered investment companies)
213 NATIONS FUNDS FUND GOVERNANCE (UNAUDITED)
TERM OF OFFICE NUMBER OF FUNDS IN POSITION HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING FUND COMPLEX NAME AND AGE WITH THE TRUST TIME SERVED THE PAST FIVE YEARS OVERSEEN BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES(1) Edmund L. Benson, III Trustee Indefinite term; Director, President and 81 Age: 65 Trustee since Treasurer, Saunders & Benson, 1985 Inc. (insurance) Robert H. Gordon Trustee and Indefinite term; President of the Trust, Nations 81 Age: 41 Vice Chairman Trustee since Master Investment Trust of the Board 2002 ("NMIT") and Nations Separate Account Trust ("NSAT") since Oct. 2002; President of Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund and Hatteras Income Securities, Inc. since March 1998. President and Director, Banc of America Capital Management LLC ("BACAP") (or its predecessors) since February 1998; President, BACAP since March 2002 and Co-Chairman of the Board since January 2000; Senior Vice- President, BACAP (or its predecessors) 1995-February 1998; Senior Vice President, Bank of America since 1993. James B. Sommers Trustee Indefinite term; Retired 81 Age: 63 Trustee since 1997 Thomas S. Word, Jr. Trustee Indefinite term; Partner -- McGuire, Woods, 81 Age: 64 Trustee since Battle & Boothe LLP (law firm) 1985 OFFICERS Robert H. Gordon Trustee and Indefinite term; President of the Trust, Nations N/A Age: 41 Vice Chairman Trustee since Master Investment Trust of the Board 2002 ("NMIT") and Nations Separate Account Trust ("NSAT") since Oct. 2002; President of Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund and Hatteras Income Securities, Inc. since March 1998. President and Director, Banc of America Capital Management LLC ("BACAP") (or its predecessors) since February 1998; President, BACAP since March 2002 and Co-Chairman of the Board since January 2000; Senior Vice- President, BACAP (or its predecessors) 1995-February 1998; Senior Vice President, Bank of America since 1993. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------- ----------------------------------- INTERESTED TRUSTEES(1) Edmund L. Benson, III Director, Insurance Managers Inc. Age: 65 (insurance); Trustee, Nations Funds Family (2 other registered investment companies) Robert H. Gordon Director, BACAP; Co-Chairman of the Age: 41 Board, BACAP; and Trustee, Nations Fund Family (2 other registered investment companies) James B. Sommers Chairman -- Central Piedmont Age: 63 Community College Foundation; Director, Board of Commissioners, Charlotte/Mecklenberg Hospital Authority; Trustee, Central Piedmont Community College, Mint Museum of Art; Trustee, Nations Funds Family (2 other registered investment companies) Thomas S. Word, Jr. Director -- Vaughan-Bassett Age: 64 Furniture Company, Inc. (furniture); Trustee, Nations Funds Family (2 other registered investment companies) OFFICERS Robert H. Gordon N/A Age: 41
214 NATIONS FUNDS FUND GOVERNANCE (UNAUDITED)
TERM OF OFFICE NUMBER OF FUNDS IN POSITION HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) DURING FUND COMPLEX NAME AND AGE WITH THE TRUST TIME SERVED THE PAST FIVE YEARS OVERSEEN BY TRUSTEE - ------------------------------------------------------------------------------------------------------------- Edward D. Bedard Chief Indefinite term; Chief Financial Officer of the N/A Age: 44 Financial Chief Financial Trust, NMIT and NSAT since Jan. Officer Officer since 2003; Treasurer of the Trust, 2003 NMIT and NSAT since Oct. 2002; Chief Financial Officer of Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. Nations Balanced Target Maturity Fund and Hatteras Income Securities, Inc. since March 1998. Director, BACAP (or its predecessors) since 1997; Senior Vice President and Chief Operating Officer, BACAP since 1996; and Chief Administrative Officer and Treasurer, BACAP since January 2000. Gerald Murphy Treasurer Indefinite term; Treasurer of the Trust, NMIT N/A Age: 42 Treasurer since and NSAT since Jan. 2003; 2003 Treasurer of Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund and Hatteras Income Securities, Inc. since 1999; Senior Vice President, BACAP (or its predecessors) since 1998; Vice President, Citibank 1997-December 1998. Robert B. Carroll Secretary Indefinite term; Secretary of the Trust, NMIT N/A Age: 43 Secretary since and NSAT since Jan. 2003; 2003 Secretary of Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund and Hatteras Income Securities, Inc. since 1997; Associate General Counsel, Bank of America Corporation since 1999; Assistant General Counsel, Bank of America Corporation 1996-1999. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - --------------------- ----------------------------------- Edward D. Bedard N/A Age: 44 Gerald Murphy N/A Age: 42 Robert B. Carroll N/A Age: 43
- --------------- (1) Basis of Interestedness. Mr. Benson's step-son is an employee of Bank of America, the parent of BACAP. Mr. Sommers owns securities of Bank of America Corporation, the parent holding company of BACAP. Mr. Word is affiliated with a law firm which provides services to Bank of America and certain of its affiliates. 215 [This page intentionally left blank] [This page intentionally left blank] THE NATIONS FUNDS FAMILY OF FUNDS THE MUTUAL FUND FAMILY OF BANC OF AMERICA CAPITAL MANAGEMENT Within each category, the funds are listed from aggressive to conservative. Lower risk/reward potential MONEY MARKET FUNDS Nations Cash Reserves Nations Money Market Reserves Nations Government Reserves Nations Treasury Reserves Nations Tax-Exempt Reserves 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) Nations Intermediate Municipal Bond Fund Nations State-Specific Intermediate Municipal Bond Funds (CA, FL, GA, KS, MD, NC, SC, TN, TX, VA) Nations Short-Term Municipal Income Fund EQUITY FUNDS GROWTH FUNDS Nations Small Company Fund Nations Marsico 21st Century Fund Nations MidCap Growth Fund Nations Marsico Focused Equities Fund Nations Marsico Growth Fund Nations Capital Growth Fund Nations Strategic Growth Fund BLEND FUNDS Nations Asset Allocation Fund VALUE FUNDS Nations SmallCap Value Fund Nations MidCap Value Fund Nations Value Fund Nations LargeCap Value Fund (1) Nations Classic Value Fund (2) Higher reward/risk potential INTERNATIONAL/GLOBAL FUNDS Nations Marsico International Opportunities Fund Nations International Equity Fund Nations International Value Fund (3) Nations Global Value Fund (1) The Board of Trustees of Nations Funds Trust approved a proposal to reorganize the fund into Nations Value Fund. Please see the prospectus supplement dated March 11, 2003 for details. (2) The Board of Trustees of Nations Funds Trust approved a proposal to reorganize the fund into Nations Value Fund. Shareholder approval is required for this reorganization at a special shareholder meeting that is scheduled for July 11, 2003. Please see the prospectus supplement dated March 11, 2003 for details. (3) As of June 3, 2002, Nations International Value Fund was closed to new or additional investments except in limited circumstances. Please refer to the fund's most recent prospectus for more information. 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 SPECIALTY FUNDS Nations Convertible Securities Fund STKAR (3/03) -----END PRIVACY-ENHANCED MESSAGE-----